China Sends Its Army Money, and a Signal to the U.S.

SHANGHAI -- China announced its biggest military budget increase in 20 years last week, making generals from Washington to Tokyo sit up. Certainly the 17.7 percent jump to $17.2 billion this year is intended to send the message that China is serious about modernizing its 2.5-million-man armed forces in order to give the United States pause if it thinks of operating unchallenged in Asia. But military analysts say the focus for now remains a limited one: Taiwan.

Shen Dingli, a Chinese military expert at Shanghai's Fudan University, described the logic in a way that parallels what Western experts say: "We're increasing our military capability in order to ensure that Taiwan doesn't declare independence. But what China is adding to its arsenal is far from what's necessary to challenge the United States in the Asia-Pacific."

That said, China's increased spending signals a basic shift in how the country perceives itself in the world, a perception that began changing in 1996 after Taiwan's first democratic presidential elections.

For more than a decade before that, China had let its military drift, following Deng Xiaoping's assessment that 20 years of peace would allow the country to pursue economic development unharassed. As a result, the People's Liberation Army suffered years of shrinking budgets in real terms. Even the 10 to 12 percent increases of the early to mid 1990's were cut by inflation.

Then came Taiwan's elections, an indication that the island was moving farther from Beijing's grasp. China fired missiles into the sea off Taiwan's coast to warn the island's government against moves toward outright independence. The United States responded by sending an aircraft carrier through the Taiwan Strait. That infuriated Beijing and humiliated the People's Liberation Army, highlighting its lack of options.

Anxiety over the state of the military increased when Japan passed revised guidelines for defense cooperation with the United States in 1997 and decided to join the United States in co-research of a theater missile defense system that could potentially be used to protect Taiwan. Then President Lee Teng-hui of Taiwan characterized the island as a state equal to China in 1999, and Taiwan elected the independence-minded Chen Shui- bian as Mr. Lee's successor.

After that came the North Atlantic Treaty Organization's bombing campaign in Kosovo, which posed the question in China: "Will the U.S. use its unbridled power to someday intervene in Taiwan, Tibet or Xinjiang?"

NATO's errant bombing of China's embassy in Belgrade only punctuated those concerns, allowing the army to open a debate over the continued validity of Deng Xiaoping's analysis.

Domestic politics, meanwhile, converged to lend the army support. Growing corruption in the military, which had become increasingly involved in commercial pursuits to supplement its meager budget, had raised alarm, and President Jiang Zemin forced it to divest all of its businesses beginning in 1998. He promised to make up the lost revenue through budget increases later on.

The debate dominated the discussion at 1999's annual summer leadership conference at the northern seaside resort of Beidaihe, where the decision to increase military spending was made. A White Paper on China's military a year later reflected the new assessment:

"In view of the fact that hegemonism and power politics still exist and are further developing, and in particular, the basis for the country's peaceful reunification is seriously imperiled, China will have to enhance its capability to defend its sovereignty and security by military means."

For those who had followed this chain of events, the increased budget came as no surprise. The question now is where China will spend the money.

Much of it is expected to finance training exercises, maintenance and force restructuring. There are plans to cut the army's size, but even that will be expensive because demobilized soldiers must be relocated and retrained. China is also expected to spend more on its missile modernization program, thanks to American missile defense initiatives.

Most of the spending, according to Mr. Shen and others, is intended to enhance the country's ability to intimidate Taiwan. "For Taiwan, to deter separatists, we need third-generation fighters, missiles and precision-guided weaponry, amphibious landing equipment, electronic warfare equipment, all of which can be domestically manufactured," said Mr. Shen.

Because China lacks a huge high-tech arms industry, developing new weapons is slow and expensive. "Although R. & D. spending will eventually produce something, given the inefficiencies of the Chinese system this might be one of the least threatening areas for them to spend defense dollars," said Phil Saunders, director of the East Asia Nonproliferation Program at the Monterey Institute of International Studies.

Even then, the money will be thinly spread. In announcing the budget increase, Finance Minister Xiang said much of it would go to boost officer's salaries. Some, too, is earmarked as compensation for revenue lost when the military gave up its businesses.

OF course, the announced budget is only part of China's military spending. Some analysts put the total at double or even quadruple the budgeted amount, including money used to buy arms abroad, which are paid for from a separate, undisclosed hard-currency fund. But even at a multiple of three, China's defense spending is far outdistanced by that of the United States.

"If the concern is that China will challenge U.S. interests, that is a long, long way off," said Evan Medeiros, a senior research associate at the Monterey Institute's nonproliferation program. "But if the concern is that they will make the U.S. more cautious in their operations in the Asia-Pacific region, that's more realistic."

David Finkelstein, deputy director of CNA Corp.'s Center for Strategic Studies, put it another way: "They want to be the regional hegemon, so that no Asian- Pacific nation can make serious decisions without taking China into account."