As Alexander de Tocqueville observed nearly two centuries ago, Americans are by nature an optimistic people. This optimism has often been a source of national strength, propelling us to seek ever greater heights.
In certain instances, however, optimism can be dangerous. One such instance is in dealing with China’s rise. Many Americans have failed to grapple with the magnitude of China’s rise, confident that Beijing will go ultimately go the way of the Soviet Union or Japan in the 1980s. Those making this case can marshall some impressive statistics to bolster their case that America remains far and away the most powerful country in the world. One of the more popular data points they use is defense spending: specifically, that America still spends about four times as much as China on its military.
But comparing the raw numbers is misleading in a number of ways. Some of these are relatively well known: for example, it is generally acknowledged that America is a global power with its military assets dispersed around the world, while China can concentrate its armed forces in Asia. Similarly, military spending fails to account for what is often called the “tyranny of distance.” That is, to project military power in Asia, the United States must cross the largest ocean in the world. By contrast, China is located in the center of the action. And, as anyone who works in Washington understands, proximity to power is a power unto itself. Being so close to the battlefield also enables China to implement an anti-access/area denial (A2/AD) strategy by using its territory to deploy large amounts of missiles, aircraft, surveillance systems and radar. In effect, these are unsinkable aircraft carriers.
Other ways that U.S. and Chinese defense budgets fail to capture the real balance of power in Asia are less well known. One factor that many observers overlook is personnel costs. Despite having a larger military, China’s military spends far less than the United States on personnel. And, once personnel costs are taken into account, the gap between U.S. and Chinese military spending is less than the raw budget numbers suggest.
America rightly takes care of the men and women who serve in the armed services. The costs of doing so, however, are astronomical. According to the Pentagon’s own estimates, nearly half of the entire defense budget is consumed by military and civilian personnel costs. Half of the FY 2015 budget would equal out to about $298.5 billion. In other words, the Pentagon spends more on personnel than any other country—including China—spends on its entire military. Indeed, the U.S. military’s personnel costs are more than the combined defense budgets of all other NATO members.
China’s military is less transparent, making it harder to accurately gauge how much it spends on personnel. However, most experts believe that personnel costs consume about one-third of the People’s Liberation Army’s (PLA) budget. By that figure, China’s military spent about $48.6 billion on personnel costs in 2015. The discrepancy in personnel costs between China and the United States is even greater when one considers them on a per-soldier basis. The PLA is estimated to have a total of 2.3 million people in active service, compared to just 1.4 million for the U.S. armed services. That means China spends just over $21,000 per active duty member of their military. The comparable figure for the United States is more than $214,000.
The impact this has on each country’s respective military budget is staggering. When personnel costs are removed from the U.S. side, military spending decreases from $597 billion to $298 billion. By comparison, China’s military spending drops from $145.8 billion to $97.2 billion. In other words, when personnel costs are taken out of the equation, China’s military spending goes from about a quarter of America’s to nearly a third.
Labor costs work in China’s favor in other ways as well. For instance, the PLA’s procurement costs are lowered by the fact that Chinese factory workers make less than a quarter of the wages of their American counterparts. Exchange rates are another subtle advantage that lowers China’s military costs. Just as a Big Mac is nearly twice as expensive in America as it is in China, Beijing can purchase much more domestic weapon systems with the same amount of money as Washington.
To be sure, as China grows richer some of these advantages will decline. Labor costs have been rising steadily in China over the past decade, and personnel costs for the Chinese military will rise accordingly. Still, personnel costs are not stagnate for the U.S. military either. Indeed, the U.S. House Budget Committee has noted.
Since 2001, the cost per service member in the active-duty force has increased by 41 percent, excluding war funding and adjusting for inflation. If personnel costs continue growing at that rate and the overall defense budget grows with inflation, military personnel costs will consume the entire defense budget by 2039.
Of course, higher personnel costs ensure America’s service men and women are the finest in the world, which is one of its greatest advantages against China. Still, the difference in cost is another reason why comparing the raw figures of U.S. and Chinese defense spending does not come close to capturing the real balance of power between their forces.