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China′s Defence Finance: Content, Process and Administration

Published online by Cambridge University Press:  12 February 2009

Arthur S. Ding
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Extract

Defence budgets have many components, and the way the various items in the budget are categorized differs from country to country.... The main reason for this is not the way the budget is drawn up, it is due to profound social, economic and political factors.

Type
The Defence Economy
Information
The China Quarterly , Volume 146 , June 1996 , pp. 428 - 442
Copyright
Copyright © The China Quarterly 1996

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References

1. Zhongguo junshi baike quanshu: guofang jinjixue fence (China Military Encyclopedia: Volume on Defence Economics)(hereafter Volume on Defence Economics)(Beijing: Junshi kexue chubanshe, 1991), p. 143.Google Scholar

2. Such as, according to PRC military publications, the national defence fund (guofang jijin)has two components: the defence capital construction fund, that is, that part of socially accumulated funds reserved for non-productive capital construction; and funds to be used for military consumption expenses, which are categorized as social consumption funds. See Ibid. p. 76. Funds for “non-productive capital construction” are included in the non-military budget reported to the National People′s Congress. This indicates that a portion of PRC military expenditure comes under non-military headings in the budget.

3. According to the Volume on Defence Economics,“Funds accumulated by defence industrial concerns and other extra-budgetary funds - including that portion of the profits retained by military industrial enterprises set aside for accumulation, the accumulated surplus from budgetary expenditure and other miscellaneous income – serve to supplement the defence fund. These funds constitute a relatively small proportion of the entire defence fund, and they play only a supplementary role.” This demonstrates that income raised by the military itself counts as a part of military expenditure.Google ScholarIbid..

4. In one reference book on military finance, a military logistics analyst describes this as follows: “With the exception of expenditure on the People′s Armed Police which has a separate budget, budgeted military expenditure is termed defence expenditure [guofangfei].Most defence expenditure is paid directly by the PLA, and that part is known as military expenditure [junfei].Since 1989, the military has used the term military expenditure in the budgets and statements of accounts it has submitted to the government.” See Zhongguojunshi caiwu shiyong daquan (Complete Practical Guide to Chinese Military Finance)(hereafter Complete Practical Guide)(Beijing: Jiefangjun chubanshe, 1993), pp. 392–393. This indicates that the sum announced at the NPC does not account for the PRC s entire defence expenditure, and that guofangfeiis only a part of the PRC′s entire expenditure on defence. It also serves to underline the military′s inconsistent use of terminology. Another PRC military publication explains that “China′s defence expenditure includes military expenditure [junfei],expenditure on research operations [keyan shiyejingfei],militia development expenditure, and other items of expenditure related to national defence.” This clarifies the relationship between junfei, guofangfeiand the PRC′s real expenditure on defence. See Zhongguojunshi baike quanshu: jundui houqin gongying fence (China Military Encyclopedia: Volume on Military Logistics Supplies)(hereafter Volume on Military Logistics)(Beijing: Junshi kexue chubanshe, 1992), p. 84.Google Scholar

5. Renmin ribao (People′s Daily),21 March 1995, p. 3.Google Scholar

6. See Stockholm International Peace Research Institute, “World military expenditure: China,” SIPRI Yearbook 1994(Oxford: Oxford University Press, 1994), pp. 441–47; International Institute of Strategic Studies, “China′s military expenditure,” The Military Balance 1995/96(Oxford: Oxford University Press, 1995) pp. 270–75; David Shambaugh, “Wealth in search of power: the Chinese military budget and revenue base,” and Paul H. B. Godwin, “PLA incorporated: estimating China′s military expenditures,” papers presented at IISS/CAPS conference on “Chinese Economic Reform and Defence Policy,” July 1994Google Scholar; Bitzinger, Richard and Lin, Chong-Pin, Off the Books: Analysing and Understanding Chinese Defense Spending(Washington, D.C.: Defense Budget Project, 1994).Google Scholar

7. Complete Practical Guide,pp. 4–15.Google Scholar

8. Information about these three sources is cited from Ibid. p. 132.

9. Ibid. p. 360.

10. Volume on Defence Economics,pp. 76–77.Google Scholar

11. This denotes income from commercial services offered to the civilian sector using temporarily idle or surplus military equipment, facilities, buildings, technology, etc., which are therefore listed separately from the previous item. Complete Practical Guide,p. 479.Google Scholar

12. This includes income from sales of old or surplus equipment, from barracks rental, from labour services, and interest. Ibid.

13. Ibid. p. 431.

14. Ibid. pp. 32–33.

15. Ibid. pp. 383–87.

16. Ibid. pp. 389–391.

17. Ibid. p 425.

18. Ibid. pp. 427–28. Also see the contribution by Tai Ming Cheung to this volume.

19. Zihua Cheng, “Zhonggongde qiangpao waijiao” (“Communist China′s gun diplomacy”), Jiushi niandai (The Nineties)(Hong Kong), No. 256 (May 1991), p. 52.Google Scholar

20. Here, the “military budget” denotes the budget for military expenditure (junfei).Since 1988, units at regimental level and above have been required to include income of all kinds and accumulated annual surpluses in their annual budgets in line with the comprehensive financial planning system.

21. Luming, Jiang, “Guofangfei de biandong qushi ji qi zhanlue xuanze” (“Changing trend of defence expenditure and its strategic choices”), Junshi jingji yanjiu (Defence Economics Studies)(Wuhan), No. 1 (1995), p. 44Google Scholar. See also Lianqing, Zhu and Yiqing, Fu, “Gaige yusuan guanli tixi, cujin jundui zhiliang jianshi” (“Reform the budget administration system, improve the quality of the military,”) Junshi jingji yanjiu No. 6 (1992) p. 74. Note that this description differs from that described by David Shambaugh in “Wealth in search of power.” Shambaugh depicts a bidding-based up-down process.Google Scholar

22. Cheung, Tai Ming, “Profits over professionalism: the People′s Liberation Army′s economic activities and its impact on military unity,” paper presented at HSS/CAPS conference on “Security Dimensions of Chinese Regionalism,” June 1993.Google Scholar

23. These sub-departments (shiye bumenor simply bumen),dealing with various military functions, are part of the vertical command system (tiaotiao)of the PRC bureaucracyGoogle Scholar. They form independent vertical systems reaching down from the top to the grass roots. The “units” (danwei)are part of the horizontal system (kuaikuai),and they represent the various levels of the military. For a more detail explanation of this system, see Shurmann, Franz, Ideology and Organization in Communist China(Berkeley: University of California Press, 1968), pp. 188–194.Google Scholar

24. Lianqing, Zhu and Yiqing, Fu, “Reform the budget administration system,” p. 74.Google Scholar

25. Complete Practical Guide,p. 224.Google Scholar

26. Ibid. PRC military sources differ on this point. One source states that the finance sub-department passes the budget to the head of the logistics department, who submits it to the unit commander and the political commissar for final approval. See Volume on Military Logistics,p. 77.

27. Luming, Jiang, “Changing trend of defence expenditure,” p. 44.Google Scholar

28. Complete Practical Guide,p. 40.Google Scholar

29. Ibid. p. 11.

30. Ibid. pp. 137–138.

31. For the history and present composition of the GLD finance sub–department see Ibid. pp. 143–45.

32. Volume on Military Logistics,pp. 74–75.Google Scholar

33. Details on the work of these centres taken from Complete Practical Guide,pp. 693–695.Google Scholar

34. In a number of cities with big naval bases, the PLA Navy is already running rather basic fund settlement centres (Zijinjiesuan zhongxin)jointly with local specialist banks, and there is a possibility that these will be expanded into military banks. See Liu Yongcheng and Yang Songqing, “Shichang jingji yu jundui caijing gongzuo” (“Market economy and military financial work”), Junshi jingji yanjiu,No. 2 (1995)Google Scholar, p. 50. For other similar ideas, see Zheng, Wang, “Dui jianli jundui jinrong jigoude sikao” (“Thinking on establishment of army′s financial institute”), Junshi jingji yanjiu No. 3 (1994), pp. 29–32.Google Scholar

35. The PRC military plans to adopt modern financial administration methods. See Complete Practical Guide,pp. 88–125.Google Scholar

36. Junfeng, Hou, “Jundui caili buzu tanyuan ji qiujie” (“Exploration and attempted explanation of the inadequate financing of the military”), Junshi jingji yanjiu, No. 8 (1993), p. 59.Google Scholar

37. Junying, Wang, “Wujia shangzhang dui junfei fenpei he shiyongde yingxiang” (“The impact of price rise on distribution and use of military spending”), Junshi jingji yanjiu, No. 4 (1994), p. 38.Google Scholar

38. The Chinese military does not usually compile budgetary estimates, but if the regular budget is not compiled in time an estimated budget may be used instead as a temporary measure. See Jingji dacidian: caizhengjuan (Dictionary of Economics: Finance)(Shanghai: Shanghai cishu chubanshe, 1987), pp. 180–81. We may suppose that the PRC military relies on budgetary estimates in the three months from the beginning of the financial year on 1 January to the passing of the military budget by the NPC in March.Google Scholar

39. Some people in the military suggest that the budget should be compiled according to a “down-up-down-up” system based on units. See Zhu Lianqing and Fu Yiqing, “Reform the budget administration system,” p. 74.Google Scholar

40. Zhaoqing, Dan, Yuli, Chen and Xinhua, Wang, “Dangqian budui caiwu guanlide biduan, chengyin ji duice” (“Present financial management in the army: drawbacks, causes and countermeasures”), Junshi jingji yanjiu No. 3 (1994), p. 55.Google Scholar

41. Detail on comprehensive financial planning cited from Jiefang, Tian and Yichun, Han, “Qiantan zonghe caiwu jihua zhixing qingkuangde kaoping” (“Brief evaluation of the implementation of comprehensive financial planning”), Junshi jingji yanjiu No. 6 (1992), pp. 77–79.Google Scholar

42. These payments are based on the size of the unit′s establishment. They are used for office expenses, shiyefei,education and training, and equipment maintenance. See Complete Practical Guide,p. 136.Google Scholar

43. These funds are allocated according to functional tasks and the amount of funds available. They are meant to cover equipment maintenance, shiyefei,education and training, etc. in the navy, air force, the Second Artillery Corps and the army air corps. See Ibid.

44. This denotes funds withdrawn for special projects in line with the approved budget. They include funds for purchasing equipment, logistics equipment and fuel, for capital construction, scientific research, war-readiness and warfare, and CMC reserve funds. See Ibid.

45. These are funds controlled by the Party committees, unit commanders and political commissars at each level of the military. Ibid. p. 381.

46. Wendian, Li and Zhongyuan Zhang, “Jundui caiwu yunxing jizhide pingheng fenxi” (“Analysis of the military′s financial operating mechanism”), Junshi jingji yanjiu, No. 2 (1992), pp. 50–51.Google Scholar

47. In 1986, the GLD finance sub-department drew up ′Trial measures for the internal regulation of funds of military enterprises and set up offices in cities with large concentrations of troops or where military region headquarters were stationed, including Beijing, Guangzhou, Shanghai, Shenyang, Wuhan, Chengdu, Nanjing and Xian. These offices accept deposits of idle funds from units at regimental level and above. The purpose of this is to make use of idle funds to develop military production activities. The deposits earned interests and dividends. See Dangdai Zhongguo junduide houqin gongzuo (Military Logistics in Contemporary China)(Beijing: Zhongguo shehui kexue chubanshe, 1990), p. 319; Wan Wenfa, “Junnei zijin rongtong zai renshi” (“A new understanding of funds accommodation within the military”), Junshi jingji yanjiu.No. 3 (1992), pp. 66–67.Google Scholar

48. Hexing, Nie “Jundui caiwu gongzuo jiben zhidao sixiang” (“The basic thinking behind military finance work”), Junshi jingji yanjiu, No. 10 (1993), p. 54Google Scholar. For other related analyses, see Zhibo, Ruan, “Zijin guanli: Jundui caiwu gongzuozhong yixiang zhongzhi you zhongde renwu” (“Fund management: an important task of army financial work”), Junshi jingji yanjiu, No. 10 (1994), pp. 61–64; Dan Zhaoqing, Chen Yuli and Wang Xinhua, “Present financial management in the army,” p. 55.Google Scholar

49. Complete Practical Guide,pp. 144, 312–13.Google Scholar

50. Nie Hexing, “The basic thinking behind military finance work,” p. 54.Google Scholar

51. Complete Practical Guide,p. 350.Google Scholar

52. Hexing, Nie, “The basic thinking behind military finance work,” p. 54.Google Scholar

53. Ibid.For changes in the GLD finance sub-department, see Complete Practical Guide,pp. 143–45.Google Scholar

54. Xingdao, Yang et al.,“Tigao caiwu ganbu suzhide tujing” (“Raising the quality of finance cadres”), Junshi jingji yanjiu,No. 9 (1992), pp. 71–74.Google Scholar

55. Dianhong Pan, “Caikuai renyuan guanli tizhi gaige chutan” (“Preliminary study of reform of the management system for finance and accounting personnel”), Junshijingjiyanjiu, No. 11 (1992), pp. 71–72.Google Scholar

56. See Ding Arthur S., “Military production and the defence budget of the PRC,” paper delivered at the 5th Annual AEI Conference on the People′s Liberation Army, Virginia, USA, June 1994.Google Scholar

57. June T. Dreyer, “Corruption in the People′s Liberation Army: for good or for evil?” paper delivered at the 5th Annual AEI Conference on the People′s Liberation Army, Virginia, USA, June 1994; David S. G. Goodman, “Corruption in the People′s Liberation Army,” paper read at IISS/CAPS conference on “Chinese Economic Reform and Defence Policy,” July 1994; Ellis Joffe, “The PLA and the Chinese economy: the effects of involvement,” Survival(Summer 1995), pp. 24–43.Google Scholar

58. Si, Shu, “Jundui xiangqiankan” you jinbu zhi” (“The military′s interest in money cannot be stopped”), Zhengming(Hong Kong), No. 209 (February 1995), pp. 33–35.Google Scholar

59. Jiefangjun bao, 9November 1993, p. 1.Google Scholar

60. Jiefangjun bao,18 June 1994, p. 1.Google Scholar

61. Wang Junying, “The impact of price rise on distribution and use of military spending,” pp. 35–41.Google Scholar

62. Liu Yongcheng and Yang Songqing, “Market economy and military financial work,” p. 50.Google Scholar

63. Some people suggest that a law should be passed to guarantee military pay levels. See Nie Hexing, “The basic thinking behind military finance work,” p. 54.Google Scholar

64. For an analysis of the military′s fragmented power structure, see Lewis, John W., Di, Hua and Litai, Xue, “Beijing′s defense establishment, solving the arms-export enigma,” International Security, Vol. 15, No. 4 (Spring 1991), pp. 87–109.CrossRefGoogle Scholar