The Conversation, 2019
If you watched China’s impressive military parade marking the 70th anniversary of Communist Party rule, you may be wondering how China now compares to the United States in terms of military might. The answer: it’s a lot closer than commonly thought.
China’s annual military budget is estimated by the Stockholm International Peace Research Institute to be about 1.7 trillion yuan. This is about 1.9% of China’s GDP.
Using market exchange rates, China’s annual military spending converts to about US$228 billion. By comparison, the US military budget is US$649 billion – or 3.2% of US GDP. Hence China’s military budget is usually thought of about 40% that of the US – which is often characterised as spending more on its military than the next 10 countries combined.
Such an approach, however, dramatically overstates US military capacity – and understates China’s. In real terms, China’s spending is worth about 75% that of the US.
Purchasing power parity
The problem is that a simple currency conversion doesn’t reflect actual price differences across countries. An American or Australian visiting India or China, for example, finds things like street food, nannies and domestic help are all very cheap. The same principle applies to military spending.
The salary of a US soldier might be, say, $US60,000 a year. This could pay the salaries of several, if not many more, soldiers in the People’s Liberation Army.
To make a more accurate comparison of the real purchasing power of a country’s military spending, we need to factor in differences in labour and operational costs between countries.
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