Almost all great powers dedicate a considerable proportion of their finances on defence and China is no exception. However, while the defence budget of other nations are relatively more transparent, China's remains a mystery. Though China has been declaring its official defence budget for a long time, it is dismissed as a sham and a cover-up. There have been several attempts to estimate China's actual defence expenditure, but a unanimous conclusion is yet to be reached.

In this context, the publication of a recent RAND study (Modernising China's Military: Opportunities and Constraints, 2005) is worthy of note. Using new methodological tools and based on disaggregated sources in Chinese language, the study projects the actual Chinese defence expenditure as anywhere between 1.4 to 1.7 times the official defence budget. It accepts the official defence budget as 'one' of the sources of cumulative defence expenditure; and deconstructs the discreet sources of funding. These include central funding under other heads, subsidies to various defence installations, separate provisions for foreign weapons procurement, and extra-budgetary revenues for the People's Liberation Army (PLA). Apparently, a substantial funding also comes from local governments under the 'three-thirds' principle. There are separate provisions for paramilitaries, coastal defence, and nuclear and strategic forces.

While the RAND study is serious research, its conclusions are debatable. In many ways it is a conservative and sympathetic defence of the Chinese claim that they do not spend much. In the US alone, the CIA, the Pentagon and the Arms Control and Disarmament Agency (ACDA) come out with different estimates. Internationally, except for the SIPRI, all other estimates are way ahead than what RAND tells us. The Chinese defence expenditure, in these estimates, varies from twice to thrice the official figure. Then there are Japanese and Taiwanese estimates, giving us fanciful figures.

What then, is China's actual defence expenditure? Unfortunately, there is no single answer. The Chinese official documents are not helpful. The official defence budget is not based on a standard accounting format. In the annual central government budget, the defence budget is shown under a single head. Further category wise division is not available. Though the defence white papers published every two years have started giving a rough breakdown of official defence expenditure, it is still a broad division and not a detailed one. This creates space for confusion and doubts. For example, the 2004 white paper talks of introducing a new defence budgeting system but does not elaborate on it. In the absence of details, it is difficult to understand how China's defence funds are managed. China is yet to adhere to the internationally recognized templates of defence spending. While it has reported to the SIPRI about its military expenditure in 2004, it is yet to report to the UN Department for Disarmament Affairs (DDA), in the prescribed format.

China is also accused of suppressing the cost of arms, ammunitions, and other inventories that it procures from the domestic military-industrial complex. Labour charges are low, profit is not booked, and several forms of cross-subsidies are provided. The absence of detailed accounting makes it difficult to apply the purchasing power parity (PPP) method to bring out the cost of total defence expenditure. The reported undervaluation of the Chinese Yuan vis-?-vis the US dollar lends credence to the Chinese defence expenditure being under reported. According to IMF sources, the Yuan is undervalued by at least 25 per cent. By this standard, China's official defence budget should be $38 billion instead of $30 billion as proposed for 2004-2005.

The international research institutes engaged in estimating China's actual defence expenditure must be complimented for doing a job despite China's veil of secrecy. The variable conclusions are probably due to methodological differences and subjective biasness, apart from lack of transparency. Even if it is accepted that China spends only twice its official figure, this makes it the largest spender in Asia with a $60 billion budget.

With such a huge sum in its kitty, Chinese PLA is on a path of selective modernisation. Its combat capability and power projection is rising. In the future, as the Chinese economy becomes more robust, the PLA is expected to corner more funds for itself and launch an across the board modernisation drive. While the US may be the long-term target, India is likely to feel the heat. Unfortunately, India has shown little seriousness in making its own estimations about China's defence expenditure and power projection drives. Rather, the projections made by CIA and Pentagon are accepted. Such secondary information should be avoided and efforts should be made to develop a primary database about various aspects of Chinese defence expenditure. That will help India monitor the trends in China's defence modernisation and take commensurate steps.

Views expressed are author's own.