China’s new defense budget, released last week, provides penetrating insight into the mind-set and priorities of the Beijing leadership at the dawn of the 21st century. It is not a particularly encouraging picture. The double-digit increases in defense spending indicate that the Chinese government sees its military playing a vital role in the future. That does not augur well for peace, stability and prosperity in Asia.

According to the budget, China will boost defense spending 17.7 percent this year, the largest increase in two decades. Although military spending has been climbing steadily since 1989, this year’s boost is even more significant as China has no inflation, which erodes the buying power of new funds. Given the government’s concern over the growing budget deficit, the generosity to the military is a troubling indication of Chinese priorities.

According to Finance Minister Xiang Huaicheng, the funds will go to raise military salaries. China’s booming economy has hurt the military, as the private sector now has more allure than a career in the armed forces. The edict that forced the military to drop many of its businesses may refocus the People’s Liberation Army on defense, but the PLA was also deprived of a crucial source of revenue. The new budget is intended to fend off the brain drain by making the services more competitive.

That may be true, but it is only part of the story as is the official budget itself. Not all defense spending is included in the published budget. When all expenditures are added up, it is generally believed that Chinese defense spending is triple the official figure. That would put the country’s military expenditure on a par with Japan’s, even though the Japanese economy is more than five times larger than China’s.

China’s chief concern is modernizing its forces, and that is an expensive proposition. U.S. high-tech weaponry deployed during the Persian Gulf War was an eye-opener for the Chinese military. They got another look at U.S. capabilities during the Yugoslav and Kosovo campaigns, and were impressed with what they saw, the accidental bombing of the Chinese Embassy in Belgrade notwithstanding.

As always, domestic politics hang over the government’s thinking. A boost in military spending should silence any grumbling in the ranks as China prepares for a leadership change. With Chinese Communist Party legitimacy tarred by corruption scandals, PLA support will be a key factor as positions are sorted out.

The situation in the Taiwan Strait is also critical. The tone has softened in recent weeks, but China has not jettisoned hopes of reuniting with the “renegade province,” as Beijing likes to consider the island. It is believed that President Jiang Zemin would like that feather in his cap when his term in office ends in 2003. Unfortunately for him, China cannot bend Taipei to its will. Taiwan’s defenses, China’s military weakness and the U.S. security guarantee to the island deny Beijing the military option.

More troubling still for Mr. Jiang and other nationalists in China is the fear that Taiwan’s defense capabilities will improve and Taiwanese nationalism grow stronger over time. Simply put, China has to transform the security environment in the Taiwan Strait, and defense modernization is the means to that end.

Increased defense spending means sacrifices, but that is a burden many Chinese are willing to shoulder. While the rest of Asia shudders at the thought of a conflict over Taiwan, the vast majority of Chinese would stand behind their leaders. No Chinese government could survive if it acquiesced to a Taiwanese declaration of independence.

The need to stand firm is behind China ‘s diplomatic offensive to block the sale of U.S. military hardware to Taipei. In addition to blunt warnings from Beijing, two delegations have been dispatched to Washington to let the administration of President George W. Bush know that any sales would endanger U.S.-China relations and encourage independence advocates in Taiwan. The military budget, and the modernization it will finance, is Beijing’s other response.

The chief danger is that China might think it has a limited window of opportunity. Fears that Taiwan’s willingness to declare independence will increase are misplaced; most Taiwanese are satisfied with the status quo. Critically, so are its supporters, including the United States. The anticipated leadership shuffle in Beijing imposes an artificial deadline. It should be ignored. China has more important concerns and, to be honest, building a more powerful military is not one of them.

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