2026 China's Defense Budget Controversy: From Transparency to Estimation Games of Purchasing Power Parity

In March 2026, the Chinese government announced a new annual defense budget of approximately 1.91 trillion yuan, an increase of 6.9% compared to 2025, continuing the steady growth trend of recent years. This figure is publicly transparent and was officially released at the National People's Congress, maintaining a stable proportion of about 1.3% of GDP. However, the debate surrounding the actual scale of China's military spending has not subsided due to this public report; instead, it has sparked a new round of intense estimation games in the international academic community and intelligence agencies.

Mackenzie Eaglen, a senior fellow at the American Enterprise Institute, published a report in April 2024 titled "Keeping Pace with Threats: Unveiling the True Scale of Beijing's Military Spending," in which she reassessed China's military expenditure using purchasing power parity (PPP) methods. She adjusted the officially announced budget of 1.45 trillion yuan for 2022 by applying the World Bank's PPP conversion rates and U.S.-China labor cost coefficients for different expenditure categories, concluding that the actual purchasing power reached $711 billion. This figure is close to the U.S. military spending level for the same year and far exceeds the approximately $229 billion calculated at market exchange rates. The report claims that U.S. intelligence estimates also privately approach $700 billion and lists additional expenditures not included in the official budget, such as the People's Armed Police, Coast Guard, space projects, veteran resettlement, construction of the Spratly Islands, and military-civilian integration R&D, totaling about $16.1 billion.

The core of this report's methodology lies in distinguishing the purchasing power differences among various types of expenditures. For equipment procurement and training maintenance, a PPP conversion rate of 3.99 yuan to 1 dollar was used, raising these two expenditures from $16.1 billion to $25.6 billion. Personnel expenditures were multiplied by a labor cost coefficient of 4.31, jumping from $6.8 billion to $29.3 billion, to reflect the significant disparity in military personnel salaries between the U.S. and China. This layered approach attempts to more accurately assess the actual weight of China's military spending in the global military capability comparison.

However, this estimation method was quickly met with skepticism. A report released by the Center for Strategic and International Studies (CSIS) in August 2024 pointed out that China still relies on imported key technologies in the high-end military equipment sector, such as advanced chips, radar systems, and aircraft engines, where the cost advantages are far less than in conventional manufacturing. The center recalculated using industry-specific purchasing power parity and adjusted the statistics for additional expenditures, concluding that China's military spending in 2024 is approximately $471 billion, about one-third lower than Eaglen's estimate. Although this figure is still higher than the official market exchange rate result, it is closer to the international comparison benchmark of China's actual military capabilities.

Estimates from international authoritative organizations are even more conservative. The Stockholm International Peace Research Institute estimates China's military spending in 2024 to be about $314 billion, while the International Institute for Strategic Studies in London estimates it to be around $325 billion. These organizations rely more on publicly available data and industry comparisons, avoiding the amplification of errors that can arise from excessive adjustments. Their methodologies emphasize verifiability and consistency, using uniform standards when assessing the global military spending landscape rather than designing special algorithms for specific countries.

On March 18, 2026, Chinese Ministry of Defense spokesperson Jiang Bin explicitly responded to Japanese officials' accusations regarding China's military spending increase during a routine press conference. He emphasized that China's defense spending as a proportion of GDP has long been below 1.5%, far lower than that of military powers like the United States, and also below the world average and the common arrangement of NATO countries, which generally exceed 2% of GDP. The increase in the 2026 defense budget is primarily aimed at maintaining national sovereignty, security, and territorial integrity, supporting military modernization, and ensuring regional stability. He specifically pointed out that Japan's defense budget has increased for 14 consecutive years, with a growth rate exceeding 60% in the past five years, and that the per capita defense spending of the Japanese people is more than three times that of China. The Japanese side's development of offensive weapons, breaking through the constraints of the "peace constitution," is the real threat to regional peace and stability.

From specific data, China's defense budget has steadily increased from 1.45 trillion yuan in 2022 to 1.91 trillion yuan in 2026, with an average annual growth rate of about 7%. This growth rate is basically in sync with China's economic growth and price levels, reflecting the coordinated relationship between defense construction and economic development. According to the market exchange rate in March 2026, 1.91 trillion yuan is approximately equivalent to $263 billion. If the latest World Bank purchasing power parity conversion rate is used, this figure could rise to a range of $450 billion to $500 billion, but it is far from reaching the extreme estimate of $700 billion.

The application of purchasing power parity methods in military spending estimation must be approached with caution. The technical complexity of military equipment and the characteristics of global supply chains make their cost structures far more complicated than those of civilian products. China does have significant cost advantages in conventional weapons manufacturing and infrastructure construction, but in high-end fields such as aircraft engines, shipborne phased array radar, and stealth coating materials, it still relies on the international market or bears high costs for independent R&D. Simply applying a uniform purchasing power parity coefficient would obscure these structural differences, leading to an overestimation of the actual effectiveness of China's military spending.

More critically, the scale of military spending itself does not directly reflect military capability. Although the U.S. military spending as a proportion of GDP is higher than China's, its global deployment needs, overseas base maintenance costs, and defense commitments to allies divert a significant amount of resources. The Chinese military focuses on homeland defense and surrounding regions, with a relatively concentrated operational radius and logistical needs; the same budget may yield a higher cost-effectiveness ratio in specific strategic directions. Additionally, China's military-civilian integration strategy incorporates civilian technological achievements, and many technological breakthroughs are not fully reflected in the defense budget but do enhance overall military capability.

Concerns from the international community regarding the transparency of China's military spending are not unfounded. The officially announced budget does not detail the specific allocation for each military branch and major projects, nor does it include marginal expenditures such as the armed police, coast guard, space projects, and veteran resettlement. This structural information gap leaves room for external estimates and has become a reason for some organizations to amplify the numbers. However, transparency itself is a relative concept; while the U.S. defense budget is more publicly accessible, there are also opaque areas in black budgets and intelligence agency expenditures, and the actual scale of its military spending is also subject to estimation disputes.

From a strategic intent perspective, the growth of China's military spending primarily serves three major goals: first, to make up for historical deficits and improve military personnel treatment and training levels; second, to advance the modernization of weapons and equipment, narrowing the generational gap with developed countries; and third, to adapt to new types of combat styles, developing capabilities in cyberspace, space, and the electromagnetic domain. These goals focus on defensive needs and regional deterrence rather than global expansion. China does not have a vast overseas base network or the global military intervention demands like the U.S.; its military spending growth is more of a catch-up type rather than a leading type.

The controversy surrounding the 6.9% increase in China's defense budget in 2026 essentially reflects the cognitive game in the context of great power strategic competition. The U.S. academic community and intelligence agencies tend to amplify the scale of China's military spending to support the narrative of the "China threat" and the justification for their own defense budget increases. China, on the other hand, insists on a defensive defense policy stance, emphasizing the rationality and transparency of its military spending growth. The differences in methodology, data sources, and strategic judgments between the two sides are unlikely to be bridged in the short term.

For the international community, rather than getting entangled in the numbers of military spending itself, it is more important to focus on the actual development of military capabilities and the true direction of strategic intentions. Whether the modernization process of the Chinese military breaks through defensive boundaries, whether the deployment of new weapons undermines regional stability, and whether military transparency continues to improve are key indicators for assessing the nature of China's military development. Relying solely on astronomical figures derived from purchasing power parity algorithms cannot accurately reflect China's military strength, nor does it help build a rational foundation for security dialogue.

The vast difference in estimates of China's military spending, from $711 billion to $314 billion, reveals a profound issue: in an environment of data opacity and a lack of strategic trust, no estimation method can escape the influence of subjective judgment. The real solution lies not in designing more sophisticated algorithms but in establishing more effective military transparency mechanisms and strategic dialogue platforms, allowing all parties to assess each other's military developments based on verifiable facts, and avoiding falling into an endless cycle of numerical games and mutual suspicion.