Beijing announced in early March that it plans to boost China’s defense budget by 17.8 percent in the coming year. That fairly hefty increase continues a pattern of double-digit hikes over the past decade. Both the United States and China’s neighbors in East Asia are expressing growing uneasiness about the trend.

Far more troubling, however, is Beijing’s continuing dishonesty about the actual extent of its military spending. According to the Chinese government, the new defense budget will be $44.9 billion. However, China’s official defense budget omits several pertinent items. In a moment of unusual candor in 2005, defense-ministry official Gen. Cao Gangchuan admitted that China excludes “some funding for the development of equipment” from its budget. The omitted categories are actually far more extensive and include various weapons purchases, as well as most military research and development expenditures.

Admittedly, all communist regimes tend to lie as a matter of principle. That habit may have persisted in China even as the officially communist system there has adopted economic policies more attuned to Milton Friedman than to Karl Marx. Moreover, having misrepresented the actual extent of military spending for years, the Chinese government would find it awkward (at the very least) suddenly to offer accurate figures.

There may be a less mundane and more troubling explanation, however. The refusal to divulge the real amount of military spending could be a clumsy attempt to conceal the scope of the effort to modernize China’s military. The PRC’s forces are certainly no match for those of the United States, but China has come a long way in the past decade from the antiquated, personnel-intensive “people’s army” conceived by Mao Tse-tung.

Beijing is trying to create a smaller but much more capable force—a true 21st-century military apparatus. Among other things, the PRC has deployed more than 900 missiles across the strait from Taiwan, and it is purchasing first-rate fighter planes from Russia. Beijing has embarked on a campaign to expand and modernize its fleet of submarines. China is also trying to strengthen her capability to strike at U.S. naval forces deployed in the Western Pacific in the event of war. Purchases of the sophisticated Sunburn antiship missiles from Russia clearly point to that objective, and the recent test of an antisatellite capability is intended to neutralize the most prominent feature of America’s military superiority: our unparalleled ability to use satellites to see and manage a battlefield.

It is unlikely that China is attempting to challenge America’s global military dominance. In any case, that would be an utterly unattainable objective for at least another generation. It is possible, though, that Beijing may have more limited but still troubling goals: attempting to create a force capable of intimidating Taiwan (and, eventually, other neighbors in East Asia) and to discourage the United States from honoring her security commitments in the region, as the prospect of confronting China would be both too costly and too dangerous.

While we should be concerned about the lack of transparency regarding the PRC’s defense buildup, there is no need to inflate the Chinese military threat, as the war hawks in Washington tend to do. The Pentagon’s annual report to Congress last year concluded that Beijing’s real military spending was at least $70 billion and could be as much as $105 billion. Given the recently announced increase in China’s official budget, the Pentagon’s estimates in 2007 will likely be about $82 billion to $124 billion.

Most independent experts, however, emphatically dispute the Pentagon’s high-end figures. James Mulvenon, one of the top experts on China’s military, has even accused the Pentagon of making “wild assed guesses” about PRC spending that are “not based on empirical fact.” Other independent estimates usually come in below even the Pentagon’s low-end estimates.

That is an important point. If China’s actual military expenditures are in the $60 billion to $70 billion range, as most analysts believe, that is comparable to what other major powers, such as Russia, Japan, and Great Britain, spend on their military establishments and is only modestly greater than what France spends. And, of course, the PRC’s outlays are utterly dwarfed by the more than $600 billion U.S. defense budget.

The Pentagon does the American people a disservice when it exaggerates the extent of China’s military spending. But the Department of Defense’s foray into threat inflation is mild compared with the efforts of some nongovernmental hawks. The most egregious is a new study from Heritage Foundation analyst John Tkacik, Jr. Using “purchasing power parity,” Tkacik alleges that Beijing’s military budget is really $450 billion, “putting it in the same league as the United States.” His calculations, he states, “reflect the reality that a billion dollars can buy a lot more ‘bang’ in China than in the United States.”

That thesis has superficial plausibility, but even a cursory examination shows its fundamental flaws. Purchasing-power parity may have some validity when it comes to personnel costs (a dollar would buy more Chinese infantry than it would American infantry), but it has little, if any, application to weapons purchases. A Russian Kilo submarine or a Sukhoi-30 fighter plane would cost the same whether purchased by China, the United States, or any other country shopping at the global market. Sellers do not provide a special Chinese discount.

The absurdity of Tkacik’s thesis is even more evident when one considers the extent of military outputs. If Beijing had been spending in the neighborhood of $450 billion in recent years, we would have already seen an enormous expansion of PRC military capabilities. So, where are the numerous aircraft carriers (to compete with America’s 12), the long-range bombers, the vast expansion of China’s tiny fleet of intercontinental ballistic missiles, etc.? If China has been spending in the area of $450 billion per year on her military, she has been getting results that are extraordinarily anemic even for a communist system. If China’s defense budget were comparable in size to America’s, the PRC would be fielding a military establishment comparable to America’s. Yet not even the Pentagon is making that argument. The overwhelming evidence is that China’s military is no match for the U.S. military—and won’t be for decades.

Unfortunately, Beijing’s penchant for understating its actual defense budget plays into the hands of panda-bashers in the United States. The lack of candor and transparency breeds suspicion that China’s “peaceful rise” might not be all that peaceful. If the PRC wants to allay such suspicions and neutralize the influence of the hawks, it needs to come clean about its real level of military spending. The United States and the nations of East Asia should expect nothing less from what former Deputy Secretary of State Robert Zoellick termed a “responsible stakeholder” in the international community.

Ted Galen Carpenter is vice president for defense and foreign policy studies at the Cato Institute.

This article first appeared in the June 2007 issue of Chronicles: A Magazine of American Culture.