Beijing 'spends US$140b on arms'

CHINA'S military budget stands at US$140 billion (HK$1,081 billion) - at least three times higher than the Pentagon's estimate of People's Liberation Army (PLA) spending, according to a report.

The figure, contained in a soon-to-be released study commissioned by the United States Defence Department, is also 20 times higher than Beijing's own official records of what it spends on defence.

The study, being drawn up by a California research institute, the Rand Corporation, is certain to set off alarm bells in Congress.

Last week, Congress signalled its intention to block growing US-Sino military ties.

In a move which could damage already fragile ties between the two nations, the House National Security committee voted to stop funding for the US-China Joint Defence Conversion Commission, set up last year to help Chinese arms companies convert to civilian manufacturing.

The Rand report's estimate of PLA spending far exceeds previous projections. These ranged from the Central Intelligent Agency's estimate of US$20 billion, to around US$40 billion by the Pentagon, and US$50 billion by the US Arms Control and Disarmament Agency.

Rand has based its figures on economic analysis untainted by political considerations, according to sources at the institute. The team writing the study, headed by Charles Wolf, includes a Hong Kong professor, K. C Yeh.

Mr Wolf, quoted in the latest edition of the authoritative defence magazine, Defence News, said the estimates were arrived at using a system called purchasing power parity rate. This analyses local conditions and exchange rates to provide a truer picture of how the military spends its cash at today's prices.

The system was initially controversial in the 1980s, when Rand used it to suggest for the first time that China had the third-largest economy in the world. But it soon came to be accepted as an official yardstick by organisations such as the World Bank.

Mr Wolf said the report would suggest that Beijing spends 3.25 per cent of its gross domestic product on the PLA - much more than its official figure of just under two per cent. His estimates take into account PLA commercial activities, which are known to supplement state financing of the military.

A Pentagon spokesman declined to comment. An unnamed defence official told Defence News : 'They are building up their forces and brandishing their new-found political and military might . . . We ought to have a dialogue with them. But engaging in wishful thinking that the Chinese are our friends and that they have the same sort of world view as we do is a very naive approach to what the long-term security relationship in Asia is all about.' The move by the House of Representatives committee to block funds for next year's conversion commission spending - around US$45 million - has apparently come about because legislators fear Beijing will spend the money on building up its military. There have been complaints about lack of information from China on where the cash is being spent.

The commission is one of Defence Secretary William Perry's foremost projects for increasing co-operation with the PLA - and the administration is certain to fight to overturn the move when the initiative goes before the Senate.