Week of March 8, 2002

(3/5; 3/7) - China plans to raise defense spending by 17.6 percent this year, bringing its publicly acknowledged defense budget to $20 billion. This increase completes its one-third increase in acknowledged military spending over the past two years. China's real defense spending is estimated by Western experts to be as much as three to five times higher than what is being reported; it is considered the highest in Asia, topping Japan's $45 billion annual defense budget. Spending on foreign weapons acquisitions and on weapons research is not counted in Beijing's official defense spending tally.

China's finance minister, Xiang Huaicheng, reported to the National People's Congress that the funds were needed "to utilize modern technology, especially high technology…" and to boost salaries for soldiers. Beijing has explained its increase in defense spending as a response to the Bush administration's decision to withdraw from the Anti-Ballistic Missile Treaty and to pursue a missile defense system. China has expressed concern that if the U.S. builds a missile shield, the Chinese nuclear force will lose its strategic deterrent. A more powerful army also reflects Beijing's ambition to complement its strong economy and secure its strategic position in Asia.

This year's increase is part of a broader effort to modernize the People's Liberation Army (PLA). China's main modernization efforts have focused on turning the PLA into a modern streamlined fighting force. Toward that end, China has made substantial military acquisitions; China imported more arms than any other nation in 2000, according to the Stockholm International Peace Research Institute. Analysts contend China will likely be the largest importer of arms for 2001 and 2002 as well. Recent acquisitions have included two Sovremenny-class destroyers from the Russians, a sure sign of Beijing's intentions to challenge American influence in Asia.

But despite the huge increase in the defense budget, China's PLA is still struggling to become a modernized force. Chinese analysts cite poor morale as one reason why this is the case. The People's Liberation Army Daily, the army's newspaper, cites complaints about bad pay, lack of vacation time, and poor training. These factors, in combination with the blemish to the PLA's reputation after the Tiananmen Square incident in 1989, have served to hamper the PLA's ability to recruit the talent that it needs.

The army is also handicapped by its difficulty in absorbing new weapons. An Asian military officer estimated that 60 percent of Beijing's Su-27 fighter-ground attack aircraft cannot fly because they are either broken or because the pilots lack the skills necessary to fly them. He believes the PLA soldiers are 20 years behind his own in terms of skills. "This gap in personnel is not easily closed," he said.

SUMMARY: (3/5; 3/6) - At this year's session of the National People's Congress, China's Premier Zhu Rongji pledged to fight rural poverty, support the urban unemployed, and eradicate official corruption. In his work report to the Congress March 5th, Zhu detailed the Communist Party's most pressing concerns as China braces for its first full year in the World Trade Organization.

Zhu declared that the key to growth in 2002 is to boost domestic demand by raising the incomes of rural and urban poor. Thus, he said, the most pressing task is to ensure pensions and allowances are paid on time and in full. Zhu's speech addressed the concerns of many delegates worried about how China's agriculture and industry would be able to compete after China's accession to the WTO. His speech also allayed concerns that the Party was forsaking the farmers and workers in favor of business elites.

Zhu also attacked wasteful bureaucrats who enjoyed themselves while farmers struggled under severe local government levies and workers had to make do without social security benefits. Official graft was listed as the number one public concern in a survey last week published in the People's Daily. Thus Zhu's tirade on corrupt and wasteful bureaucrats won him high praise.

While he lauded China's 7.3 percent growth rate in 2001, the premier stated that the country remains burdened by its legacy of central planning. "Industrial structure remains irrational, and deep-seated problems in our economic system have not been solved," Zhu stated. Zhu signaled there would be increased government spending to boost growth and help displaced workers.

In regards to Taiwan, Zhu called for Beijing and Taipei to establish direct trade, transport and postal links. Zhu repeated Beijing's precondition for official negotiation, that Taiwan accept the "one China" principle. While he did not repeat Beijing's threat to invade Taiwan if the island hesitated in the unification process, he did say that the Chinese government is "firmly convinced that the great aim of national reunification will be realized at an early date."

(3/6) - China's foreign minister expressed a positive attitude about relations with the United States at his annual gathering with the press, a news conference held on the sidelines of the annual session of the National People's Congress. "We are ready to work together with the U.S. side to narrow differences, expand common ground, increase exchanges and promote cooperation in order to further push forward the
constructive and cooperative ties," Foreign Minister Tang Jiaxuan said.

Tang mostly stayed away from discussing areas of disagreement with the United States, and only mildly criticized the United States on Taiwan when the issue was raised by reporters. Although he did not specifically condemn American arms sales to the island, he did say China has always "firmly opposed" American efforts to boost Taiwan's self-defense capabilities. "I wish to emphasize that the Taiwan question remains the most sensitive and most important issue at the core of the Sino-US relationship," he said.

Asked if China and the United States were only experiencing short-term cordiality due to the war on terrorism, Tang replied that cooperation with the United States was "long-term." Tang said there were "twists and turns" after George W. Bush became president of the United States, but that the U.S.-China relationship had improved as a result of Bush's trips to China last October and last month.