Accelerating the PLA's Intelligent Transformation: Strategic Considerations Behind the 7% Increase in Defense Budget by 2026

On March 5, 2026, the Chinese government announced at the National People's Congress that the national defense budget for 2026 will increase by 7%. Although this figure represents the lowest growth rate in five years, it still significantly exceeds the economic growth target and surpasses the defense spending growth rates of other Asian countries. This budget decision reflects a profound transformation that the People's Liberation Army (PLA) is undergoing—accelerating its shift from traditional mechanization and informatization to a "smart" phase centered on artificial intelligence.

The Victory Day parade in September 2025 provided an important window for observing this transformation. On Tiananmen Square, not only were traditional tanks, armored vehicles, and aircraft reviewed, but more notably, a series of next-generation weapon systems were showcased: unmanned ground vehicles, underwater and aerial drones, and autonomous air combat platforms capable of coordinating with manned fighter jets. The concentrated display of these assets clearly conveyed the PLA's assessment of future warfare—artificial intelligence will be a key determinant of battlefield advantage.

According to an analysis by Georgetown University's Center for Security and Emerging Technologies of thousands of publicly available PLA procurement documents over the past three years, the Chinese military is urgently pushing forward the third phase of military modernization focused on intelligence. These procurement documents indicate that the PLA is developing prototypes capable of operating unmanned combat vehicles, detecting and responding to cyberattacks, tracking maritime vessels, and identifying and striking land, sea, air, and space targets with artificial intelligence capabilities. Notably, the Chinese military is also developing systems that can ingest, analyze, and enhance vast amounts of data to improve tactical and strategic decision-making, while also creating deepfake tools for disinformation campaigns.

Chinese military strategists believe that artificial intelligence will lead a new military revolution. They are convinced that future warfare will evolve into "system versus system" confrontations, where armies need to target critical nodes within their adversaries' interconnected systems. Victory will depend on the PLA's ability to weaken or incapacitate enemy command and control centers, logistics hubs, and strike capabilities. The reason artificial intelligence can realize this vision of future conflict is that it can help operators identify and target system-level vulnerabilities, enhancing the speed and efficiency of military decision-making.

In specific application areas, the PLA's artificial intelligence experiments cover a wide range. In unmanned systems, China is developing aerial drone swarms capable of identifying, tracking, and coordinating attacks against enemies, while also working on various robotic platforms, including hardware and software for robotic dogs and humanoid robots. In decision support, procurement documents show the Chinese military's strong interest in artificial intelligence-assisted decision-making technologies—reflecting, to some extent, the trust issues of China's political and military leadership in the PLA's command chain, as well as concerns about potentially being at a disadvantage in rapidly evolving conflicts. Artificial intelligence decision support systems can help them understand and anticipate adversary actions, thereby compensating for the PLA's limited real combat experience.

In the realm of cyber and information warfare, the PLA is developing artificial intelligence tools to automatically detect intrusions into its computer networks, enhance the resilience of military communications, and bolster its cyber operational capabilities. Furthermore, the Chinese military places a high priority on developing cognitive warfare technologies, viewing AI-generated images, videos, and audio as powerful tools for influencing public opinion and manipulating adversary perceptions and decisions.

Particularly noteworthy is the PLA's efforts to apply artificial intelligence in space and maritime domains to undermine U.S. advantages. China is openly pursuing satellite targeting algorithms and new anti-satellite weapons, some of which involve small robots capable of attaching to and incapacitating adversary space-based platforms. In the maritime domain, the Chinese military is experimenting with a range of autonomous underwater vehicles and has already deployed advanced sensors in the ocean and space, aiming to map and monitor underwater activities, ultimately achieving global tracking of U.S. submarines.

An important characteristic of China's military intelligence modernization is the adoption of a "use while improving" strategy, rather than waiting for major breakthroughs in artificial intelligence technology. Many procurement documents set short development timelines, allowing for rapid and relatively inexpensive experimentation across various applications and domains. More importantly, China is encouraging domestic tech companies to adapt their products for defense applications through subsidies, tax incentives, and other means. This military-civil fusion approach enables the PLA to leverage China's commercial tech sector and advanced industrial capabilities, rapidly iterating and adapting in areas such as smart manufacturing, robotics, and battery technology to deliver cutting-edge technologies to the military.

From a global perspective, many of the PLA's artificial intelligence application concepts are similar to major projects of the U.S. Department of Defense, including the development of unmanned autonomous vehicles, computer vision models, and predictive maintenance. The U.S. plans to acquire thousands of low-cost disposable drones through the "Replicator" program, while the PLA is also requesting a large number of small, inexpensive drones for future conflicts. The parallel experiments of both militaries in targeting algorithms and cyber warfare seem destined to lock Washington and Beijing into a rapid cycle of technological change.

However, while the 7% growth in the 2026 defense budget is the lowest in five years, the strategic intent behind it is clear: China is shifting from a focus on quantity growth to quality enhancement, from large-scale hardware procurement to technology-intensive capability building. This transformation is not only reflected in the application of cutting-edge technologies like artificial intelligence but also in the modernization philosophy of the entire military system—achieving cross-domain collaboration, rapid decision-making, and precise strikes through intelligent means.

For the regional security landscape, the PLA's intelligent transformation signifies that technological competition will become a core dimension of military competition. In this race, victory or defeat will depend not only on the sophistication of the technology itself but also on the speed at which new technologies can be rapidly converted into combat capabilities. This also explains why, despite the slowdown in budget growth, China continues to maintain strong investments in military modernization—because in the era of intelligence, quality and efficiency are more critical than sheer scale.