Disciplined Expansion: Decoding China’s 2026 Defence Budget

On 5 March 2026, China announced a defence budget of US$281 billion (¥1.94 trillion), with US$277 billion (¥1.91 trillion) channelled through central government allocations. The budget marks a 7 percent year-on-year increase, once again exceeding the official GDP growth target of 4.5–5 percent. This continues a familiar pattern: since 2016, defence spending has maintained single-digit growth, stabilising at around 7 percent annually over the past six years. At the same time, the official defence outlay remains below 1.5 percent of GDP, preserving a carefully managed fiscal ratio.

The key issues, however, lie beneath this surface stability. Does the People's Liberation Army (PLA) continue its earlier practice of relatively equal resource distribution among the services, or does the first budget of the 15th Five-Year Plan signal a shift towards a more focused investment approach? What might this reveal about the direction and priorities of China’s defence modernisation?

Major Expenses

The Chinese defence budget is generally organised under three main heads: personnel living expenses, training and maintenance expenses, and equipment expenses. Personnel costs cover salaries, allowances, subsistence expenses, and pensions, while training and sustainment costs include troop training, military education, base maintenance, and routine consumables. Equipment expenditures fund research and development, procurement, maintenance, and the storage of military materiel. 

Table 1: China’s Defence Budget Since 2015 (Approximate USD Figures)

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

China’s publicly announced defence budget reflects only the central government’s allocation under the national defence (国防支出) category and does not encompass the full range of military-related expenditure. In line with Ministry of Finance classifications, funding for equipment development and scientific research is only partially captured within this category, with additional allocations appearing under broader science and technology (科学技术支出) headings, consistent with the state’s civil–military integration approach.

Expenditures on forces such as the People's Armed Police and the China Coast Guard are budgeted separately, typically within public security or related accounts rather than under national defence. Moreover, items such as veterans’ resettlement, pensions, and elements of national defence mobilisation are financed through a combination of central transfers and local government budgets, further widening the gap between the headline defence figure and the broader defence-related fiscal effort.

Problem Areas

At the outset, China’s 2026 defence budget highlights an inconsistency in the PLA’s stated modernisation milestones. The official announcement stated that the budget will continue to stress the “integrated development of mechanisation, informatisation, and intelligentisation [机械化信息化智能化融合发展].” This formulation sits awkwardly alongside earlier claims that mechanisation had been essentially complete by 2020, a position reaffirmed a year later. If that phase had truly been settled, it would no longer share equal priority with more advanced stages.

Its continued prominence suggests that the PLA is still consolidating basic capabilities even as it pushes towards networked and AI-enabled intelligent warfare. This overlap is not merely rhetorical; it reflects the reality of a force that is still bridging foundational gaps while striving to project technological sophistication. In that sense, the persistence of the three-part formulation is less a sign of coherence than an acknowledgement that mechanisation remains unfinished business.

Similarly, the PLA has aspired to achieve joint operational capability since 2004 and has worked steadily towards this goal through earlier “below-the-neck” reforms and the “higher command reforms” of 2015–16 aimed at institutionalising joint war doctrine and joint operational principles. However, even after two decades of reform, progress has fallen short of stated objectives, as the PLA continues to emphasise the need to “promote the large-scale, combat-oriented, and systematic development of new-domain and new-quality combat forces, and upgrade and transform traditional combat forces.”

The persistence of the three-part formulation is less a sign of coherence than an acknowledgement that mechanisation remains unfinished business.

Equally, the agenda continues to foreground the construction of modern logistics systems, the acceleration of advanced weapons development, and the tighter integration of science and technology with operational capability — areas critical to sustaining integrated, high-intensity warfare. In addition, the persistent emphasis on political rectification, realistic combat training, and the cultivation of a technologically proficient, highly qualified professional military cadre points to enduring institutional and human capital gaps that reforms have failed to resolve comprehensively.

Prominent Trends

In terms of visible trends in this defence budget, Table 1 captures a quiet transformation. On paper, China’s defence spending appears restrained: it has hovered within a narrow band of 1.29-1.35 percent of GDP for over a decade. Yet this stability is deceptive. In absolute terms, the budget has expanded from US$145 billion in 2015 to US$281 billion in 2026, effectively doubling alongside a similarly scaled rise in GDP, from US$11.28 trillion to US$20.85 trillion. The result is a system that converts economic growth directly into military capacity while preserving the appearance of fiscal moderation.

The second shift is subtle but equally consequential. Defence growth has settled into a steady rhythm of around 7 percent annually, replacing the earlier era of double-digit expansion. This is not restraint; it is disciplined, stable budget growth. At China’s scale, incremental increases produce outsized gains, enabling sustained capability expansion without the political and economic costs of rapid surges. To illustrate, even with relatively modest increases in the post-pandemic period (2020-26) alone, China has added over US$100 billion to its defence expenditure in absolute terms.

At China’s scale, incremental increases produce outsized gains, enabling sustained capability expansion without the political and economic costs of rapid surges.

A final inflection appears within the composition of state spending. After years of decline, defence’s share of government expenditure has climbed to 6.3 percent by 2026. What emerges is not a dramatic militarisation, but something more deliberate: a system calibrated to expand power steadily, predictably, and with minimal fiscal friction, leading to significant capability augmentation even through incremental enhancements.

Equal Distribution vs Focused Investment

The defence budget reflects a visible shift from relatively equal funding allocations across the services towards more focused investment in specific capabilities. Official discourse increasingly emphasises system optimisation and priority development, indicating that funds are being directed toward mission-critical capabilities. The 15^th Five-Year Plan document identifies priority areas for this phase of modernisation: military theory, organisation, personnel, weaponry and equipment, and governance. It places particular emphasis on strategic deterrence, unmanned intelligent systems, networked information systems, data resources, modern logistics, and new-domain and new-quality combat forces.

This framework privileges systems integration over platform acquisition, directing funds toward networks, data architectures, and AI-enabled command structures rather than manpower-intensive formations. Moreover, the growing emphasis on “new domain and new quality combat forces” [新域新质作战力量] — encompassing drones, algorithms, and human–machine teaming — further underscores a transition towards interoperability and intelligent joint operations.

Conclusion

China’s defence budget has nearly doubled over the past decade, now reaching roughly $281 billion to boost the PLA’s modernisation drive. The shift is not merely quantitative. Beijing has moved away from relatively equal inter-service allocations towards focused investment in “new domains and new-quality combat forces,” especially in joint operations, unmanned systems, algorithmic warfare, and human–machine integration. Organisational reform has reinforced this trajectory. Since the 1980s, successive rounds of demobilisation have reduced ground forces to under one million personnel, while the retirement of legacy platforms has freed fiscal space for capital deepening. Consequently, the PLA has emerged as a leaner force with markedly higher technological density and, at least on paper, greater operational reach.

However, this efficiency narrative conceals an unsettling reality. The PLA is undergoing a sweeping rectification campaign that has triggered sustained turbulence across its senior and mid-level leadership. Key posts remain vacant as an extensive vetting and cadre reconstitution process unfolds.

However, this efficiency narrative conceals an unsettling reality. The PLA is undergoing a sweeping rectification campaign that has triggered sustained turbulence across its senior and mid-level leadership. Key posts remain vacant as an extensive vetting and cadre reconstitution process unfolds. Signals from the 15th Five-Year Plan point to deeper institutional anxieties, including persistent concerns over the reliability of weapons systems and the integrity of procurement processes, rooted in entrenched corruption across the acquisition chain.

The combination of large defence budgets, extensive military secrecy, and bureaucratic insularity has distorted China’s defence resource allocation, affected the PLA’s combat readiness, and generated deep political mistrust. This ongoing churn therefore warrants sustained scrutiny by regional powers, including India, given its significant implications for Indo-Pacific security in the near to medium term.

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

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