China's 2026 Defense Budget Growth Slows: A Dual Challenge of Anti-Corruption and Intelligent Transformation

On March 5, the Chinese Ministry of Finance announced that the national defense budget for 2026 is set at 1.9096 trillion yuan (approximately 276.8 billion USD), representing a year-on-year increase of 7%. This growth rate is the lowest since 2021, marking a significant slowdown in the growth of China's defense spending. Despite the decline in growth rate, the absolute increase still amounts to about 25 billion USD, highlighting Beijing's continued investment in military modernization amid economic growth pressures.

Behind this budget figure is the profound transformation the People's Liberation Army (PLA) is undergoing. From the rare action on February 26, where the National People's Congress Standing Committee revoked the representative qualifications of 10 PLA officers, to the government work report emphasizing "accelerating the development of new combat capabilities" and "promoting high-quality defense and military modernization," the Chinese military is facing dual challenges of anti-corruption and intelligent transformation.

The slowdown in budget growth is linked to the downward adjustment of China's economic growth targets. According to the government work report, the GDP growth target for China in 2026 is set at around 5%, lower than in previous years. In this context, the 7% increase in the defense budget is still significantly higher than the expected economic growth, reflecting the central government's prioritization of military modernization. However, compared to the consistent growth rate of 7.2% from 2022 to 2025, this year's slowdown undoubtedly sends subtle signals.

Scholars from the National University of Singapore analyze that the slowdown in growth is partly attributed to the ongoing anti-corruption campaign within the PLA. Since 2023, the upper echelons of the PLA have experienced multiple rounds of personnel upheaval, with several senior officers from key departments such as the Equipment Development Department and the Rocket Force being dismissed. The collective dismissal on February 26 further escalated this anti-corruption storm. According to Chinese political conventions, losing representative qualifications often indicates that the individuals involved are in serious trouble.

The impact of the anti-corruption campaign on the defense industry cannot be overlooked. Executives from several defense enterprises and research institutions are also under investigation, leading to delays in some procurement projects, which may result in resource waste and a decline in product quality. Analysts from the Royal United Services Institute in the UK point out that corruption not only drives up equipment costs but may also lead to "cutting corners" in the defense industry, affecting the reliability of weapon systems. In this context, merely increasing budget allocations is insufficient to ensure the pace and quality of military modernization, which may be one of the deeper reasons for the slowdown.

However, despite facing the pains of anti-corruption, the PLA's intelligent transformation has not slowed down. According to research by Georgetown University's Center for Emerging Technologies and Security, which analyzed thousands of publicly available PLA procurement documents, the Chinese military is making significant strides in the military application of artificial intelligence technology. These procurement demands cover almost all operational areas, from unmanned combat platforms, cyber offense and defense, maritime target tracking to space target strikes.

During the Victory Day parade in September 2025, new-generation weapon systems such as unmanned ground vehicles, underwater and aerial drones, and collaborative combat aircraft became the focus. These systems signify the comprehensive advancement of the PLA's "intelligent" modernization in its third phase. The so-called intelligentization refers to the automation of combat actions and intelligent decision support achieved through artificial intelligence technology after completing the "mechanization" and "informatization" stages.

The PLA's application of artificial intelligence exhibits several notable characteristics. First is the widespread deployment of decision support systems. The Chinese military leadership has concerns about the reliability of the command chain, believing that PLA officers may be at a disadvantage in rapidly evolving conflicts due to a lack of combat experience. Artificial intelligence decision support tools can help commanders understand and predict adversary actions, compensating for the lack of practical experience. This reliance on AI-assisted decision-making reflects both technological advancement and a certain distrust of the existing officer corps' capabilities.

Secondly, there is a focus on the development of cognitive warfare technologies. Multiple procurement documents call for the development of deepfake technology for creating false images, videos, and audio. The PLA views these AI-generated contents as powerful tools for influencing public opinion, manipulating adversary perceptions, and decision-making. Additionally, the PLA is utilizing AI systems to track international news, identify foreign public political views, predict social unrest, and manipulate adversary cognition.

Thirdly, there are key breakthroughs in maritime and space domains. The PLA is openly seeking satellite strike algorithms and new anti-satellite weapons, including small robots that can attach to and incapacitate adversary space platforms. In the maritime domain, China is testing various autonomous underwater vehicles and has deployed advanced sensors in the ocean and space, aiming to map and monitor underwater activities, ultimately achieving global tracking of U.S. submarines.

It is noteworthy that the PLA's artificial intelligence application strategy shares similarities with the U.S. military, but also has significant differences. In areas such as unmanned systems, computer vision, and predictive maintenance, the projects of both sides are highly similar. The PLA's procurement of "swarm" drones is akin to the U.S. Department of Defense's "Replicator" program, while the joint all-domain command and control system also parallels similar projects at the Pentagon.

However, in the realm of AI-assisted decision-making, the two militaries emphasize different aspects. The U.S. military's related projects primarily focus on operational planning and troop management, such as joint operational planning projects and target recognition systems. In contrast, the PLA, in addition to these capabilities, is also vigorously developing cognitive warfare tools that track international news, identify foreign public political views, and predict social unrest. This difference reflects the distinct strategic cultures and operational philosophies of the two countries.

In balancing human-machine collaborative decision-making, both militaries face different challenges. The U.S. military requires that AI systems must include "appropriate levels of human judgment," supervised by trained and experienced personnel. The PLA may be more inclined to view AI decision support systems as a substitute for its inexperienced officer corps. However, over-reliance on computer-generated analyses may lead to misinterpretations of military and diplomatic signals, resulting in inappropriate military decisions.

A key feature of the PLA's application of artificial intelligence is the rapid prototyping and testing. Research shows that many procurement documents require short development cycles, enabling quick and relatively low-cost cross-domain testing. Beijing is also encouraging domestic tech companies to adapt their products for defense purposes through subsidies and tax incentives. This military-civil fusion model allows the PLA to leverage the rapid iteration advantages of China's commercial technology sector in areas such as intelligent manufacturing, robotics, and battery technology into military advantages.

However, the PLA's intelligent transformation also faces numerous obstacles. As demonstrated by the war in Ukraine, developing technologies such as autonomous drones is one thing, while effectively deploying them in a fiercely contested battlefield is another. Rapidly training drone operators, formulating attack plans, and preventing "drone misfires" are capabilities that are as important as the technology itself. Furthermore, training military AI systems requires a large amount of data that is not easily accessible on the internet, such as classified images of military platforms or the electromagnetic characteristics of various radars and weapons. The PLA has limited combat experience and lacks many of these data sets.

Nevertheless, the PLA's rapid prototyping and testing will accelerate its learning and improvement processes. China is preparing to adopt and deploy combat artificial intelligence quickly and effectively, thereby keeping the military gap between China and the U.S. within a narrow range. This poses an urgent challenge to the United States.

The slowdown in the growth of the 2026 defense budget does not mean a halt in China's military modernization process. On the contrary, while cleaning up corruption and rectifying issues, the PLA is seeking "high-quality" development through intelligent transformation. Although the 7% increase is lower than in previous years, the absolute increase remains substantial, and priority is given to the development of advanced combat capabilities.

From the commissioning of the Fujian aircraft carrier in November 2025, to the unmanned combat systems showcased in the September parade, to the comprehensive penetration of artificial intelligence technology, the PLA's equipment system and operational concepts are undergoing profound changes. How this process unfolds will depend on whether Beijing can find the right balance between anti-corruption efforts and modernization, quantity expansion and quality improvement, and technological breakthroughs and practical combat capabilities. For the United States and its allies, closely monitoring the progress of the PLA's intelligent transformation, assessing its actual combat capabilities, and formulating corresponding countermeasures has become an urgent priority.