China's 2026 Defense Budget Increases by 7%: Strategic Choices Driven by Intelligent Transformation

In the context of a slowing economic growth, China has still maintained robust growth in defense spending. On March 5, 2026, the Chinese government announced at the National People's Congress that the defense budget for 2026 will reach 1.91 trillion yuan (approximately 277 billion USD), an increase of 7% year-on-year. Although this growth rate is the lowest since 2021, it still significantly exceeds economic growth expectations, demonstrating Beijing's firm determination in the process of military modernization.

From a data comparison perspective, the defense budget for 2026 has increased by about 130 billion yuan compared to 1.78 trillion yuan in 2025. Although China's military spending is only about a quarter of the United States' 1 trillion USD defense budget, considering purchasing power parity and differences in labor costs, the actual gap in military capabilities is much smaller than the budget figures suggest. More importantly, the growth rate of China's defense spending continues to exceed GDP growth, indicating that military modernization is increasingly prioritized in national strategy.

Behind this budget increase is the accelerated advancement of China's military modernization "three-step" strategy. According to official plans, the modernization of the People's Liberation Army (PLA) is divided into three stages: mechanization, informatization, and intelligentization. The first two stages have been largely completed—China's military now possesses modern ships, tanks, and aircraft, and has achieved platform interconnectivity through data links and digital communication networks. The current focus is on the critical third stage: the transition to intelligentization.

According to research by Georgetown University's Center for Security and Emerging Technologies on the PLA's publicly available procurement needs over the past three years, the Chinese military is rapidly and extensively integrating artificial intelligence technology into the military domain. These procurement documents indicate that the PLA is developing AI systems capable of driving unmanned combat vehicles, detecting and responding to cyberattacks, tracking maritime vessels, and identifying and striking land, sea, and space targets. The Chinese military is also developing systems that can ingest, analyze, and enhance vast amounts of data to improve tactical and strategic decision-making capabilities, as well as deepfake tools for misinformation campaigns.

During the Victory Day parade in September 2025, unmanned ground vehicles, underwater and aerial drones, and collaborative combat aircraft (autonomous fighters flying alongside manned aircraft) were core display elements. This demonstration conveyed a clear message to the outside world: the PLA plans to leverage emerging technologies to gain battlefield advantages. Chinese strategists believe that artificial intelligence will lead a new military revolution, where future wars will become "system versus system" confrontations, with victory depending on which side can better identify and strike the critical nodes of the opponent's interconnected systems.

In terms of specific applications, the PLA's AI experiments cover multiple areas. In unmanned systems, China is developing drone swarms capable of identifying, tracking, and coordinating attacks against opponents, as well as various robotic platforms including robotic dogs and humanoid robots. In decision support, considering the limited trust that Chinese political and military leaders have in the PLA's command chain, and their concerns about being at a disadvantage in rapidly evolving conflicts, AI decision support systems can help them understand and predict opponents' actions, thereby overcoming the disadvantage of limited combat experience.

Cyber and information warfare are also key development areas. The PLA is developing AI tools to automatically detect cyber intrusions, enhance the resilience of military communications, and strengthen cyber warfare capabilities. Additionally, China places great importance on developing cognitive warfare technologies, with multiple procurement documents requesting the development of deepfake technologies; the military views these AI-generated images, videos, and audio as powerful tools for influencing public opinion and manipulating opponents' perceptions and decisions.

In the space and maritime domains, the PLA is openly pursuing satellite target recognition algorithms and new anti-satellite weapons, some of which involve small robots capable of attaching to and incapacitating enemy space-based platforms. In the maritime domain, the Chinese military is testing a range of autonomous underwater vehicles and has deployed advanced sensors in the ocean and space to map and monitor underwater activities, with the ultimate goal of tracking U.S. submarines globally.

It is noteworthy that China's militarization of artificial intelligence is not waiting for technological breakthroughs but is adopting a strategy of rapid experimentation and iteration. Many procurement documents show short development timelines, allowing for fast-paced and relatively low-cost experiments across various applications and fields. Beijing is also encouraging domestic tech companies to adapt their products for defense applications through subsidies and tax incentives. The integration of civilian products with defense applications enables the PLA to leverage China's commercial technology sector and advanced industrial capabilities, with rapid iterations and adaptations in areas such as smart manufacturing, robotics, and battery technology providing cutting-edge military technology.

However, China's path to intelligentization is not without challenges. As the war in Ukraine has demonstrated, developing technologies such as autonomous drones is one thing, but effectively deploying them in contested battlefields is entirely another. Rapidly training drone operators, formulating attack plans, and preventing "friendly fire" (accidentally destroying friendly deployed drones) are equally important as the technical capabilities of the drones themselves. Furthermore, training AI systems for military purposes requires vast amounts of data that are not available 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.

With the centenary of the military in 2027, the goal of achieving basic modernization of national defense and the military by 2035, and the aim of building a world-class military by 2049, China's military modernization timeline is clear and urgent. Although the 7% increase in the defense budget for 2026 is lower than in previous years, its strategic significance lies in the fact that, despite facing downward economic pressure, the Chinese government continues to prioritize funding for military modernization. This budget will primarily be used for increased procurement of major weapon systems and training investments, especially in the development and application of AI-related technologies.

For the regional security landscape, China's ongoing military modernization and intelligentization transformation are reshaping the military balance in the Indo-Pacific region. While the U.S. military still maintains key advantages in computing power, technical talent, and combat experience, China is narrowing the gap in military capabilities through rapid prototyping and experimentation, accelerating learning and improvement. This technological competition involves not only hardware but also who can more quickly develop and scale new capabilities and operational improvements. In areas such as AI-assisted decision-making, cognitive warfare, and deepfakes, parallel experiments between the Chinese and U.S. militaries may lock both sides into a rapid technological transformation cycle, and given the pace of defense technology evolution, any technological advantage may be hard-won yet fleeting.

Looking ahead, as the critical milestone of 2027 approaches, the PLA's transition to intelligentization will continue to accelerate. The widespread application of AI technology in the military domain will not only change the nature of warfare and combat methods but will also have profound implications for the global military balance of power, regional security situations, and even international strategic stability. The continued growth of China's defense budget and the steadfast advancement of intelligentization mark the arrival of a new era of military technological competition.