T OTAL D EFENSE S PENDING - Asian Defense Spending Trends (2000

1. Asian Defense Spending Trends (2000–2011)

1.1 T OTAL D EFENSE S PENDING

The five Asian countries analyzed in this report—China, India, Japan, South Korea, and Taiwan—spent a combined $224 billion on defense in 2011 (see Figure 1.1 below).¹ In constant 2011 U.S. dollars, this equates to almost twice the amount spent by these five countries in 2000. To capture only real effects, all spending in this report is assessed on a constant 2011 U.S. dollar basis unless otherwise noted.

Figure 1.1 provides a cross-country comparison of total defense spending for the time period 2000–

2011.

Figure 1.1. Total Defense Spending by Country (2000–2011)

Sources: Chinese MoD White Papers, China’s National Defense, 2002, 2004, 2006, 2008, 2010; U.S. Department of Defense 2010 Annual Report to Congress on Military and Security Developments Involving the People’s Republic of China; Indian Union Budget and Economic Survey: Expenditure Budget, 2000–2013; Japanese MoD White Papers, 2005–2011; South Korean MoD White Papers, 2000, 2006, 2008, 2010; South Korean MoD; Taiwanese National Defense Report, 2009 and 2011; analysis by CSIS Defense-Industrial Initiatives Group.

Until 2005, Japan had the largest defense budget in Asia. Since 2005, China has been the biggest spender on defense, having previously replaced India as the second-biggest spender in 2001. This comparatively rapid expansion in defense spending is also illustrated by China’s share of the group’s combined defense spending, which more than doubled from 19.9 percent in 2000 to 40.2 percent in 2011.

1 See the Methodology section for a detailed discussion of sources used and data analysis techniques applied.

0 10 20 30 40 50 60 70 80 90 100

Spending (in billions of constant 2011 US$)

China India Japan South Korea Taiwan

Regarding China, it should be noted that the analysis in this section is based on the official Chinese defense budgets. Many analysts posit that Chinese official sources do not capture Chinese defense spending in its entirety. These analysts propose instead alternative, higher estimates of Chinese defense spending.² The in-depth analysis of China’s defense budget in Section 1.2 of this report discusses some of these alternative estimates.

Figure 1.2 provides a cross-country comparison of indexed changes in total defense spending with 2000 as the base year, for the time period 2000–2011.

Figure 1.2. Indexed Total Defense Spending in Constant 2011 U.S. Dollars by Country (2000–

2011)

Total defense spending for all five countries has been increasing in constant 2011 U.S. dollars over the last decade. However, the growth rates among the five Asian countries have not been uniform. A more accurate comparison of the growth in Asian defense budgets involves viewing defense spending in constant 2011 U.S. dollars indexed to the year 2000 (see Figure 1.2) and the compounded annual growth rates (CAGRs) of defense spending (see Table 1). This comparison shows that between 2000 and 2011, China’s defense spending increased at the highest rate, with an 11-year CAGR of 13.4 percent. South Korea was the second fastest growing defense spender during that period, with a 4.8 percent CAGR.

India and Japan were on a very similar growth trajectory, with 3.6 and 3.5 percent CAGRs, respectively.

Taiwan experienced the lowest increase in defense spending among the group with a CAGR of 1.8 percent.

2 See, for instance, Stockholm International Peace Research Institute (SIPRI), “SIPRI Military Expenditure Database, 2011,”

http://www.sipri.org/databases/milex.

0 0.5 1 1.5 2 2.5 3 3.5 4 4.5

Indexed changes in spending

China India Japan South Korea Taiwan

Table 1. CAGRs for Total Defense Spending in Constant 2011 U.S. Dollars by Country (2000–

2011)

Countries Defense Spending CAGR

2000–2005 2005–2011 2000–2011

China 12.1% 14.5% 13.4%

India 2.2% 4.8% 3.6%

Japan 0.6% 6.0% 3.5%

South Korea 6.9% 3.0% 4.8%

Taiwan -1.2% 4.3% 1.8%

Growth in defense budgets for these five Asian countries over the last decade has not occurred in a linear manner. Instead, increases in defense spending visibly accelerated in the second half of the last decade. With the exception of South Korea, growth rates have been higher between 2005 and 2011 than between 2000 and 2005 (see Table 2). In the case of Taiwan, defense spending in fact decreased between 2000 and 2005, and then rose by a 4.3 percent CAGR between 2005 and 2011. These steeper growth trajectories in recent years might be a precursor for continued significant increases in defense spending, especially in light of large, high-profile investment decisions such as India’s Medium Multi-Role Combat Aircraft (MMRCA) selection, Japan’s F-35 order, or South Korea’s F-X-3 multi-role fighter competition.

A comparative analysis of Asian defense spending must also take into account the exchange rates between local currencies and the U.S. dollar. For instance, the Japanese Yen gained 34.5 percent in value against the U.S. dollar between 2000 and 2011, and the Chinese Yuan increased in value against the U.S. dollar by 27.6 percent. As a consequence, changes in defense spending measured in constant 2011 U.S. dollars are inflated for some countries. Figure 1.3 below presents a cross-country comparison of indexed changes in total defense spending with 2000 as the base year, for the time period 2000–

2011, in local currencies.

Figure 1.3. Indexed Total Defense Spending in Constant 2011 Local Currencies by Country (2000–2011)

A comparison of defense spending in U.S. dollars with spending in local currencies reveals the effect of exchange rate fluctuations. Measured in constant 2011 Yuan, the growth in China’s defense budget still outpaces the rest of the group, yet with a CAGR of 10.9 percent (compared to 13.4 percent when measured in constant 2011 U.S. dollars). India’s and South Korea’s defense spending trends were the least affected by currency exchange fluctuations during the observed time period. Their respective 11-year CAGRs in constant 2011 local currency are 3.7 and 4.5 percent respectively in comparison to 3.6 and 4.8 percent when their defense spending is measured in constant 2011 U.S. dollars. Japan’s and Taiwan’s CAGRs for defense spending between 2000 and 2011 are both lower when measured in constant 2011 local currency, with a 0.7 percent and 1.1 percent CAGR, respectively (compared to 3.5 percent for Japan and 1.8 percent for Taiwan when measured in constant 2011 U.S. dollars).

The comparison of U.S. dollars versus local currency is also relevant when analyzing different categories of defense spending. In certain areas, such as Personnel costs, expenses are accrued in local currency. In others, such as acquisition expenditures, assessing trends in constant U.S. dollars might be more useful for countries that satisfy a considerable portion of their requirements through imports with dollar-based pricing. For these countries, fluctuations in exchange rates may significantly increase or decrease their buying power.

Im Dokument Ë|xHSKITCy067534zv*:+:!:+:! Asian Defense Spending, 2000–2011 (Seite 11-14)