China's Defense Budget Increases to 1.94 Trillion Yuan in 2026: PLA Modernization Accelerates Towards Centenary Military Goal

On March 5, 2026, China announced its annual defense budget at the fourth session of the 14th National People's Congress: 1.94 trillion yuan (approximately 282 billion USD), an increase of 6.9% year-on-year, marking the lowest growth rate in nearly five years. However, it still represents the 11th consecutive year of single-digit growth, with the growth rate exceeding China's overall economic growth target (4.5%), highlighting Beijing's strategic intent to prioritize military development amid an economic slowdown.

In terms of figures, the central government's defense spending is 1.91 trillion yuan, an increase of 7%; China's overall defense budget (including local expenditures) is 1.94 trillion yuan, up 6.9% from the execution number in 2025. In stark contrast, China has lowered its official GDP growth target to 4.5% this year, the first time in nearly thirty years that it has fallen below 5%. This indicates that the proportion of defense spending to GDP will further approach 1.5%, although it remains significantly lower than the United States (approximately 3.5%) and NATO member countries, which generally exceed 2%.

Regarding the use of incremental funds, Zhang Xiaogang, spokesperson for the delegation of the People's Liberation Army (PLA) and the Armed Police Force, clearly pointed out four priority areas: first, to promote the integration of mechanization, informatization, and intelligentization; second, to optimize the joint combat system and develop new domain and new quality combat forces; third, to accelerate the research and development of advanced weapons and equipment and innovation in defense technology, and to advance modern military logistics construction; fourth, to strengthen military training, personnel policies, and military education, cultivating high-quality military talent. This funding allocation logic clearly outlines the development path of the PLA during the 14th Five-Year Plan period (2026-2030)—driven by intelligence and oriented towards system combat capabilities.

Notably, Xi Jinping's important speech at the plenary meeting of the PLA and Armed Police delegation on March 7 deserves attention. He emphasized fully leveraging the unique advantages of political military building and made comprehensive deployments around achieving the modernization goals and tasks of national defense and the military during the 14th Five-Year Plan period. The backdrop of this statement is the approaching centenary of the PLA's founding in 2027—by then, the PLA needs to present a report on the phased achievements of modernization to the Party Central Committee. Subsequently, the General Office of the Central Military Commission issued a notice requiring party committees at the regiment level and above to incorporate the spirit of the conference into theoretical study, and the entire system quickly initiated learning and implementation procedures, fully reflecting the organizational mobilization efficiency under the Party's absolute leadership over the military.

From a strategic competition perspective, following the announcement of the defense budget, Japan's Chief Cabinet Secretary criticized it for lacking transparency. In response, Defense Ministry spokesperson Jiang Bin firmly pointed out that Japan's defense budget has increased for 14 consecutive years, with a growth rate exceeding 60% over the past five years, and that Japan's per capita defense spending is more than three times that of China. He directly indicated that Japan is breaking free from the constraints of its pacifist constitution to develop and deploy offensive weapons. The diplomatic friction between China and Japan over military expenditure transparency reflects the deep-seated tensions in the security landscape of the East Asia region.

From a longitudinal trend perspective, the logic of China's defense budget growth has shifted from quantitative expansion to qualitative leap. Recent achievements frequently showcased by the PLA include: the mass service and continuous improvement of the J-20 stealth fighter, the formation of combat capability for the 10,000-ton Type 055 destroyer, the operational readiness of the DF-17 hypersonic missile, multiple rounds of sea trials for the Fujian aircraft carrier (Type 003), and the accelerated deployment of unmanned combat platforms. The construction of new domain and new quality combat forces—including aerospace, cyber, information warfare, and unmanned systems—will be the focus of future incremental investments.

In international horizontal comparisons, the scale of 1.94 trillion yuan (approximately 282 billion USD) keeps China firmly in second place globally for military spending, about 30% of the U.S. defense budget, but its purchasing power parity advantage cannot be overlooked. China relies on a vast domestic military-industrial system to procure local equipment at relatively low dollar costs, meaning the actual effectiveness of military construction may significantly exceed the levels reflected by nominal figures. The Stockholm International Peace Research Institute (SIPRI) has long believed that China's actual military spending is far higher than the officially announced figures, estimating it is usually about 20-30% higher.

Looking ahead to the 14th Five-Year Plan period, the PLA's modernization efforts face three overlapping pressures: resource constraints due to economic downturn, pressures for independent innovation under technological blockades, and the high-intensity consumption required to maintain readiness in the Taiwan Strait and South China Sea. The 6.9% growth rate slowdown may reflect more of a pragmatic consideration of fiscal sustainability rather than a contraction of strategic intent. The approaching centenary of the PLA in 2027 makes the trajectory of military spending and the pace of equipment deployment over the next two years a key window for observing the PLA's strategic capability enhancement.