Published: Wed, March 07, 2018
Markets | By Noel Gibbs

China's Military Spending Surge Worries Neighbors

China's Military Spending Surge Worries Neighbors

China unveiled its largest rise in defense spending in three years on Monday, setting an 8.1 percent growth target compared to 2017, fuelling the country's ambitious military modernisation program amid rising Chinese security concerns.

The 2018 defence budget will be 1.11 trillion yuan ($175 billion), state-run Xinhua news agency quoted the official documents submitted to the National People's Congress (NPC).

"Taking the two budgets into account, we estimate that the total budget deficit as a proportion of GDP will marginally increase this year to 4.1 percent versus 4.0 percent in 2017", it said.

Mr. Li underscored that China had fulfilled its earlier goal of cutting troop numbers by 3,00,000, as part of a road map to build a modern technology driven military force.

New funds are going mainly to raise living standards for service members, increase training and prepare for potential crises on the Korean Peninsula, the border with India or in the South China Sea or Taiwan Strait, Song said.

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During the parliamentary session, the country's Constitution is likely to be revised to effectively enable Xi to seek a third term in 2022.

Given China's economic fundamentals and capacity for job creation, the GDP growth of around 6.5 per cent will enable China to achieve relatively full employment, Li said in his report.

The country is also facing pressure to prevent a credit crisis, with local government debt growing 7.5% past year to $2.56 trillion, according to figures in January.

Wang Qishan 王岐山, the 69-year-old close ally of Xi Jinping who unexpectedly obeyed retirement norms last fall (a head fake, in effect, for Xi setting himself up to do the opposite this year), was featured heavily on state television during the Work Report.

President Xi Jinping has been intensifying his push to curb pollution, poverty and debt risk at a time when the world's second-largest economy is on a long-term growth slowdown.

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Premier Li Keqiang has an "impossible challenge" if he wants to slash China's budget deficit target, deleverage the economy, and cut taxes, according to Pantheon Macroeconomics Ltd.

Trump's defense budget request for fiscal year 2019, released Monday, asked for $686.1 billion in military spending, up 12.1 percent from the previous fiscal year.

"The government will have to continue with the same fiscal support as a year ago", but also spend more and increase off-balance sheet borrowing, she said.

He said Japan will monitor China's defense policies closely while coordinating with other countries concerned in urging it to boost transparency and abide by worldwide codes of conduct.

While many China watchers still believe the GDP numbers are much weaker than the official figures suggest, the country is a key driver of global growth.

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In a further display of sophistication, China said in early February that it had successfully tested a mid-course anti-missile defense system, deploying similar technology to that used to destroy a defunct Chinese satellite in 2007.

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