 Okay, I think people are still trickling in but we're going to go ahead and get started. Good morning everyone Thank you very much for coming today. My name is Chris Johnson I'm the Freeman chair in China studies here at CSIS and welcome to the inaugural launch of our China reality check series Let me say just a few words about the series and then we'll introduce our excellent panel for today's discussion on China's defense budget We created this series here at CSIS because we're trying to create a sort of venue to bring together China scholars of course, but also Practitioners from industry and senior government officials and experts as well to have a deeper and more sustained dialogue on key issues in China Studies with regard to China's rise as a global power on the world stage And we're trying to focus the series not only on issues that are of current topical interests But also things that are controversial in some way like today's subject sometimes can be or things that we feel that Simply aren't getting enough attention in the kind of constant churn of discussion about China these days in the media and in academia and elsewhere so that's the goal of the series and When I crafted this series the first thing I thought of immediately was this topic and it just so happened that it kind of came Up right when we were rolling out China's new defense budgetary number for this year So we're very excited to be doing this one today and let me say as well that we're very pleased to have This made possible by the generous support of patriarch partners our partner in bringing this series off So let me start off by introducing the panel. We're very pleased to have with us today as our featured speaker doctor Andrew Erickson He's an associate professor in the strategic research department at the US Naval War College and a core founding member of the department's China Maritime Studies Institute He's also an associate in research at Harvard University's John King Fairbank Center for Chinese studies and he also serves as an expert contributor to the Wall Street Journal's China real-time report Dr. Erickson is Also had one last year the inaugural Ellis Jaffee Prize for PLA studies, which is a very prominent award And so we're very pleased again to have him here next to him is Dr. James Mulvennan He is vice president of Defense Group inks intelligence division and director of DGI's Center for Intelligence Research and Analysis and At CIR a he runs a team of nearly 50 cleared Chinese Russian Arabic Pashto Urdu and Dari and Farsi linguist analysts performing open source research for the US government say that ten times fast and James is a renowned specialist of course on the Chinese military and cyber warfare And he focuses his research on China's C4 ISR defense research development acquisition Organizations and policy and strategic weapons programs He received his PhD in political science from the University of California at Los Angeles and attended food on University in Shanghai from 91 to 92. He's also a good personal friend and And Joining the us as well that today is our visiting fellow here at CSIS our thawley visiting scholar Jack George off who comes to us from the Lowy Institute for international policy and Is also with us for about six months here conducting some research He's currently pursuing a master of arts at the Australian National University as a head Lee bull scholar and a Freiberg scholar The first person as a student to be awarded both of those scholarships conjoined Jack has taught international relations for several years at the tertiary level and has work experience in both the New Zealand and Australian Parliaments and he'll be providing us today with sort of a regional perspective on this issue So without further ado, we'll go ahead and welcome Andrew up here to the podium and we'll kick it off. Thank you very much Well, thank you very much Chris for that kind introduction and for inviting me here to join you today Thank you all also to Nicole for excellent logistical assistance. This is this is just a great event before I go further, I should just stress that I'm presenting today solely in my personal capacity and I also should emphasize to you that My presentation is based strongly on a number of publications and research that I've done with my my friend and colleague Adam Liff Unfortunately, he couldn't be here presenting today But a lot of the ideas and insights that I'm trying to share with you come from working closely with him So as I think everyone in this room knows on March 5th 2013 China unveiled its latest official a planned defense budget Roughly a hundred and fourteen billion US dollars for 2013 and nominally a 10.7% increase from the year before this continues a trend of Nominal double-digit spending increases since 1989 2010 being the sole exception because of a major stimulus package to deal with the global financial crisis one point I do want to make and we we we make this point in our China quarterly article that's recently been made available online is if you look at the at the At the nominal amounts listed in our current prices at the top here It is indeed a very rapid rate of growth if you factor in inflation as displayed by The constant prices aligned at the top Well, it's still extremely impressive growth from 1990 to 2009 It's it's definitely different when you factor that when you factor that inflation in and We have we have further data broken down broken down by year here and copies of our China quarterly article are available outside as are some other publications and for anyone who's interested in the nitty-gritty of our Calculations our methodology and our sources. It's all it's all it's all available there so although Adjusting for inflation does have an impact on the numbers and although this all began from a very low base over the past decade these double digit nominal increases have quadrupled spending and They've made the PLA budget Second in size only to that of the US military budget albeit several hundred billion dollars less and Even when inflation is adjusted for the PLA budget's growth weight is truly the envy of the US and its allies whose defense budgets are either stagnating or Declining absolutely. Japan is a rare exception But in Japan's case, we're talking about a point eight percent budget increase and the first defense budget increase in Japan in 11 years as opposed to China's roughly 10 percent annual increases these days in terms of Where this fits in overall Chinese priorities Certainly as with any nation national security as is at the core. So when I say that these spending trends suggests that Military spending is a priority for China's leaders that is secondary to economic development I mean that this is contingent of course on party leadership continuity National survival and defense of crucial national interest first being sufficiently assured were any of those issues in question I don't think there'd be any way to say that that defense was was a secondary priority vis-a-vis Economic growth in terms of spending However, if you if you look at the line a percentage of GDP here You can see that according to Chinese official statistics a defense spending is consistently represented 1.3 to 1.5 percent of GDP and it's worth noting that even high-end foreign estimates of China's actual defense spending yield estimates of only two to three percent of GDP Moreover growth in defense spending has been outpaced consistently by growth in total state financial expenditures so what this what this means among other things is that these China is spending well within its means on defense These are these are sustainable increases China is not emulating the mistakes of the Soviet Union with its extreme military and strategic overextension Now in terms of why China is doing all this I think it's I think it's quite clear in our China quarterly article We quote former US Secretary of Defense Donald Rumsfeld at the 2005 Shangri-La dialogue at which He asked since no nation threatens China one must wonder why this growing investment in defense Why these continuing large and expanded arms purchases? Why these continued deployments? Well specific details remain unclear and certainly a lot of these developments from the perspective of US And the interests of China's neighbors have some significant real and potential negative ramifications, but I think overall the reasons why China doing this is Is Increasing the spending is not a mystery It's largely doing it for the reasons that it broadly says it is to further PLA modernization and personnel development As well as announced objectives of securing China's homeland and asserting control over contested territorial and maritime claims developing world-class capabilities having started from a low baseline three decades ago and retaining low per capita resources in some respects to addressing significant domestic and regional stability challenges on Beijing's terms Under taking new historical missions safeguarding overseas interests and enhancing China's international status In terms of figuring out how these priorities work out for China's leaders As abstract as it may seem I think The water droplet made when you drop a stone in the water evokes this pretty well Symbolically at the top sphere we have party leadership continuity as the very top priority on a steep narrow base of maintaining party and and state structures to administer and preserve stability in China Broadening out to a a solid cone of Homeland security first in core Han areas then moving out to ethnic minority rich Borderlands with each with each of these Concentric circles the priority becomes less and China's military capabilities there become less as well next next comes China's Contested borderland areas the the border the border disputes for example with India and Bhutan and Then of course the outstanding island and maritime claims in the three near seas The Yellow Sea the East China Sea and the South China Sea so if you overlay China's official statements as to why it's developing its military and why it's spending the money and you look at China's sort of most important interest and then Gradually dissipating Interests further and further away it actually it actually meshes up pretty well and This also makes it possible to understand even when we have imperfect information on China's defense budget We can look inductively from the overall Capabilities that China's military is developing and we can see a fairly clear picture here This also maps effectively on specific geographical features and China's China's specific outstanding claims aside from the the Remaining disputes with India and Bhutan to a small degree China has settled its land borders the vast majority of remaining issues that China is concerned about lie in the three near seas and if you overlap all if you Rack and stack all these issues and then you rack and stack the range rings and the performance parameters and the operational constraints of China's various weapons systems again this this this overlays quite quite quite a quite effectively and relatively Coherently we can see a major focus on developing what China calls a counter intervention systems to increasingly be able to threaten to hold at risk us and allied and Friendly platforms and weapon systems should they attempt to operate bring force to bear Involve themselves in disputes and crises especially in these Three near seas and their and their immediate approaches now Certainly a growing though uncertain percentage of the budget pie is being allocated toward developing Power projection platforms such as aircraft carriers engaging in Gulf of Aden counter piracy missions as Admiral McDevitt has written extensively about but these are really Gradual lower level secondary capabilities They're unlikely to pose a high-end threat to any capable adversary for this foreseeable future and I do not think that The evidence suggests that China is devoting the majority of its resources in that direction or is or is heading to that I there's still there's still the focus close at home now there are two Important exceptions to this overall geographical pattern most prominently cyber issues which I defer to James on in which Physical distances are largely meaningless and China has very decided global capabilities and activities and as also space while China's space assets have been Developed in the military dimension in ways that focus tend to focus on Facilitating near seas and closer in issues. There is an inherent global nature to space presence and and capability as well Now looking forward to what what this what these what this spending is going to buy and not buy China And some of the challenges that may arise for China I think we have to consider the possibility of what my former Colleague Gabe Collins and I have called an S curve trajectory It's widely believed among many analysts including Chinese analysts and certainly The worldwide media that the US and many of its allies are hitting a sort of mature power growth slowdown in which Costs costs rise things become more difficult the economy slows down and it's not just a specific day by day and year by year Incidents and events but as part of a larger a larger pattern in a in a great powers life if you will I would like to challenge us all to consider the fact that China may be closer to facing some of these headwinds then Certainly some of the more bullish people on China's economy have necessarily Publicly considered it's certainly possible that China can enjoy as much as another good decade of a confluence of economically advantageous factors, but sooner or later. I think some of these challenges domestically are likely to Produce a larger and larger drag on growth in a way that Will make it hard to sustain or rapidly increase defense spending for China in the future barring of course a major shift in priorities and and and threat perception there's certainly enough money already in China's budget to continue to develop very formidable capabilities to the nearest for the near seas applications and any slow down in China's economy and resulting challenges to party legitimacy could Create what I would call sort of a Diversionary nationalism and attempt to externalize some of those challenges. I'm not going so far as to say Diversionary warfare. I think that has been largely exaggerated as a threat although it can be a slippery slope with some of these some of these very volatile situations Likewise as we look forward. There are a number of Factors that may intensify competition for how that budgetary pie is spent regardless of how it grows Inter-service rivalry always a great tradition among militaries certainly potentially applies to China's the ground forces have for 80 years remain retained a surprising or a pronounced level of dominance, hence the term the People's Liberation Army and Their their dominance is cemented further organizationally by the military region structure however over time as China develops more external interests and perhaps more technological capabilities more Perhaps sees the potential to make progress in in the near seas and and beyond the fact that China's three services and one branch the the Navy the Air Force and The the second artillery Each will be striving to develop further in new domains and each will be able to claim Vital Capabilities the PLA Navy in some ways could be argued to be the most externally oriented Benefiting from a larger Chinese shift in this direction Perhaps a movement toward a two-ocean Pacific and Indian Ocean Navy in Presence if not an actual restructuring of the fleets anytime soon at the same time the PLA Air Force has its own case to make as it Strives to assert control over China's burgeoning military Space assets and then the the second artillery force likewise seeking some degree of space responsibilities and Responsible for not only nuclear but conventional ballistic missiles one of the strongest pockets of Chinese military excellence since 1993 if these sort of s-curve Factors these constraints on the rate of China's level of growth Become Become more difficult for China. They they will probably exacerbate this inter-service rivalry and Likewise, there are some military specific s-curve factors if you will which the US military is only too well aware of but I think China is also Not not immune to namely Rising salaries and benefits increasing the personnel cost significantly China's very technological progress and asymmetric approaches astute targeting of physics-based limitations in foreign platforms and weapons systems in effect raising the bar in regional capabilities Forcing China to spend ever more on more advanced systems to keep trying to narrow the gap with the US and Japan for example And to stay ahead of other Regional rivals not to mention by showing the potential efficacy of these asymmetric approaches unintentionally perhaps blazing a trail for for neighbors and and Rivals in claims just as China can try to use these capabilities to pressure The US Japan Vietnam and Taiwan those militaries themselves may be motivated to try to develop more of these capabilities so that they can they can push back against China's growing progress and Well close close in close to China's Continental homeland this this large number of different forces and the proximity to these very strategic areas Offers overlapping approaches offers all kinds of different workarounds that China can use to mitigate its weaknesses These same options are not available for China Further afield and it's especially further afield that China's own platforms Could become vulnerable to a lot of these issues and China would face a very high bar and a very Great degree of spending in trying to rectify that and trying to develop true Combat capabilities against another great power out in the out in the Indian Ocean and far away. I suspect given Given different perceptions and thoughts about transparency We could we could talk forever on this topic, but since it's since it's a related subject Let me let me just let me just quickly hit a few Points on that. I think when it comes to transparency and China's potential progress There are there are three major points we could make and then two different aspects in which it applies Overall, I think as in so many other areas with respect to military transparency Beijing has certainly made progress Can certainly be more readily understood in Chinese, but still has a long way to go many one would many would argue now in terms of the Subcategories of transparency first. There's the issue of how accurately the officially announced budget a figure reflects True total spending on the PLA Second there's the issue of how much information the Chinese government reveals about how this budget is allocated within the PLA in terms of the first Well, perhaps China over uses these general principles The the fact is there is no universal standard for military budget categorization or or transparency If you if you compare China to other developing nations It doesn't it doesn't look nearly as non-transparent as it does if you could compare it with advanced Industrial democracies there is a complexity here though namely that since China is such a great power Since it already has the world's second largest defense budget More and more people are arguing that it's in a very different category from the vast majority of nations Developing or developed and hence there's a need for China to allay concerns by Disclosing information as for the specific issue of how much these figures China's official figures reflect actual spending. I think the best Single indication that well, they certainly don't reflect all the China's military spending and I think almost no nation's defense budget Fully does it is getting closer at the Department of Defense is probably in the best position the US Department of Defense is probably in the best position to estimate this and you at the China military power report estimates have gone from a 3.25 fold difference between what China says it's spending and what do d estimates it's spending 3.25 fold in 2002 to 1.43 to 2.14 fold in 2008 to 1.13 to 1.70 fold in 2011 that's a big difference over time and that is those are those are estimates worth taking very seriously IISS which probably is able to do some of the most thorough and reliable work outside of a government Calculated a change from 1.7 to fold in 2006 to 1.41 fold in in 2012 so when you combine that with factoring in inflation as I showed on the charts before China's defense spending is Increasing at an enviable rate by many international standards for China It's affording the PLA significant capabilities But it doesn't seem to be increasing at the feverish rates that that some allege that it it did now I can discuss more of the the transparency later on China has taken a lot of half measures There's there's not there's not a lot out there from the UN stand the UN Simplified reporting form the defense white papers of which it would be really wonderful to have the latest one It's interesting when that might come out And then when we get to intra PLA Spending and breakdowns. There's just nothing there's just nothing available furthermore a lot of Chinese statements that are supposed to show transparency of intentions which China Consistently emphasizes over transparency and capabilities At least from a Western perspective and arguably from a concrete analytical perspective Typically are not do not shed a lot of light These include categorical statements that may not remain true in the future such as China lacks overseas military bases but don't specify what might happen later or One of my favorites a China will never seek hegemony Which is so vague as to generally not make sense to a Western audience and to fail to address Other nations concrete concerns not to mention never is a long time And it's hard to say how anyone could know that for sure I don't think anyone in the world is in a position to know the answer to that one for sure as I begin to wrap things up a Few notes on methodology because clearly given the paucity of information available The research that I've attempted here is very far from the last word it in addition to being part of an intellectual Debate in terms of sharpening our analysis There's simply a lot more that we could perhaps know in the future that needs to be factored in and will get us Better insights as I said, I think it's reasonably clear that China's official figures do increasingly reflect It's it's military Spending and if you look at the if you look into Chinese literature in depth, which Adam Liff and I have done in our research you can and if you build on James's research for example on commercial divestiture of PLA Inc You can see numerous reforms in PLA professionalism and accounting and evidence that an increasing portion of revenues and Expenditures is on the books and hence some of this increase in China's budget Probably results from bringing things into the official budget that were not that were not there before Beyond this however, I think Obtain at this moment obtaining internal information By other means or inductive estimation are really the only alternatives to take to take this analysis A lot further in a concrete direction and unfortunately both of these approaches are beyond the capacity of Individual civilian researchers working with open source data I think some of the best evidence of this fact is and the tremendous challenges associated is the Propocity of published studies in this field despite tremendous interest if it were possible To do a lot more on this given the analytical rewards of doing so many more work would do so But that's not happening. Some of the best attempts have been made by Cypri and I ISS and those are solid efforts, but they tend to be only general collections of estimates There is not a lot of detail there One of the most detailed estimates that I've seen to date was published by Janes which claimed all kinds of Inter-service breakdowns, but it remains unclear to me how that Estimate was made how it could be substantiated and if my checking of Janes has been correct Recent iterations of those entries have not continued to include what was briefly a very thorough Attempt there I think the challenge in doing this is also Expressed in by looking at one of the most conceptually straightforward subcomponents of the potential inductive aggregate analysis that would be necessary to produce a good estimate Calculating the cost to China of producing a given platform or weapons system very difficult I would argue first of all extrapolating from known rough equivalents in one's own country only gets you so far because China's Input pricing is different poorly understood Possibly Unsystematic in some respects then of course there's the question of whether to what extent and how to factor in purchasing power parity I think in building in Simpler platforms and weapon systems with major commercial analogs probably some of the simpler types of surface ships Herculean efforts could yield some kind of a useful estimate I think this would be very hard to do even with laser-like focus with a missile systems That don't have those same types of of analogs and where the industries don't have that degree of external data If even these are achieved and a few areas are covered to some extent I think the prospect of being able to achieve enough of these estimates to Aggregate across the board truly is a real challenge and in in terms of my consultation with people who have wrestled and grappled with this issue the biggest takeaway I got from that was that Not only is this extremely difficult to do but that the interesting thing that comes out of some of this is China may enjoy such cost advantages in certain defense industrial areas Especially it's very capable shipbuilding sector that it actually may be able to afford tremendous armaments development Even if it's announced budgetary levels, we're relatively correct In closing Just to restate two areas that I hope more data in which I hope two areas in which I hope more data will become available Because this could advance our research could advance our insights more specific and information and evidence concerning Categories of spending that are included in China's official budget This would help better determine what proportion of militarily relevant spending is actually reflected in the budget and help produce better estimates second budget breakdowns by service and within service would yield valuable indicators Regarding PLA development priorities and capabilities. Thank you very much. I'm looking forward to commentary by James Jack and Chris and their insights and look forward to continuing discussion with everyone in the Q&A great Thanks, Andrew. That was that was great a very good way to kick off and obviously clear indications that there'll be many more reality check Events on China's defense budget Now we'll turn it over to James Mulvennan for his quick take. Thank you. Well, thank you Chris And congratulations to my friend Chris Johnson on getting the Freeman chair We had an encounter a drinking encounter in the Shangri-La hotel in Singapore with rich armitage a number of years ago that will Go down in the annals of international affairs history But I will say to your credit with the China reality check Washington DC definitely needs a China reality check right now as I do believe that many of the core beliefs and the Traditional tools that we have used to try and deal with China's rise are becoming increasingly under pressure Primarily from changes in China's behavior and its confidence and everything else as a short background on this issue which I have grappled with for Seemingly 20 years now because I did write my PhD dissertation on the Chinese military's international business empire and had to grapple with budgetary issues and Put myself to sleep many a night reading the military economics studies journal from the Wuhan Institute We did run a two-part dialogue with the Chinese with Senior retired Chinese military officials a number of years ago under Chaz Freeman's leadership people associated with the two PLA's China Institute for international Strategic Studies, which was absolutely fascinating Because once we got in once they realized that we had done our homework and had read the Chinese materials We had an incredibly fertile debate That primarily advanced the arthritis in my hands from the amount of data that we could get from them As many of you have experienced when you when you deal with Chinese interlocutors If you if they get the impression, you know what you're talking about and that you've done your homework You can find out a tremendous amount of Information from them and we did the people we were dealing with for instance were former military region joint logistics department directors The head of the Academy of Military Sciences military organization department And that you know that does that led to a series of studies that I would still commend you on the Methodological side that I know from reading Andrews China quarterly article. He also looked at Because it is rare for me to say something nice about either Rand or economists but But the Rand study that Keith Crane did that I contributed to I think was was still the paragon on the methodological side for highlighting some of the issues that Andrew raised about a Hybrid approach where you can use purchasing power parity for some estimates But then you have to use R&B valuations for others and I still think it I feel still think it holds up So I absolutely associate myself with Andrews comment that one can learn a tremendous amount about the Chinese defense budget Unfortunately, you need to be able to read Chinese to be able to get at most of that knowledge The journal I mentioned local media which is often filled with accounts of contributions to local military units Very deep statistics and as someone who regularly exploits the Chinese internet I would only offer the following caution time and time again We find that the juiciest information we find is in fact a product of Taiwanese intelligence Rather than actual information about the Chinese defense budget And so I would hope then we have moved beyond the false sometimes morally relativist transparency debates that we had 10 or 15 years ago on the Chinese defense budget Much as I would argue we've moves past the attribution debate on cyber to get to policy issues related to what we're actually going to do about it And therefore it's more important for us to actually talk about the Chinese military Modernization itself rather than getting ourselves wrapped around the axle too much on the Chinese defense budget number And to quote a senior US government analyst who may or may not be in this room When asked about this I also say why do you want to know? Why do you want to know what that budget number is? Are you going to ascribe a certain political value to that number? Please let me describe you what I think they can do what they can't do what they might be able to do a year from now or two But not let's not use the budget number as a proxy for deeper analysis And frankly 15 years ago when we did not see the outlines of much of the Chinese military modernization as starkly as we do now That was perhaps the best debate we could have But now it's much more important for our regional partners as I hope jack references The actual performance deployments and appearance of the Chinese military Is is as important a discussion And that is an interesting contrast however with the daily fed the feed and the washing in post about our own defense budget issues And as a classified defense contractor who is also being affected by the self-inflicted knife wound known as sequestration It is it is with some chagrin that I say that you know to watch What seemingly is a resource unconstrained Chinese military? And then trying to balance that within our own very very serious budget constraints Leading many people in china To ask the question The u.s. Says it is rebalancing, but can the u.s afford the rebalance and is it a hollow rebalancing? No, I'm not using the pivot word And is is is that rebalancing credible? Or is the united states a paper tiger? And I think that is the fundamental credibility issue that we confront whether it's measured as a function of our budget number I mean that's isn't that an interesting perversion in the debate that we now see the Chinese Spending more time analyzing our defense budget woes rather than us trying to divine meaning from their chinese defense budget But it isn't all good news if you're in the chinese military We also see some negative trends that just go along with being a develop a developing and developed nation and being a more advanced military In particular the rise of human capital costs In the last 15 years The the chinese military press has clearly showed that the cost of people in the chinese military has gone from Maybe a third of the budget to more than half And that is a function of the fact in many ways of the fact that they wanted to recruit better people in the military Which means they had to pay them more and in fact the last time we were in beijing for the dialogue with c double i double s They had just received another basic doubling of their salary increase and all of these very senior Generals were all too happy to spend hours describing all of the minutia of their paycheck And whether they were still getting their shanshi coal subsidy And everything else from the beijing military region Um now i also have a tremendous amount of sympathy on the human capital side as a manager of of of the over praised new millennial generation Um i not i no doubt have tremendous sympathy for dealing with a conscript army of only children Um and all of the things that go along with that that sound very much like the dilemmas that the israeli army has with some of the people Um i you know i you know the worst thing in the world when you're a drill sergeant is to get a call from someone's mother Complaining about their treatment But china as andrew has pointed out also faces a dozen structural challenges Any one of which would bring a well-functioning democracy to its knees and on a scope and scale that we've never experienced And so while it's tempting for us to think that the chinese pull up your standing committee is spending all day long Thinking about whether the chinese military is getting sufficient budget It's in fact a very small portion of their day and they tend to be more focused on what 900 million restive peasants are thinking Rather than whether maybe the rank and file Um i would also highlight that these are serious times if you are engaged in high level chinese military corruption Um as we know as noted in my china leadership monitor report on the guzhen shan case the deputy director of the gld Who is summarily cashiered? I would not take comfort from the fact that uh leo yan who is a very strident crusader against pla corruption Appeared to be sidelined because of his um association with the disgraced boshi lie You know while i am precluded by my wise and generous us government sponsors for making policy recommendations I would in fact suggest uh to corrupt chinese military officials That they quickly sell off their illicit real estate and perhaps You know downgrade the percentage of their mistresses Such in order to lower their corruption profile within within the chinese system Because bad times are coming And then finally i think to to take to the discussion back up to the strategic level The chinese defense budget and and this issue must also be then looked at in the context of the of the larger challenge from china In particular one that that that i would highlight as a as as an offshoot of the transparency issue Uh which is on the one hand we see this we have seen over the last 25 to 30 years this unbelievable rise in chinese political and economic and military and diplomatic power that has been described ad nauseam But what's often overlooked is the what i think are some of the most deeply destabilizing trends which is that while those while those factors have gone up tremendously There has been a very dangerous lag in two key areas One is crisis management on the chinese side and the other is strategic communications and the defense budget issue is just one of dozens of examples Where chinese strategic communications have failed to ameliorate its regional neighbors to ameliorate the concerns of the united states has um and in fact I would argue that never before has there been greater cognitive dissonance in our relationship with china in the sense that China is holding fast to a set of core strategic principles in foreign policy and security policy That are completely at variance and outdated with what they are actually doing In other words propaganda of the word versus propaganda of the deed It is difficult to mean to maintain a TAS an anti piracy task force in hoa And yet continue to claim stridently that you will never have overseas basing when clearly the replenishment requirements of doing that Require you to find some sort of a hybrid solution It is difficult to do neos of chinese personnel out of libya and then claiming that you are never going to station troops abroad um And as long as china maintains that it is going to continue to hold fast to these principles of mutual non interference in the internal affairs Which as we all know is one of the perks of being a great power is interfering in the internal affairs of other countries Um, we will continue to have a debate about whether china is at its core being strategically deceptive When in fact they appear to be just be trapped into a rhetorical framework But if we're going to take china its word, let me just close by quoting deng xiao peng from his 1975 speech to the UN general assembly in which he said if china ever engages in hegemonist activity We invite the nations of the world to invade china and overthrow the chinese communist party Thank you very much Thanks very much james, uh entertaining is always jack, uh, good luck following that Yeah, um, thanks chris. Um, I don't know how funny i'm gonna be. Um, my accent alone probably provides a lot of entertainment value and apologies for those of you who have no idea what i'm saying or try and be Slow and concise as much as I can be. Um, thanks to chris for inviting me to be a part of this panel and to Andrew for his great article as well as no james for his commentary as well I'm here just to provide sort of some broad parameters of of where things are from the australian perspective And i've got a few specific responses to um andrew's article sort of within that framework so Um Broadly speaking, uh, the perception of china's rising defence budget expenditures is quite a primary concern of australia's strategic and geopolitical outlook But it's not the only driving feature Uh, david urin puts it best as australia's perspective seeing both the bottomless market and the menacing other Currently prime minister gillard is leading a high-level delegation uh to china where she met qi jing bing Just this weekend gone And he intimated to her that he is very keen to take the australia china relationship to the next level So there are there is this sort of uh Dual sort of uh perspective of how australia perceives china And indeed how perceives a lot of asia which goes back to the 19th century There is a main school thought in the main school thought in australian strategic circles is this We do not need to choose between china and the u.s. There is a lot of commentary that's gone on about that in recent years Uh strategically speaking. We are aligned with the u.s. We have the alliance where in lockstep with that That is not going anywhere a really good example of that would be of course the 2,500 marines being posted in darwin from last year onwards However hu white professor of strategic studies at the australian national university Is a prominent proponent of making this choice in that australia must choose between china or the u.s I admire hu a lot. I think he's a he's a he's a fantastic academic. He's fantastic to read He's fantastic fantastic to listen to in terms of lecture and presentation But to be honest, this is sort of a bit of a meersheimer argument. He's just wrong on this one We don't need to make a choice our choice has been made On the record, bob car and steven spiff our foreign Minister and defense minister respectively say that say exactly that Don't expect this to change after the september election in australia where it's likely A conservative government will take power under the leadership of tony abbott In terms in terms of other areas such as cyber maritime There is huge uncertainty and uncertainty is what really create is what really Underlies australia's strategic view towards the rise of china and particularly the increase in defense expenditure Whatever way you take that What australia is doing however is it is hedging in the sense that while it's hoping for a prosperous and peaceful asian century Security precautions are being taken against the possibility of a breakdown of regional order Within the next day or so. I think you'll see julia gillard announced some form of increased defense dialogue And an economic and political dialogue amongst top officials is already all but secure not unlike the dialogue established between the us and china some years ago so Whilst of course from the alliance perspective australia is with the us Economically, we are very reliant on china We haven't had a recession for over 20 years now in large part because china is very happy to buy up a lot of the minerals We mine. We're a very big country and we've got a lot of mining to do so For my two cents. I think it would be really worth Canberra defense officials to take note of the analysis or framework that andrew provides in assessing the rise of china and the Increase in defense expenditure as andrew said, you know, it could just be sort of filling in the gaps so to speak and In terms of what do we break down in terms of internal security versus external security? There is a defense white paper coming out this year hot of the On the tail of the 2009 defense white paper, which was rather provocative towards china reflecting former prime minister prime minister kevin rudd's view that Rather negatively that china is a threat to the regional order. However, of course, he is no longer prime minister Although he does try to get the job back occasionally you know Certainly i'm sure china looks at the leadership ructions of australia and thanks Thanks the lord that they have a 10-year rotation rather than the whims of the alp factions The gillard government is seeking savings wherever it can at the moment However, so this defense white paper is likely to be nothing more than a political sideshow Defense spending has now been cut to the lowest proportion of gdp since the 1930s is under 2 of gdp Something that would have margaret thatcher rolling in her grave today. I have no doubt about I just had to get that reference in there So just quickly responding to andrew's article. He talks about the catcher argument Uh, which would fall under my view the sort of no choice category as in It's justified And assuming that investments in the military build up along overdue And path of the course of china's economic rise even hu white sort of acknowledges that the the sort of interesting aspect of china during the 2000s was that the military was hugely underdeveloped which you could argue Was seen in sort of the lack of response from the 2004 boxing day tsunami lack of Presence of military units in terms of peacekeeping on on the world stage Whilst they would offer other other assistance within the engineering realm for instance A striking feature of That was that during the 2000s china was somewhat militarily underdeveloped at least from one perspective that hu provides But again, these are perhaps western standards that andrew mentions in this paper And perhaps a case can be made for china being categorized on its own in some Aspects of sort of budget transparency, etc. I mean that was the thing that I really picked up from andrew was that basically China's a very very different unique actor and it's not democratic and it doesn't have the transparency that we have say in the united states of australia Under the economic growth as priority argument Um, it doesn't fall under white's choice theory per se, but it acknowledges china's defense budget is increasing at the same rate of As gdp is this unfair Not not so when you look at say india and indonesia who are also increasing their defense spending because their gdp is going up And incidentally australia is looking to strengthen defense ties with other actors such as indonesia Mainly because when you saw that map before indonesia is very close to us for a start And there is a view within australian strategic circles that indonesia will take on the role of a regional Power player within southeast asia and the wider asia pacific over the decades to come Australia would do well to take on board Andrew's recommendation of avoiding the assumption of what constitutes the international norm And I wish that we would see the defense white paper sort of provide a few caveats Along along those lines. I doubt that we will and that's something that unfortunately. I think is missing from our public discourse I'm not saying defense officials don't think along these lines a pop of which um, andrew provides But it's certainly something that could be out there a lot more just the media coverage of the last 24 hours of gullards China sort of just automatically puts on China is a rising power and everyone's getting a little strategically frisky in east asia right now. So I think that's that's something that's really worth adding to the discourse Also, australia is attempting to understand chinese leaders perceptions of what they see as China's unfavorable Favorable strategic environment. They need to do more of that really in that we you know think like the chinese Basically, as I understand it China's in a very unfriendly neighborhood And they will put territorial claims on whatever they see as their territory. It's not expansionism per se It's what they see is you know writing historical wrongs or writing historic sovereignty claims It's possible that this is um ignored more than understood from the australian perspective and something that could be articulated a little better But it does run two ways. China isn't that great in some ways at understanding other perceptions of it as well Although I understand it is attempting to make Amends in this area A greater development between australia and china in terms of trust and dialogue could be developed Which we have seen this past weekend by trust what I mean by that In the strategic sense as a greater degree of predictability and an open means of communication Which is what james sort of touched on in terms of you know regional strategic communication That's something that I think australia is well placed to try and pursue The PLA and australian defence have a very good relationship as it happens And I think that you'll see that increase in that closeness in the next few years along the lines of say civil military engagement as well as As well as possible peacekeeping with humanitarian assistance Just on that note to me that seems that could be a possible bridge builder in terms of these issues of transparency and understanding I'm not saying I understand, you know the PLA are very sort of different actors from the government, but at the same time Within the entire sort of framework of relations. I think it could be go a long way in helping to sort of Help Basically make us feel all little more secure and knowing exactly how China's defense budget operates What what it exactly is investing in and you know, basically whether or not they're going to build any ships to come in and invade australia That's really the primary concern Although not within the mainstream. I assure you I will just add, you know, it is the first time in 30 odd years of defense white papers that China is acknowledged by australia as a as a rising power and one that can affect australia's geopolitical Safety and and its own strategy So I'm not saying that we are going to get invaded by any means what I am saying Is that China's on our radar and we are very much thinking about how we can hedge in a proper way whilst maintaining our alliance with the u.s One idea andry doesn't touch on too specifically is that of containment, which is Bandied around quite a lot down under I understand it is here as well And Some will dismiss this as no there is no sort of idea of containment. That's ridiculous. Joe. Nye will say well You know, you need to do that socially and politically and economically and well, that's just not going to happen But people such as rob asin from the new zealand strategic studies seem to argue that there's already a bit of de facto containment, which Many dispute including myself. I wouldn't I wouldn't say that that's happening. However, China is quite Canny in that it will use this argument of containment to its own advantage It might not actually think it's being contained per se or some of its Major players within the government in the military might not but they'll use it to its advantage In in a regional context when it sees sees fit that being said, you know China has no publicly declared grand strategy to counter any perceived form of containment others may dispute that but It's perhaps more a perceptive tool than any firm framework for analyzing China's defense budget So as I just like to conclude by saying that basically You know, we take notice of this down under I've brought a question and arises about what China will want to see in terms of strategic trust And I think budget transparency is something that could be worked on on both sides from that respect working in tandem As well as other exercises going on in terms of civil military engagement and just basically Trying to draw together A closer relationship and closer dialogue within the strategic realm. Thank you very much Okay, so you heard it here first the Chinese fishing fleet invading Australia sometime next year Well, we've had a very rich discussion and lots to think about here I'm going to seize the the sort of powers of the chair and ask the first question Um, and I'd like to panelist I think there was kind of a theme that was running through all of the comments And I want to pick up on a couple things that each person said Andrew talked quite rightly I think about how they're increased this idea of increasingly bringing things in to the official defense budget And how they're showing more and more of what they're actually up to and James I thought kind of made an interesting point along those lines too Which is to remind ourselves constantly that the pull-up euro standing committee doesn't spend a whole lot of its waking attention Focusing on this issue and I would take that even a little bit further actually and say that It's my own sense is actually that the pull-up euro standing committee Just doesn't want to know in some cases and uh and that outside of the general logistics department in the PLA There are very few people who actually know what what is going on inside the budget And the area I wanted to zero in on was uh r and d because this is a one This is an area where you know a lot of the controversy about the chinese defense budget comes into play What what is what is included what isn't how our Research and development programs funded and in particularly as we See the you know sort of strong trend line in their military modernization and as all of these weapon systems that have been being developed over the last Decade or so are entering the force. I'd like to hear particularly from andrew and james Their thoughts on when what comes in, you know, which part of that development process is the PLA responsible for budgetarily and When cissa, you know, sort of what space within the development cycle There is the general armaments department sort of taking the lead or the component services And when does that budgetary burden fall more toward the state-owned defense enterprises? Thanks Well, that's a nice easy startup question um Well, the thing is is that um and again on the transparency side There is a tremendous amount of information available. For instance about things like the 863 program and the 973 program Um in terms of being able to track dollar amounts But but what one of the first things you have to understand structurally is that we're dealing with a different type of system Is tempting is it is to think oh, that's just like nsf and darpa There is a much tighter interweaving of universities and companies and The defense industrial base apparatus such that There are better funnels for technological development getting into the defense industrial system In a much higher level of state support for that Whereas in our system much more of the innovation is is private sector led and things along those lines So structurally it's difficult to compare the two I would say though that That on the r&d side One of the one of the dilemmas that the chinese have is precisely because of the state driven nature of it And so when we look at things like indigenous innovation or which has now been rebranded by the way The chinese realize that that is now a radioactive term. It is now innovation driven development Um What what comes from that also is that the last people sometimes that you want doing innovation are central planners Um, uh running state centered innovation because it's sort of like jumbo shrimp. It's a little oxymoronic Uh, and and this indigenous innovation push since 2006 has in many ways I think been stifling the private sector enterprises that drove 25 years of chinese economic development Um, one of the contrasts that I would that I would just close that with saying though is that um in areas where that the foreign manufacturing and foreign r&d labs in china, um have Permitted the technology transfer that can then be leveraged into military development That is that is a chosen path for them But what we continue to see is areas in which there is no natural analog on the civilian side There is no natural foreign manufacturing base to draw from Is the driver of the continuing commercial espionage and government espionage that we see And again, my concern about that is while that is a very serious problem Again, that is not organic innovation and that is only you'll maybe get a generation or two Out of that if you successfully reverse engineer it and there is still a shallowness About that innovation that will continue to bedevil the system and continue frankly to create this circle Where they would drive they continue to have to go back to espionage again and again and again Because of their inability to convert that into organic innovation Well, uh, chris, that's an excellent question and I wish I had more specific Numbers and rda process Insights for you I think here's a case where even if it's hard to trace some of that with the degree of Fidelity that would be desired It is striking the sheer dynamism that's going on here in china's defense industrial sector Now as james rightly points out. There are a lot of problems with innovation The higher level innovation especially but when you look when you look back to the map I put up and you think of some of the scenarios that china is looking at And the numerous overlaps and workarounds that china has available You also have to have to ask the question how how good is good enough Maybe it doesn't always have to be the gold plated solution Maybe it doesn't always have to be the the american or the western military standard and here. I would just say Look look at the sheer amount of resources and programs that china is throwing out there It may not all be efficiently spent, but No other major country with the possible exception of the u.s Is able to do this kind of thing at this point and probably not the u.s as as flexibly Seven major military shipbuilding programs the u.s Is the only other country that approaches that number Aircraft a lot of the proof remains to be in the pudding, but many different simultaneous programs So that's an enviable position to be in even if they're still facing a lot of problems We'll throw it out to the audience And uh lu xiang right up here in front And please identify yourself. Okay. Thank you for asking your question. I'm lu xiang Visiting fellow here at css from china. I have a very simple simple question to the distinguished panelist I just suppose you are at the position of president president xijin ping Would you like to to advocate the so-called transparency? Regarding everything about chinese military Military and please give some reasons If you if you make a decision on on the transparency issue, thank you Well, I I think that I mean, of course, there are always going to be aspects of military development that are that need to be secret Let's let's be clear. This is not some sort of poly anish world But I would argue That in the long view that it is actually becoming detrimental to china to By not being more transparent about things that it can be transparent about and not lose capability There are many things that there are many situations in which china in my view because of its unwillingness to discuss anything Is unnecessarily in some cases Riling up countries in the region who in the absence of data have to assume the worst And by the way, you're playing into a military security community in many of these countries who by definition are worst-case planners And when you give them nothing to work with they have to start with extreme scenarios and work backwards and so But this is this is And I don't I don't mean this to sound condescending But you know china has achieved a tremendous amount of powerful growth in a very short period of time and we see china struggling in public with all of these changes And naturally making mistakes and Leaning back to the ways of the past and there is much about the chinese political structure, frankly that prevents the system from being more Transparent prevents leaders from being more honest Because the political system is not structured in a way that allows that kind of dialogue to occur And it's you know, it's only because of china's openness. I frankly that we're seeing much more of these difficulties and contradictions in real time and you know china in many ways Would serve itself better by doing a better job of explaining to the outside world The challenges that it's facing rather than simply saying the challenges don't exist And i'll give you a perfect example On the cyber side the mandate report comes out about a month ago You know clearly identifying a chinese military unit tremendous amount of information showing exactly what they're doing on the cyber side China, you know, the united states when confronted with this would say As a rule, we don't discuss intelligence operations from this podium, but we can either confirm nor deny that allegation china's response is there is no unit 61938 What? We see the white board outside. It says 61938 on the board, you know, we have the photos We have the online resumes of the people who work there We have their you know, we see their cvs. We see them chatting and you know online traffic There's hundreds of pieces of evidence that there is a unit with that number that does this activity and china's response is it doesn't exist That doesn't give the world confidence that china knows how to exercise its increasing power I think uh james raises excellent points and i think of course there are differences in national interest You can argue although perhaps it's sometimes Exaggerated and people can have different views that there are cultural communications approaches And so the question often arises for what audience is a given communication intended now I think uh as from an american perspective americans have to understand that not everything is about us So to speak so other countries have their own domestic audiences to speak to especially great powers big countries like china Have a lot of communications that are optimized for a domestic audience or even a specific part of a domestic audience And by in optimizing in that direction, they're Not optimal for a western audience. I think uh if i were a leader of china I would try to be very clear in my mind about when i actually was trying to communicate clearly with the us and western audiences western public winning hearts and minds because Um, I I think there are reasons why it could often be suboptimal, but what the approaches that are being used Definitely are not effective for Speaking to gaining credibility with a foreign audience Abstract sort of moralistic pronouncements Categorical denials that don't appear to accord with the facts These make I think a lot of western audiences not only feel suspicious, but at the bottom line They feel like their intelligence is being insulted. So I think as a leader of china I would try to have more awareness of that and know that i'm balancing many factors And you know sometimes you have to pay a price here to achieve an objective there But at least be aware of the prices that are being paid the the final point i'd make is In my experience Americans in general and uh, I think especially ones who are involved in policy But I would go so far as to say it tends to be a a cultural attribute if I can go out on a limb and argue that Appreciate frankness and directness even when it's not the answer they want to hear I've been privileged to accompany some members of congress to china and visit military facilities meet with High-level leaders both civil and military and What I noticed quite directly was even when they weren't hearing answers that they wanted to hear It made a huge difference and it meant a lot when someone High-powered in china was willing to go into detail answer questions clearly that makes a huge difference Yeah, I would just say that The one the one the one thing I would tell shijin ping is there are americans who actually understand chinese Because there's always been this historical distinction that says well if we communicate this internally in chinese no one else is going to hear it And you know china regards its language as its first layer of national defense It's its first layer of crypto But we do read it and that's the problem is that we then have this we then have to decide Well, which is the message the external message or the internal message because they're not the same And you know we at our own system, of course, we have the problem Which is that there is no there is no distinction And and our and because thanks to our free media and And so often what we wanted to be an internal message is externally broadcast in ways that aren't it's always helpful But but that's that that's the problem is that that that distinction may have been true in the malzadoon era, but it's not true now Jack did you want to get on that? Yeah, all I wanted to say was that I mean Prime Minister Gillard and and other regional actors will understand that you know She's in a rather precarious situation He can't you know just open the box completely nor nor will he nor nor does any other country To a full extent, but what I would say is that if he wants to develop a greater new level of Trust and and closeness towards australia china austral um new zealand and china A little bit more of coming to the party on his part will help of course australia could do the same But I think sort of or at least of him's explaining sort of in private talks Well, you know, I might be in a difficult position. I can't Fully fully disclose whatever. I think it's certainly true to say that If he wants to take that some of these regional relationships further and uh, I'm sure that he does that's what he's saying Then you know, he needs to come to the party a little bit which I think it's fair to say Young lady here in the black My name is donna wells. I'm a graduate student at georgia tech sam nun school Um, can you talk a little bit about the current figure as well as future trends and the ratio between internal versus external security spending What what you're probably referencing is that the chinese themselves and and to be honest This was the most important element of this all the chinese themselves announced last year That internal security spending had eclipsed external security spending Um, which when I read between those lines Made me very nervous because that that tells me that they are sitting on perhaps an even more volatile powder keg internally than I thought they were Um, because there are very few reasons why you would fess up to that Other than to acknowledge the fact that you have very significant problems and perhaps even the deterrent function to Internal actors to say hey, we're we're going to be even more serious than we were before about this Um That continues to bedevil them as does the dilemma that they face on the military side Which is are the you know the paramilitary forces sufficient to control the turmoil? Um, can they continue to avoid the nightmare scenario of having to revisit tiananmen and use active duty military forces? Um against against civil unrest um the The trend lines moving forward. Um, I think You know we can you know It's it'd be blithe to say well, you know china has enormous foreign exchange reserves You know they're they have their economy didn't take as big a hit in the financial crisis Therefore, it's much more likely that they can sustain these levels Um, but I would just highlight again, which is always one of the most important statistical things that I always saw in the defense budgets Um, we always focus on the defense budget number But the other categories of state expenditure have historically been increasing at a faster rate than defense budgets And we'll continue to do so because they are basically building the social safety net under the population And so it's it's much more nuanced to look at the situation and say The chinese government faces a range of challenges of which it is struggling given its inability to generate sizeable tax revenue and customs revenue and other things to deal with some unbelievably, uh, thorny structural problems I think that's absolutely right and again, uh, if you'll forgive the simplistic water droplet model I think that really speaks to the concentric layers of descending priority probably for most states there would be an element of Things at home are more important than things further away It's almost like a maslow's hierarchy of needs for great powers You have to fulfill certain things and then perhaps eventually you can think about new historical missions and counter piracy in the gulf of Aden after all these years of security achievements and stabilization closer in We can also see in this represented the challenges with china's complex Ethnic geography Other domestic challenges perhaps exacerbated by an s-curve type slowdown over time and As james alluded to these issues could could definitely get worse, especially as if economic growth slows further So many things are are hinging on that I was struck. I presented at a conference sponsored by the economist in, uh, beijing the other year and The economist is always good at raising these tough issues and catalyzing debate and what struck me was the non-chinese government affiliated participants All tended to acknowledge major issues and headwinds and all the chinese government affiliated Participants very intelligent and knowledgeable, but they basically all said well No matter what problem we're facing we'll just grow our way out of it Well, what if you hit a patch where you can't be growing fast enough to grow your way out of it? That's the big problem. And if my knowledge of statistics is correct. I think even Japan in the 1960s Rip roaring as it was had a year of almost no or or negative growth What would that what would that do to to china sometime in the next few years? So to me even though I having struggled enough with the defense budget issue I'm not in a position to turn around and do the same thing for internal security spending But it seems plausible to me that again There may not be as much information as we'd like. There's a lack of transparency, but I think china's Telling us the truth. They're spending a lot on internal security and you don't have to take their word for it Just look at the various indicators and it's it's abundantly clear mcdevitt Mike mcdevitt from center from naval analyses. Um First an observation on the transparency issue the one thing and it's really to reinforce james's point The one thing that I think that we should be pressing china on transparency is is how many of capability x y or z are you buying for example In japan or the united states or in australia and virtually any other democratic country when you go to the congress and say i want to buy 5000 airplanes or 200 airplanes or what you have to give them a number you have to say i'm going to buy A thousand airplanes and that's why i need this money We have no idea what the what the procurement objectives are in china I've I've talked to chinese interlocutors For some time about this and have come to the conclusion that one reason why nobody says it is because they're afraid they're going to scare their neighbors quite frankly But the question for andrew is in terms of the Inner service distribution of resources. I think it was the 2004 white paper in which Made a statement that priority in terms of resources. We're going to go to the The navy the air force in the second artillery other than that one Glimpse have you seen any other over the next almost now 10 years any other indications that suggest Either that these this prioritization remains in place or is given any more definition to This reallocate or this allocation of monies away from the army toward the other services Well, I hope there's just some valuable official statement and document that I've been missing here But I suspect That you've identified one of the very few statements that has any specific Sheds any specific light on this now. This is where it's Useful and I guess of necessity you go to the inductive approach you observe What's happening in general you can get a general sense, but This is this is one of the unfortunate aspects of china's lack of transparency Not saying anything about how that actually is playing out and with regard to the procurement I haven't had a chance to look at this in detail, but I think sometimes there are some Contradictory data points that that come out and there's a lot of uncertainty this So president Xi Jinping's trip to Moscow Um I my understanding is the chinese state media were making noises about arms sales But if you look at what some of the more knowledgeable russian sources were saying it was completely different. So You know what's going on And it's these kinds of things probably have very logical chinese policy internal policy explanations But there is a cost and a blowback where the outside world can't get reliable information on even a very simple thing And hence tends to worst case And we all know that the worst rumors and the most outlandish rumors thrive the most in an absence of good hard Data points. So I I agree with all your points and I wish I had better answers You want to turn well and the the interesting trend changes, you know 15 years ago if I wanted to look at force levels in the open sources I would naturally go to the military balance report from double eye to bless which had always been very reliable I'll tell you right now if you want to know what chinese procurement looks like You know you go to sino defense dot com and you look at the happy snaps that chinese military enthusiasts are taking of These shipyards and you see the numbers of keels that are being laid And you compare that with the navy trajectory our navy trajectory and and you know the cuts in the f-35 buy and all these other things It's very sobering. It's very sobering particularly on the naval construction side. I mean we're we're looking at an explosion of naval construction That again to to luchang's point will have to be explained And it can't be explained simply as defense of the motherland If in fact you're now engaging in wide-ranging, you know global deployments Doctors look I'm well spoken. I'm an adjunct of some kind. It's csis. I used to be in the defense department I'm interested in this issue of the standards for deciding what is a true defense budget Long time ago andy marshal and I working for kissinger tried to figure out the russian the soviet Defense budget and we learned that one reason it had gone up dramatically was we attributed To the red army the pay increases That we had made in the american army in the transition from a conscript to an all volunteer force So my question is has anybody tried to do the american defense budget? The way we do the chinese And what's the answer um We did um chaz freeman was very much on this point during our dialogues with the chinese and we did go through that exercise Of racking and stacking the u.s budget and and to be honest We did it in a somewhat minute for manipulative reasons because we wanted to we gave a presentation to the chinese it said Hey, we all make mistakes And the u.s defense budget as announced isn't the whole story and here's all the other pieces the doe nuclear weapons budget The veterans affairs military retirement budget and all these sorts of things and it was our way of saying We both could do better in terms of being more transparent about this and trying to create you know An atmosphere to then hit them with the hard questions about about r&d procurement and um There is a un standard which is somewhat held to But again, everyone has found all these imperfections with the methodology It's very difficult to do apples to apples The defense budget side because of all of the country variations on how people count things Even among completely transparent european countries. It's very difficult to do that. I think frankly I think sippery does it better than just about anybody And they have a very we had a sippery guy with us in beijing And he just put the chinese to sleep with detail on how to use how the sippery methodology could be used to count defense budgets Which given the penchant of these guys to attend long meetings with long boring speeches was really something These are these are excellent points. And I think I'd have to Clone a more capable version of myself to explore that adequately I did get some insight into this When I had a a summer a summer internship at the us office of management and budget And I started to realize just how complex budgetary things can be in general James points are well taken and The fact is although this shouldn't be blown out of proportion because it doesn't it doesn't close the gap by any means China includes things in its defense budget that that the us doesn't we have a list of these things in the article I think probably some of the more significant ones involve retired officer personnel perks Sort of life care and assistance and cars and offices that for which there's really no post retirement full equivalent in the us and This may have started at a given level of expense for china's military But I suspect over time This category is going to capture a lot more spending in line with what james was saying about rising personnel costs So I wish I had a better answer to your question But I would just say I think deep budgetary analysis is challenging no matter what and it's rarely Done in the depth that it deserves because it's it's so knowledge and human power intensive to do a good job with it Jack did you want to throw in something on the australia piece? No, okay All right. Well, we're approaching time and with that. I think I'd like to ask the final question and We'll just see what the panel thinks of this you know, we've been talking a lot about these issues of Of messaging and strategic communications and who's the audience for the for the number that they put out And it's it's interesting to me that obviously over the last several five-year plans There's been in nominal terms a doubling of the defense number For the last several and now we're well into the third year of the current five-year plan And at least the numbers they've been announcing so far They seem to be quite short of where they would have to get to double again in nominal terms by 2016 So is it the panel since we'll ask you to be a little predictive here that that this means that we're seeing a permanent leveling off in the in the level of expenditure And if so, why don't they do a better job of messaging externally especially that that's what's indeed going on and take some Of the air out of the balloon, you know of this issue of their constant, you know In other words the number they put out it's nice to have a double digit number, but if it's actually leveling off over time Um, why don't they do a better job of messaging that externally? And is that perhaps because the primary audience is not the external one, but thanks Well, I would say that that there's a there's cost to doing that And by the way, if you enjoy this sort of thing Go back and find the video on shinhua of the the woman at the press conference Announcing the chinese defense budget figures because she gets high marks for feistiness Um, in terms of basically saying I'm not going to give you the defense budget number because it's none of your damn business Um, you know and china can spend whatever it wants because it's a sovereign nation and again, it's none of your damn business Um, but there are domestic costs Um to going below that number because as you know that the chinese are very focused on public opinion I mean one of the sort of one of the Less told stories is how on the one hand they're very focused on internet censorship But they're also very focused on using social media To communicate with the population and so and they're very concerned and closely monitor What the population is saying about foreign affairs and domestic issues and corruption and whatnot And so they don't want to have to answer the question. Why are we deemphasizing national defense? Even though there may be legitimate reasons for doing that because there's a significant section of the population I think that is still very frisky about china's rise and its position And the daguashintai the great power mentality and things like that There are deterrents costs perversely by lowering that because then then It could undermine the idea that therefore, you know china can punch above its weight And and and there would be analysis that would follow from that that may not follow along the lines of what they want So in a sense, they're trapped into a certain narrative about the defense budget increase level It hurts them because it leads to the so-called china threat theory But if they were to lower it it would diminish china's deterrent value against its regional neighbors and against the united states so In that I would say then 51 49 I would pick the higher number Because I don't have to be transparent about whether it's real or not. Anyway And and do you think just uh, do you think that they will then Catch up and then the last two years of the five-year plan and double again or no Well, they've historically done that we've seen them We've seen five-year plan cycles in which they set out a target And then the first couple of years of the five-year plan don't go don't go well And we think oh, well, there's no way they're going to make that target And then they just roar at the end and they move the money around and they make it happen And so we've seen that two or three times already in the past so it wouldn't surprise me if you saw it again Andrew do you have anything to add? Well, uh This it's it's it's very hard to predict this I think I think there's enough flexibility in this in their system regardless of the economics that will happen over the next few years and I I think they're spending so China spending so much within its means on defense that I don't expect any any major Reductions, I think a trajectory maintaining the current trajectory for a couple years seems realistic and and likely to me and they probably wouldn't want to Adjust too severely in either direction in part because of the domestic versus foreign audience costs that could be paid for that and To understand where China is coming from it's I think We do have to understand that different systems are optimized in different ways China is great at Having about 10 top priorities and implementing them across the the board over time And doing some long-range planning It's not good at at crisis management and interagency processes Arguably the u.s. Is is the opposite to some extent So to the extent that there are costs and benefits and when you're a mature great power You have to accept that if you choose one approach and you get the benefits from it You also have to pay the cost so if China decides it has to keep limiting the transparency They're going to be foreign audience costs And complaining about a whole encyclopedia worth of different types of china threat theories is not going to be credible or or Productive I'd close with two paraphrase quotes from Luminaries in this field one I think that explains how the u.s. Should look at things and one that explains how china should look at things Dick bitzinger who always has a nice spicy encapsulation for things Said in one of his previous works Essentially, you don't have to you don't have to count all the beans To know to see what china is doing and I would add you don't have to count the beans to see that A heck of a soup is being brewed up here The second quote is from a chinese Mil a military officer saying it's not whether or not you have an aircraft carrier It's what you do with your aircraft carrier So all the nice words in the world aren't going to change neighbors and the world's opinions It's how china actually acts with all this new hardware and this rising power Great point. Well, uh, thank you very much to the to the panel for an outstanding Presentation and thank you all for coming. You've been a great audience. Thank you