A New Analysis of Defense Budgets in Asia

Despite the global financial crisis that began in 2008, many Asian countries experienced relatively less fiscal distress and continued to increase their level of involvement in global affairs during the crisis. In addition, unlike defense budgets in many other regions, including the United States and Europe, Asian defense spending continues to be on the rise. CSIS recently completed a study of the five largest Asian defense spenders: China, India, Japan, South Korea, and Taiwan. Together, these countries account for some 90 percent of defense spending in Asia, and three of them (China, India, and Japan) were among the top 10 defense spenders in the world in 2011. (For the full study report, click here.)

The combined defense budgets of China, India, Japan, South Korea, and Taiwan equaled some $224 billion in 2011 (in constant 2011 U.S. dollars), nearly double the amount only a decade earlier. However, the growth rates of defense spending in these countries have not been uniform. China’s defense spending increased at the highest rate, with an 11-year compounded annual growth rate (CAGR) of 13.4 percent and some $90 billion spent in 2011. South Korea was second with a 4.8 percent CAGR and $29 billion spent on defense. Japan and India, the third- and fourth-largest spenders, were on similar growth trajectories with 3.5 and 3.6 percent CAGRs and defense budgets of $58 billion and $37 billion, respectively. Taiwan experienced the slowest increase in defense spending of the group with a CAGR of 1.8 percent; it also had the smallest defense budget of the five, at $10 billion in 2011.

The growth in spending in the five countries analyzed did not occur in a steady manner. Rather, defense spending in the first half of the decade (2000–2005) grew at nearly half the pace (4.5 percent CAGR) that it did in the second half (8.0 percent CAGR in 2006–2011) for all countries except South Korea. Furthermore, growth in defense spending occurred primarily in the personnel accounts (i.e., spending on payroll and benefits) and was less rapid in the investment accounts (i.e., research, development and acquisition of military goods and services).

Another noteworthy trend derived from the budget data relates to the relatively low levels of per-soldier spending in Asia. Per-soldier spending, derived by dividing total defense spending by total number of troops, measures how much a country allocates to recruit, train, compensate, equip, and sustain each soldier; it therefore serves as a proxy measure for the quality of personnel. Three of the five Asian countries analyzed (China, India, and South Korea) were in the world top 10 list of number of active troops. As a result, defense spending per soldier in these countries has consistently been relatively low. For example, China, India, South Korea, and Taiwan spent between $28,200 and $43,600 per service member in 2011. By comparison, European states in 2011 spent on average $140,400 per soldier, Australia spent $438,000 per soldier, and the United States spent $504,800 per soldier. This suggests that Asian countries prioritize force size over force quality. The exception is Japan, which spent $238,100 per soldier in 2011.

The range of sizes and military capacities in the region, with countries as large as India and as small as Taiwan, as well as the complexities inherent in the region’s security environment, all necessitate careful understanding of the structure and history of the region’s military buildup. While the top five defense spenders have been increasing their defense budgets at a rapid rate, this is by no means indicative of an arms race. Defense spending in Asia continues to be driven primarily by economic growth and a need to upgrade inventories and personnel-heavy militaries than by overt security threats. It remains to be seen whether Asian states will continue to field large militaries or if they will follow the trends in Europe and the United States, where force structure is being reduced in favor of higher-quality forces. Ample space for this is available in China, India, and South Korea. Yet security and other political considerations might make this course of action unviable for the foreseeable future.

Joachim Hofbauer, Priscilla Hermann, Sneha Raghavan, and Guy Ben-Ari are all affiliated with the Defense-Industrial Initiatives Group at the Center for Strategic and International Studies (CSIS) in Washington, D.C.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

© 2012 by the Center for Strategic and International Studies. All rights reserved.