One of the much awaited announcements of the recently concluded Chinese “Two Sessions” was the Chinese defence budget. With some commentators predicting another double digit rise in line with what has been the norm for the last two decades, the lowering of the Chinese defence budget this year to a single digit (“only 7.6 per cent”) took many by surprise. Adding to the surprise was the fact that the present Chinese defence budget (US$ 146 billion) is only a quarter of the US 2016 defence budget (US $583 billion which doesn’t include their nuclear and possibly overseas commitments).

Before moving any further though, it would be wise to get a holistic perspective of the Chinese defence budget by factoring in likely hidden allocations. It is largely believed that Chinese defence budgets have a hidden component of at least 30 per cent which caters for activities related to the fields of cyber, intelligence and dual use acquisitions. On factoring in the same, the present budget amounts to $190 billion and is closer to being a true reflection of the actual defence budget allocation.

Over the last two decades, apprehensions amongst China’s neighbours have been growing on account of the constant double digit rise seen in Chinese defence budgets. The only exceptions being the present budget for 2016 and that of 2010, which saw a rise of 7.5 per cent. While such rising defence budgets were justified as being a natural corollary of a rising Chinese economy, the resultant translation of these budgets into the rapid modernization of the Chinese defence forces was not lost on many. Further, against this backdrop of rising Chinese defence budgets, its increasingly assertive behavior in the South China Sea only added to the growing discomfiture of its neighbours.

While a comparison with the US defence budget makes the Chinese defence budget for 2016 look relatively small, a regional comparison puts it into correct perspective. The present Chinese defence budget is four times the size of Indian defence budget for 2016 (US $38 billion). What is even more striking is the fact that the present Chinese budget is more than the collective military budgets of India, Japan and South Korea (approximately $114 billion, as besides India, Japan has an allocation of $42 billion while South Korea has allocated $34 billion.)

Another aspect which has caught the eye in the past few years is the allocation being made towards China’s internal security. While Chinese budgets for external security are meant for the PLA, those for internal security are largely utilized by the People’s Armed Police (PAP) and Provincial-level public security forces. Over the past few years, it has been seen that internal security budgets have been growing at a faster pace than the external security ones. Such allocations clearly signal a higher Chinese priority of maintaining internal stability which is essential for the survival and dominance of the CPC. Such signals are of greater significance as there have been reports of disturbances in China as a consequence of the CPC’s ongoing censorship aimed at tightening its hold over China. However with a slowing economy, it remains to be seen as to whether, the Internal security budget for this year would also be lowered and resultantly see a single digit rise only.

This year though, the most important aspect related to the allotment of a lower defence budget is the initiation of reforms within the PLA. It has been seen that, in the last six months (commencing from Sep 2015), a number of reforms have been initiated within the PLA. These reforms are wide ranging and amongst many things include a reduction of 3,00,000 troops, greater centralization of activities under the Central Military Commission (CMC) and reorganization and readjustment of the military system and structure to include the erstwhile seven military regions being reorganized into five military theater commands as also the establishment of the PLA Army General Command, the PLA Rocket Force and the PLA Strategic Support Force. It is but a given that for the successful implementation of such wide ranging reforms, a multitude of activities would have to be undertaken. For example, there would be a requirement of installation/adjustment of the prevalent C4ISR system (Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance) for it to become suitable for the new military theater commands. In addition to this, it is also well known that procurement of equipment and construction of infrastructure are unavoidable requirements necessitated by reform implementation. With timelines ranging from 2017 to 2022 already being set for the ibid reforms implementation, it goes without saying that they need to be supported by dedicated budgetary allocations.

Against this backdrop, the recent Chinese “Two Sessions” setting an estimated growth rate of “6.5 per cent to 7 per cent” for the 13^th five year development plan period (2016-2020) becomes even more significant. What though remains to be seen is whether the present lowering of the Chinese defence budget is a flash in the pan or it signals a “New Normal” being defined for the Chinese defence budgets as well. The point being, Chinese defence budgets aligned to the “New Normal” would necessitate a delaying of the PLA reform timeline and this in turn would set the tone for a recalibration of the Indo Pacific security calculus.