Chengdu J-20 stealth fighters. China’s military budget is vastly underreported. Emperornie
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Strategy & Policy: The Next 10 Countries Combined

Aug. 27, 2021

T he Senate Armed Services Committee in July added $25 billion to the Biden administration’s $715 billion defense budget request. Opponents of bigger military budgets quickly responded, their criticism predictably peppered with variations of the bromide, “The U.S. already spends more on defense than the next 10 countries combined.”

The lament suggests that it’s self-evident that the U.S. overspends on its military; why spend so much more than adversaries and partners? This view hasn’t been voiced just by think-tanks and commentators, but also President Barrack Obama in his 2016 State of the Union address, and by presidential candidate Sen. Bernie Sanders in 2018.

But is the assertion true? And, even if so, is it relevant, given the unique defense needs and responsibilities of the U.S.?

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The go-to source for impartial international military spending data—used by think-tanks, fact-checkers, the media, and even the Pentagon—is the Sweden-based Stockholm International Peace Research Institute (SIPRI), which annually tabulates the self-reported military budgets of most of the nations of the world. Its 2020 figures—the latest available—do indeed peg the U.S. total of $778 billion (SIPRI includes Department of Energy nuclear weapons spending) as outweighing the military budgets of the next 11 countries combined, which amounts to $760 billion. 

In 2019, SIPRI’s estimate of China’s military spending was $240 billion; roughly 40 percent higher than the self-reported level of $183.5 billion, and close to the London-based International Institute for Strategic Studies’ estimate of $234 billion. 

China’s 2021 self-reported defense budget, announced in March, comes out to $209.2 billion, a 6.8 percent increase over fiscal 2020. Its previous budget marked a 6.6 percent increase, continuing more than 20 years of steady growth. 

While SIPRI accepts most self-reported figures, its numbers for China and Saudi Arabia are SIPRI’s own estimates. Saudi Arabia doesn’t reveal its numbers, and China’s numbers, SIPRI admits, are less than transparent. China doesn’t count a lot of its military-related spending—on space, military intelligence, cyber operations, industrial base, its Coast Guard, military police, military-related R&D and the like—as part of its defense budget. China’s military also owns corporations that sell equipment and other goods, and the proceeds of those enterprises are not counted by Beijing, either. 

Perhaps more importantly, SIPRI also acknowledges that the cost of military items and personnel is different for different countries. With a command economy, China can set the prices its military pays for domestic materials and equipment; it also pays its troops far less than their western counterparts. Amenities enjoyed by U.S. troops—such as golf courses, discounted commercial goods, and child care centers—are not features of Chinese or Russian military life, where conscription is still the main source of manpower.

The World’s Biggest Defense Spenders

According to a March paper from the Center for Strategic and International Studies (CSIS), based on China’s July 2019 Defense White Paper, China’s spending on equipment rose from 33.2 percent annually to 41.1 percent from 2010 to 2017.

The U.S., by contrast, spends fully 40 percent of its military budget on compensation such as pay and bonuses. The Pentagon spends just 18 percent of its money on procurement, with another 24 percent on operations and maintenance, and 13 percent on research, development, test, and evaluation.

Joint Chiefs of Staff Chairman Gen. Mark A. Milley weighed in on this disparity in June testimony, flatly declaring that “Combined, the Russian and Chinese budgets exceed our budgets, if all the cards are put on the table.” This trend is “disturbing,” he said.

It was not the first time Milley offered such an observation. When he was Army Chief of Staff in 2018, he told the Senate Appropriations Committee that “I’ve seen comparative numbers of [the] U.S. defense budget versus China, [the] U.S. defense budget versus Russia.” And “what is not often commented on is the cost of labor. We’re the best-paid military in the world, by a long shot. The cost of Russian soldiers or Chinese soldiers is a tiny fraction” of what the U.S. pays its troops, he added.

“Take out the MILPERS (personnel costs) accounts for both the Chinese, Russians and/or the U.S., and then compare the investment costs,” Milley continued. “I think you’ll find that Chinese and Russian investments, modernization, new weapons systems, etc.—their R&D, which is all government-owned and also is much cheaper—I think you’d find a much closer comparison.”

This disparity in pay and cost of materiel is usually discussed in the context of “purchasing power parity,” or PPP. SIPRI acknowledges that a yuan doesn’t necessarily translate to a dollar in terms of capability obtained for resources expended, and that PPP can be a better measure of capability obtained for money spent, but SIPRI doesn’t use PPP in its overall rankings.

The use of PPP rates based on gross domestic product (GDP), SIPRI explains, tends to elevate the relative buying power of less-developed countries, where manpower is cheap, but it weighs against them when buying advanced weaponry, which they typically must import.

“The price of conscripts can be assumed to be lower than the price of a typical basket of goods and services, while the prices of advanced weapon items” and their support “can be assumed to be much higher,” producing a distorted and subjective comparison, SIPRI notes on its website. Because that effect can’t be equalized across all nations, each with a different GDP—and military spending as a factor of it—SIPRI doesn’t use PPP to adjust its estimate. Instead, it sticks with “market exchange rates to convert military expenditure data into U.S. dollars, despite their limitations.”

In its 2020 report on Russian military spending, SIPRI noted a strong PPP disconnect between Russia’s reported military budget and its “superpower” status. 

“There are strong indications that military goods and services cost less in Russia than in the USA or Europe,” SIPRI acknowledged, giving Russia higher purchasing power. Making a PPP calculation, SIPRI said Russia’s 2019 spending likely was around $166 billion, versus its reported budget of $65.1 billion. It noted that Russia, too, “spent nearly 40 percent of its total military expenditure on arms procurement. This is a much larger share than most other states, including all members of … NATO.” In fact, SIPRI said, “Russia’s spending on procurement was more than twice that of France, Germany, and the U.K., although its total military spending was just 30 to 34 percent higher in 2019.” Those other states, though, may “invest more in … more qualitative components of military capability,” such as training and personnel.  

Senate Armed Services ranking member James M. Inhofe (R-Okla.), in a May editorial for RealClearDefense, called the “Next 10 Combined” rubric “a myth often repeated. … That must be removed from our vernacular.”

Citing Heritage Foundation research, he said that SIPRI‘s 2017 estimate of Chinese military spending was $228 billion, but when PPP calculations are applied, it was really about $467 billion. Taking the Chinese at their word about percentage increases in the four years since then, he said China’s fiscal 2021 budget is actually closer to $604 billion.

Likewise, Russia’s spending is reported by SIPRI to be about on par with that of the U.K., around $60 billion. But given the country’s size, readiness, and less-than-transparent nature, the true figure is probably closer to $200 billion, Inhofe said.

There are likely “tens of billions in additional off-the-books or hidden spending in China and Russia,” he asserted. Added together, that’s $804 billion, he wrote, and this well outspends the U.S. defense budget of $741 billion.

Moreover, while Russia and China tend to focus their military activities on their near-abroads, the U.S. has worldwide allies and partners, and when it fights, it’s in the adversary’s front yard, and not close to home. That fact alone imposes cost in platforms, people, logistics, and support.

“The U.S. military has extensive commitments around the globe to protect our interests,” Inhofe wrote. “By contrast, the Chinese and Russians focus almost all of their defense spending and military forces on limited regional objectives in close geographic proximity.”

CSIS noted that, using SIPRI’s figures, China’s military spending dwarfs that of “the combined expenditure of India, Russia, Japan, South Korea, and Taiwan.” It also said that adjusting for PPP, China’s purchasing power increases “by well over $100 billion.”

Todd Harrison of CSIS—a seasoned analyst of defense spending—said the comparison of military budgets is “analytically difficult and strategically unimportant.”

It’s difficult because “it involves a lot of assumptions about … relative purchasing power,” and that makes the result suspect because “these assumptions ultimately drive the result.”

But it doesn’t really matter, strategically, either. “What we need to spend on defense is not just a function of what others are spending,” he said. U.S. defense spending should be driven by its strategy and the threats it faces.

“Our current strategy calls for us to be engaged around the world,”  defending our network of allies and partners, Harrison said. And we rely on playing an ‘away game’—being able to project power around the world rather than fighting near our own borders. That inherently costs more to do.”

China and Russia don’t have the same security commitments—or benefits—of alliances in far-flung places, and focus “much more on their immediate periphery.”

“So, it really doesn’t matter that much what others are spending,” Harrison observed. “What matters is our strategy and what we want and expect our military to be able to do.”

Retired Air Force Lt. Gen. David A. Deptula, head of AFA’s Mitchell Institute for Aerospace Studies, offered a more forceful criticism of the “next 10 countries” chestnut.

“It’s a ridiculous comparison,” he said, and reflects “ignorance of U.S. strategy commitments.” The next 10 countries “do not have the same national security objectives as does the U.S.”

He noted that in the past 30 years, “There have been two tenets of U.S. national security strategy that have remained constant … regardless of the political administration in power.” One is that the U.S. seeks to secure peace around the world because “that ultimately benefits the U.S.” The American military is active on all seven continents “to conduct engagements to shape and promote stability and security.” It takes a large number of troops and platforms to maintain that worldwide presence so that the U.S. military doesn’t “drive its forces into the ground accomplishing these tasks.”

The second tenet, Deptula said, is that the U.S. has tried to maintain a force that can “fight and win more than one major regional conflict in overlapping time frames.” This capability is required to deter an aggressor from taking advantage if the U.S. is already engaged in a war in another region. The nation must avoid being “stretched to the point of not being able to fight and win” that second conflict.

Recently, Deptula said, that second tenet “has come into question” because of “neglect in adequately resourcing the U.S. military.”

But broadly, no other nation “undertakes these responsibilities,” and doing so is not only “in the best interest of the U.S., but also the best interests of the rest of the world … and that is why the U.S. defense budget is what it is.”

To be valid, any comparison of military budgets has to take into account the reasons nations spend what they do and what their strategies and objectives are. Absent that, Deptula said, “the simple arithmetic comparison is meaningless and vacuous.”