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The Chinese navy commissions Nanchang, a new Type 055 guided-missile destroyer, on January 12, 2020. Photo: Handout
Opinion
Opinion
by Manoj Kewalramani and Suyash Desai
Opinion
by Manoj Kewalramani and Suyash Desai

Coronavirus economic crisis squeezes China’s plans to expand its navy as it marks 71st anniversary

  • China has built the world’s largest deployable fleet of vessels, recently pursuing an aggressive naval strategy. Given the high cost of maintaining the fleet, however, the blow to the country’s economy from Covid-19 means expansion will be stymied
China’s People’s Liberation Army Navy marks its 71st anniversary today. It comes amid intensified drills in the near seas and Western Pacific, along with deepening tensions in the South China Sea. The navy has been one of the biggest beneficiaries of Chinese President Xi Jinping’s military reforms.
Driven by great power ambitions, Chinese naval shipbuilders have been churning out warships at a record pace over the past few years. Consequently, the Chinese navy today has the world’s largest deployable fleet of vessels. The irony, however, is that in the post-Covid-19 world, this expansion could prove to be the navy’s Achilles' heel.

Soon after he assumed office as Communist Party general secretary in 2012, Xi convened a collective study by members of the politburo to set forth a vision for the expansion of China’s sea power. This vision has since manifested itself in the commissioning of new types of vessels, the militarisation of the South China Sea and a new focus on far seas operations.

With this strategic direction, China has in the past few years built a formidable regional navy with multiple surface, subsurface and amphibious platforms, advanced anti-ship ballistic and cruise missiles programmes, unmanned underwater vehicles along with supporting C4ISR (command, control, communication, computer, intelligence, surveillance and reconnaissance) systems.
The Chinese navy today is estimated to command an inventory of over 300 ships. These include two aircraft carriers, a new cruiser, several classes of destroyers and frigates, a new class of corvettes, a new class of missile-armed patrol craft, and multiple diesel-electric and nuclear-powered ballistic missile submarines.
These capacity increases have enhanced China’s anti-access/area denial capabilities to the point that the chief of the US Indo-Pacific Command, Admiral Philip Davidson, believes Beijing effectively controls the South China Sea. Meanwhile, the Chinese navy also established its first overseas base in Djibouti in 2017, signalling a desire to expand global operations.

But this expansion has not been cheap. China’s defence budget has risen from US$106 billion in 2012 to US$177 billion in 2019. The earmarked money is largely spent under three different heads: personnel expenditure, training and sustainment, and capital expenditure.

Among these, capital expenditure has steadily expanded since 2012, accounting for over 40 per cent of the total defence expenditure by 2015, which is where it has remained since. Most of this, as our recent research highlights, has been utilised on air force and navy modernisation.

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All of this was, of course, possible because of the phenomenal expansion of the Chinese economy, which allowed for greater defence spending. China’s rapid growth over the past four decades expanded the overall economic base.

Consequently, even though GDP growth began to taper to a new normal of around 6-7 per cent over the past few years, it didn’t hamper capital availability for defence manufacturing.
However, these equations will change owing to the economic shocks that can be expected in the post-pandemic world. For instance, China reported a historic 6.8 per cent year-on-year contraction for the first quarter of 2020.

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The data reflects the impact of China’s near three-month shutdown to stamp out the coronavirus, which sickened over 80,000 people in the country. While the shutdown was challenging, restarting the US$14 trillion economy will be a monumental task.
Moreover, given the spread of the global pandemic, Beijing can expect prolonged economic pain. This will come in the form of demand-side shocks as countries around the world struggle to reopen, along with expanded threats of protectionism and anger with regard to China’s early handling of the Covid-19 outbreak and subsequent diplomacy.
The International Monetary Fund projects that China’s GDP growth will slow to 1.2 per cent this year. And while the projections are optimistic for 2021, there are far too many ifs and buts at this point. Invariably a sharp and prolonged economic slowdown with high unemployment rates will affect China’s military modernisation.

Even if China continues to aim to keep its defence budget at around 2 per cent of GDP, there’s likely to be a reassessment and rationalisation in terms of development of new equipment.

The English-speaking chief of China’s newest aircraft carrier in service

The navy, which is a highly capital-intensive service and requires large funds for procuring technologically advanced weaponry, is likely to be worse off compared with other forces. Naval acquisition programmes, in the near term, will face severe disruptions, with greater allocation being made to the maintenance of commissioned vessels.

As Dr Sarah Kirchberger has documented, a naval vessel’s average lifespan is around 40 years, with procurement costs accounting for only 23 per cent of its life cost. Operations, maintenance and update costs account for a massive 71 per cent of life cost, with the remaining being fuel and development expenses.

A Chinese navy missile frigate fires a depth-charge rocket during a China-Russia joint naval drill on May 3, 2019. Photo: Xinhua

Given the size of the Chinese navy’s existing fleet, vessels currently under development and the threat of a prolonged economic slowdown, delays can be expected in new equipment development, and an expansion of maintenance costs as part of the training and sustainment component of the defence budget in the future. In other words, expansion is likely to slow as maintaining the existing fleet will be given priority.

There is likely to be much more consternation than celebration as China’s naval leaders and strategists mark the 71st anniversary. How all this shapes the security dynamics of the broader Indo-Pacific in a post-Covid world remains to be seen.

Manoj Kewalramani heads the China Studies Programme at The Takshashila Institution, a Bangalore-based think tank and school of public policy. Suyash Desai is a research analyst for the China Studies Programme at The Takshashila Institution

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