Under Xi, China's Defense Budget Seen Defying Economic Slowdown

(Reuters) - President Xi Jinping is expected to authorize robust defense spending for this year despite China's slowing economy, determined to strengthen the country's armed capabilities amid growing unease in Beijing at Washington's renewed focus on Asia.

While China keeps the details of its military spending secret, experts said additional funding would likely go toward beefing up the navy with anti-submarine ships and developing more aircraft carriers beyond the sole vessel in operation.

The military budget will be announced at the start of the annual meeting of China's parliament on March 5. Last year, defense spending rose 12.2 percent to $130 billion, second only to the United States.

That continued a nearly unbroken two-decade run of double-digit budget increases, although many experts think China's real defense outlays are much larger.

China's leaders have routinely sought to justify the country's military modernization by linking defense spending to rapid GDP growth. But growth of 7.4 percent last year was the slowest in 24 years, and a further slowdown to around 7 percent is expected in 2015.

Other factors would now keep defense spending high, from the U.S. military and diplomatic "rebalancing" to Asia to Xi's crackdown on corruption in the People's Liberation Army, which has caused some disquiet in the ranks, military experts said.

"Xi has put a premium on the 'dream of a strong military' as part of his grand strategy for China's rise, perhaps more than any other modern (Chinese) leader," said Zhang Baohui, a security specialist at Hong Kong's Lingnan University.

"This greater emphasis on the military is very significant."

Indeed, troops are rehearsing for a major parade in September where the PLA is expected to unveil new homegrown weapons in the first of a series of public displays of military might planned during Xi's tenure, sources have told Reuters.

U.S. ALLIANCES RANKLE

At the forefront of the minds of China's strategic military planners is the U.S. rebalancing, which among other things calls for 60 percent of U.S. warships to be based in the Asia Pacific by 2020, up from about 50 percent.

"The adjustment in the U.S. strategy towards the Asia Pacific has brought enormous external pressures to bear on China," said a recent commentary by the Study Times paper, published by the Central Party School, which trains rising officials.

It pointed in particular to U.S. efforts to bolster alliances with countries such as Japan and the Philippines.

China is involved in bitter disputes over sea boundaries with both nations, as well as Vietnam, which has sought to strengthen ties with Washington.

"Higher Chinese spending, coupled with increasingly aggressive actions and assertive language, is likely to further push countries into the U.S. nominal embrace," said Richard Bitzinger, a military analyst at the S. Rajaratnam School of International Studies in Singapore.

Many Asian countries are also getting out their chequebooks.

Japan approved a record $42 billion military budget last month. India boosted defense spending by 12 percent for 2014-15 to $38.35 billion and military expenditure is seen rising to $40 billion in Southeast Asia in 2016.

While Chinese leaders would be aware of the regional optics of announcing a big budget for the 2.3-million strong PLA at a time of lower projected fiscal revenue growth, diplomats said they believed Xi wants to also placate military leaders and ordinary soldiers feeling the heat from an anti-graft campaign.

China's top military decision-making body, the Central Military Commission, which Xi chairs, has investigated several generals as part of a scandal into the selling of PLA positions.

It has also targeted the second artillery corps, which controls China's nuclear missiles, as well as the navy and the air force.

"It is inconceivable Xi could make cuts now given the enemies he's got internally," one Western diplomat said, speaking on condition of anonymity.

MONEY FOR ANTI-SUB SHIPS, DRONES

Despite the massive sums spent over the past two decades, a recent report by the U.S.-based RAND Corp think tank said the PLA suffered from potentially serious weaknesses that could limit its ability to win future wars.

The report, commissioned by a U.S. Congressional committee, said China faced shortcomings stemming from outdated command structures, quality of personnel and corruption, as well as weakness in combat capabilities such as anti-submarine warfare.

Aware of some of these gaps, experts said the PLA would continue strengthening its naval presence in the Indian Ocean and South China Sea, a region dominated by the United States and its allies, and through which four-fifths of China's oil imports pass.

"The navy is still seriously lagging behind in anti-submarine capabilities," said a military expert at a Chinese government think tank who declined to be identified.

Rory Medcalf, head of the National Security College at the Australian National University, said he expected more funding for military drones and maritime surveillance aircraft.

"Pro-defense spending actors within China can easily say China is expanding its global role to justify spending on submarines, amphibious ships and aircraft carriers," he said.