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China manages and uses its defense funds,
ensures the procurement and supply of its military equipment and materials,
and protects its defense assets in conformity with legal provisions and
in accordance with the needs of national defense building and the requirements
of the socialist market economy.
Defense Expenditure
Pursuant to The National Defense Law, the Chinese government follows
the guiding principle of the coordinated development of national defense
and economy. Based on the economic development and revenue growth, it
has continued to increase its defense expenditure moderately so as to
keep up with the changes in the demands of national defense. China's GDP
in 2002 and 2003 was 10,517.234 billion yuan and 11,725.194 billion yuan
respectively. Its defense expenditure in 2002 and 2003 was 170.778 billion
yuan and 190.787 billion yuan respectively. Its defense budget for 2004
is 211.701 billion yuan.
The increased part of China's defense expenditure has primarily been
used for the following purposes: (1) Increase of the salaries and allowances
of the military personnel. It is necessary to raise the salaries and allowances
of the military personnel in step with the socio-economic development
and the per-capita income rise of urban and rural residents. In the light
of the unified wage adjustment policy for the personnel of state organs,
China has raised the salary rates of officers, civil cadres and non-commissioned
officers; the allowances of conscripts and cadets under the supply system;
and the pensions of the retired. (2) Further improvement of the social
insurance system for servicemen. In December 2003, the Provisional Measures
on Social Insurance for Unemployed Accompanying Spouses of PLA Servicemen
was formulated, to guarantee their basic living standard and provide them
with social insurance subsidies. (3) Support for the structural and organizational
reform of the military. China once again downsizes its military by 200,000,
and has to increase the expenses on the resettlement of the discharged
surplus personnel accordingly. (4) Increased investment in the development
of high-caliber talents in the military. The PLA has established and refined
an incentive mechanism for talented people, improved conditions in military
educational institutions, and entrusted non-military colleges and universities
with the education of qualified personnel, so as to ensure the achievement
of the PLA's Strategic Project for Talented People. (5) Moderate increase
of equipment expenses. This is aimed at promoting the leapfrog development
of weaponry and equipment, and stepping up preparations for military struggle.
In the past two years, the percentages of China's annual defense expenditure
to its GDP and to the state financial expenditure in the same period have
remained basically stable. For most of the years since the 1990s, the
growth rate of China's defense expenditure has been lower than that of
the state financial expenditure.
The absolute amount of China's defense expenditure has long been lower
than those of some major Western countries, and the proportion to the
GDP and state financial expenditure has also been relatively low. In 2003,
China's defense expenditure amounted to only 5.69% of that of the United
States, 56.78% of that of Japan, 37.07% of that of the United Kingdom,
and 75.94% of that of France.
The management of China's defense funds has become more transparent and
standardized, and its cost-effectiveness has been steadily improving.
The budgeting reform for defense expenditure has been further deepened,
and a new defense budgeting system established, which introduces the zero-base
budgeting method and united budgeting system. The budget adjustment and
control function has been strengthened, and the input direction and amount
of defense funds optimized. The tendering and bidding system for the procurement
of defense materials, projects and services has been improved, and the
scope of centralized payment extended.
Table 1: Percentage of China's Annual Defense Expenditure in Its GDP (1997-2003)
Year |
1997 |
1998 |
1999 |
2000 |
2001 |
2002 |
2003 |
Percentage |
1.09 |
1.19 |
1.31 |
1.35 |
1.48 |
1.62 |
1.63 |
Chart 1: Comparison Between the Growth Rate of China's Defense Expenditure
and That of Its State Financial Expenditure (1995-2003)
Chart 2: Comparison of the Defense Expenditures of Some Countries in 2003
and 2004 (unit: billion US dollars)
Note 1: Statistics in the charts are sourced from the national defense
reports, financial reports and other government reports published by the
said countries.
Note 2: The average exchange rate in 2003 was US$ 1.0 ˜ RMB 8.2770.
On Nov. 20, 2004, US$ 1.0 ˜ RMB 8.2765.
Table 2: The Percentages of the Defense Expenditures in the GDP and Financial
Expenditures of Some Countries in 2003
Country |
USA |
Russia |
UK |
France |
Japan |
China |
Defense expend. as % of GD |
3.60 |
2.64 |
3.11 |
2.22 |
0.99 |
1.63 |
Defense expend. as % of financial expenditure |
16.20 |
14.69 |
8.10 |
11.00 |
6.06 |
7.74 |
Chart 3: China's Defense Expenditure, 2003 by Proportion
(unit: RMB billion yuan)
Military Order Placement and Procurement
China practices a state ordering system to guarantee the procurement
and provision of weapons, equipment and military materials. The General
Armaments Department is responsible for the procurement of weaponry and
equipment while the General Logistics Department is in charge of the procurement
of military materials.
In October 2002, the CMC promulgated the Regulations on the Armaments
Procurement of the PLA. In December 2003, the General Armaments Department
issued relevant provisions, including the Provisions on the Management
of Armaments Procurement Plans, the Provisions on the Management of Armaments
Procurement Contracts, the Provisions on the Management of Armaments Procurement
Modes and Procedures, the Provisions on the Management of the Examination
of the Qualifications of Armaments Manufacturing Units and the Provisions
on the Management of the Centralized Procurement of Armaments of the Same
Kind. All these regulations and provisions constitute a new statutory
system for the procurement of armaments. In recent years, the procurement
of armaments has followed the basic principles of the government procurement
system, gradually pulled down the sectional barriers in military industry,
introduced the mechanism of competition and supported state-owned enterprises
outside the military industry and private high-tech enterprises to enter
the market of military products. The procurement mode has been in an accelerating
transition from procurement at designated enterprises to multiple ways
of procurement such as open bidding, invited bidding, competitive bargaining
and inquiry procurement. This has raised the overall cost-effectiveness
of armaments procurement and ensured the procurement at reasonable prices
of weapons and equipment advanced in performance, superior in quality
and complete as a set. The procurement of military computers and network
devices, vehicle chassis, generating sets, shelters, and other types of
general-purpose equipment has changed from separate to centralized procurement
at the PLA level.
Since February 2002, in accordance with the Overall Plan for Deepening
the Reform in the Procurement of Military Materials, Projects and Services
approved for distribution by the CMC, the General Logistics Department
has promulgated in succession the Provisions on the Management of the
Procurement of Military Materials, the Provisions on the Management of
Inviting Tenders for Military Materials, the Provisions on the Management
of Procurement Contracts for Military Materials, the Provisions on the
Management of the Price Review Work of Procurement Agencies of Military
Materials, the Provisional Measures for the Management of Centralized
Procurement Payment of Military Materials, Projects and Services, and
the Provisions on Auditing the Procurement of Military Materials, Projects
and Services. Following the basic principles of government procurement
and taking into consideration the actual conditions of the building and
management of the armed forces, the PLA has adopted in an all-round way
a mode of procurement of military materials which focuses mainly on hierarchical
management and centralized procurement. This mode has improved the operational
mechanism of proper division of labor and mutual restraint among the departments
in charge of funds, planning and procurement, and raised the level of
standardization, specialization and informationalization in the procurement
of materials as well as the cost-effectiveness resulting from large-scale
procurement. Now procured in a centralized way are more than 1,000 kinds
of materials in 24 categories needed in the development, training, scientific
research and daily life of the armed forces. Procurement items included
in the annual budget are procured through public bidding if their procurement
value exceeds the quota. The quota prescribed by the General Logistics
Department is RMB 500,000 yuan or more.
Protection of Defense Assets
Defense assets are funds, land and other resources which the state has
directly invested in or appropriated for the building of the armed forces,
defense scientific research and production and other aspects of defense
construction. They also include the resultant weaponry and equipment,
installations and facilities, materials and technological achievements
used for defense purposes. The defense assets possessed, used and managed
by the PLA in accordance with the law belong to the PLA's state-owned
assets. The state has promulgated the National Defense Law of the PRC,
the Law of the PRC on Protecting Military Facilities, and the Implementation
Measures for the Law of the PRC on Protecting Military Facilities. The
PLA has formulated more than 30 rules and regulations on the management
of its state-owned assets, such as the Provisions on the Management of
the State-Owned Assets of the PLA. This has put the work of protecting
defense assets on the legal track.
The people's governments and military organs at all levels jointly protect
military facilities and safeguard national defense interests. Under the
leadership of the State Council and the CMC, the General Staff Headquarters
is in charge of the work of protecting military facilities throughout
the country. The headquarters of the military area commands are in charge
of the work of protecting military facilities within their areas of responsibility.
In the areas where there are military facilities, the local governments
at and above the county level and the relevant military organs stationed
there jointly set up military facility protection committees, with their
administrative offices established in the provincial commands (garrison
commands), sub-commands (garrison commands) and the people's armed forces
departments of counties, autonomous counties, cities and municipal districts.
Following the guiding principle of providing categorized protection and
ensuring the safety of key facilities, the state designates military forbidden
zones and military restricted zones as a way to protect military facilities,
and also takes appropriate measures to protect military facilities outside
such zones. Protected by law are works for military operations, airspace
clearance around military airports, military communication and power transmission
lines, military oil and water pipelines, electromagnetic environments
of fixed military radio installations, frontier defense installations
and military survey marks.
Under the General Logistics Department is the Bureau of PLA's State-Owned
Assets Management in charge of the management of the PLA's state-owned
assets. The PLA's state-owned assets are managed under the system of unified
leadership and hierarchical responsibility. The logistics organ at each
level is responsible for management of the state-owned assets at its own
level. In recent years, the PLA has adopted a management method of property
inspection and registration and physical assets valuation and accounting,
and instituted a system of property right registration, assets assessment
and assets reporting, thus effectively standardizing the management of
the PLA's state-owned assets and ensuring their safety, integrity, appropriate
allocation and effective use.
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