Chinese Defence Budget 2025: Lower Allocation, Bigger Impact

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On 5 March 2025, the Chinese government announced its national defence budget at US$ 249 billion (CNY 1.81 trillion) for the year. As the second-largest defence budget worldwide, it marks an annual increase of 7.2 percent but remains below 1.5 percent of China’s GDP. Notably, this defence budget outstrips the combined military spending of regional powers, including India, Japan, South Korea, and Australia, underscoring China’s capacity for regional dominance. The budget, however, excludes certain expenditures, namely, weapon imports, People’s Armed Police (PAP) funding and research and development, leading critics to argue that it represents only one-third to half of China’s actual defence expenditure. This paper argues that China’s consistent GDP growth continues to provide substantial resources to its armed forces. If the trend persists, even with less than 1.5 percent allocation, the People’s Liberation Army (PLA) will have ample capability to expand its influence across the Indo-Pacific, if not beyond.

Lower Budget Allocation, Higher Moral Ground

China frequently argues that its defence budget pales in comparison to the US defence budget, evident in its 2025 allocation of US$ 850 billion. Furthermore, the US government consistently allocates not less than 3 percent of its GDP to defence. Compared to this, China’s 7.2 percent budget increase this year remains modest, aimed at enhancing reconnaissance and early warning, joint strike capabilities, battlefield and comprehensive support systems, military personnel development, and troop training and operational readiness. The PLA spokesperson, Wu Qian, while announcing the defence budget, underlined that the CNY 1.81 trillion (US$249 billion) allocation is the bare minimum to safeguard national sovereignty, security and development interests, and to support China’s ongoing military transformation.

China frequently argues that its defence budget pales in comparison to the US defence budget, evident in its 2025 allocation of US$ 850 billion.

As evident in Table 1, China’s defence budget growth rate figures have consistently declined over the past decade, following two decades of consecutive double-digit growth. During this span, China’s GDP expanded by 76 percent, rising from US$ 11.06 trillion in 2015 to US$19.5 trillion in 2025. The defence budget has also grown in tandem by 72 percent, increasing from US$ 145 billion to US$ 249 billion this year. However, its share of China's GDP has remained consistently low, and its proportion of central government expenditure has hovered around 5 percent, suggesting that military modernisation remains a lower priority than economic growth and domestic stability. 

Table 1: China’s Defence Budget Since 2015 (Approx.)

Source: World Bank, IIS Military Balance, Chinese news reports and official figures

Defence Budget: Credible Figures?

The Chinese government publishes only the aggregate defence expenditure without enumerating individual allocations for its military services. Beijing argues that full transparency primarily benefits advanced powers, as they can afford to reveal their capabilities to deter their adversaries. Smaller powers require opacity to safeguard their military capacities.

However, as Chinese capabilities advance, its official defence allocations have become relatively credible, for three key reasons: one, accounting reforms and the subsequent introduction of zero-budgeting in the PLA have streamlined the financial process; two, most of the defence budget now comes as the central government allocation and therefore, remains accountable; third, additional funding from local and regional governments remain limited, at most 3 percent, reducing the scope for budgetary opacity.

The Chinese government publishes only the aggregate defence expenditure without enumerating individual allocations for its military services.

Nevertheless, some analysts claim that the Chinese actual defence budget is twice if not thrice the official figures. Adam P Liff and Andrew Erickson in 2014, and M Tayor Fravel in 2024, have consistently debunked these speculations, some of which rely on flawed purchasing power parity (PPP) calculations. They suggest figures as high as US$ 700 billion, which are generally speculative and unreliable.

Budget Components: Shifts in Spending

Further, according to China’s 2019 White Paper on National Defense, the defence budget contains three major expenditure categories: personnel, training and sustainment, and equipment. The personnel costs cover salaries, allowances, subsistence expenses and pensions, while the training and sustainment costs include troop training, military education, base maintenance and routine consumables. The equipment expenditures fund research and development, procurement, maintenance and storage of military materiel.

Over the years, the emphasis within these categories has gradually shifted. In the initial years following the 1978 reforms, the budget was heavily skewed toward personnel costs, reflecting the PLA’s massive size. Military modernisation remained a low priority for the next two decades as economic reforms took precedence. However, the Gulf Wars and their implications for modern warfare propelled a strategic shift. Thereafter, China reallocated larger funds for high-tech weaponry inductions and enhanced training, accelerating the PLA’s transformation.

Over the years, the PLA has downsized to 2 million troops, with conscripts comprising one-fourth of its force, and saved substantially in personnel costs. This shift, along with increasing non-commissioned officer corps (NCO), has made the PLA leaner and more efficient. The budget thus saved has been reallocated to boosting training in real combat and joint conditions, enhanced sustainment measures, and equipment inductions.

As China’s defence industry advances in high-tech weapon development, partly driven by its civilian sector’s expertise in advanced manufacturing and growing arms export revenues, the PLA can acquire advanced weaponry domestically at competitive costs.

Moreover, as China’s defence industry advances in high-tech weapon development, partly driven by its civilian sector’s expertise in advanced manufacturing and growing arms export revenues, the PLA can acquire advanced weaponry domestically at competitive costs. China, therefore, can allocate a larger budget share towards training, sustainment and joint warfighting capabilities, reflected in its frequent large-scale military exercises and naval deployments outside its immediate neighbourhood. This year’s budget, in a similar fashion, is expected to fund China’s expanding military presence, as seen in its recent exercises around Australia and Taiwan. The budget will also accelerate China’s induction of cutting-edge weapon systems across air, sea, and other domains, further enhancing PLA’s operational capabilities.

Competing Indian Discourse on GDP Share 

For years, Indian experts have advocated for a larger defence budget to accelerate the modernisation of the Indian armed forces. There is a near-unanimous agreement, especially among veterans and defence experts, that India should spend over 2 percent of its GDP on defence, with suggestions ranging from 3 percent to even 5 percent.

However, China’s experience reflects that overall GDP growth and advancements in high-tech civilian industries are far more crucial for national security. A larger GDP provides substantial funds even if the defence allocation remains below two per cent, while the high-tech civil-sector manufacturing supplies crucial technology and skilled manpower. This symbiosis has helped China’s defence industry develop cutting-edge weapons despite the PLA receiving modest budget allocations in the last decade.

A larger GDP provides substantial funds even if the defence allocation remains below two per cent, while the high-tech civil-sector manufacturing supplies crucial technology and skilled manpower.

Implications

China’s military modernisation follows a consistent, long-term strategy aimed at securing comprehensive dominance in the Indo-Pacific. The PLA benefits from its leaner force structure and cost-effective weapon procurements from its domestic defence industry, allowing it to allocate a large portion of its US$ 249 billion budget toward joint-force restructuring, realistic battle training, and probing the international security structure along its edges to expand China’s influence. As China’s GDP grows, the PLA’s budget will increase significantly without heavily burdening its economy. By 2035, the Chinese GDP is projected to reach US$ 30 trillion. Therefore, a defence allocation even below 2 percent would provide the PLA with around US$ 500-600 billion, helping it pursue national interests with negligible resistance.

Regional powers must factor this into their long-term strategic planning to successfully manage the China challenge. India must consistently work to prevent its power gap with China from widening, as a significant mismatch will encourage Chinese adventurism in the Indo-Pacific.

Atul Kumar is a Fellow in the Strategic Studies Programme at the Observer Research Foundation.

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