of restoring the more normal subordination of the military to the Party is nearly completed.

Disputes over economic priorities and budgetary allocations may in themselves have played a part in bringing the Lin crisis to a head, although direct evidence for this is thin. China's leaders may have decided that military programs were preempting an exorbitant amount of resources without significantly improving the country's military posture. Many of the weapons that China has been producing-such as the Mig-19 fighter-are fast becoming obsolete; additional numbers would not appreciably improve China's overall defense capability. Moreover, the Chinese policymaker must realize that the United States and the U.S.S.R. have an overwhelming superiority in both strategic and tactical arms and that even an allout production effort by the Chinese would not redress the military balance of power for many years to come.

At the same time, Peking probably feels that it now has sufficient nuclear and conventional forces both to deter the Soviet Union from attacking with nuclear weapons and to discourage the Soviet Union or any nation from attacking with conventional forces. Furthermore, in the minds of the Chinese leaders, the threat posed by the United States has decreased as well. Thus, Peking may reason that production of some kinds of military hardware should be cut back and the resources put to other uses certainly until later models are ready for large-scale production. Such a reallocation would not mean a reduction in Chinese forces, but rather a slower rate of military modernization.

The leadership thus may believe that in the long run a strong economy would do more to strengthen China than would a bigger military buildup at this time. From 1965 to 1971, military procurement required an increasing share of Chinese industrial production and grew faster than overall industrial output, as shown in figure 2. Since 1971, the trend has been reversed.

The reverse side of this coin is the pressures put on the Chinese leadership to devote more resources to the strengthening of agriculture. In 1972, Peking began to contract for substantial numbers of modern Western industrial plants, a program highlighted by contracts for 13 large chemical fertilizer complexes. In 1972-73, the known value of industrial plants purchased abroad amounted to $1.2 billion. The erection and operation of these facilities will draw on many of the same scarce materials, equipment, and skills used in the defense industrial sector.

The decision to curtail defense production also may reflect decisions not to produce follow-on systems because of inadequacies in China's military research and development effort. The usefulness of weapons designs incorporating Soviet technology of the mid-1950's is nearing an end, and the development of modern weapons systems such as advanced fighter aircraft may be straining the current capabilities of Chinese technology. Problems in developing follow-on weapons systems almost certainly have contributed to the present slowdown of military production.

SOME ASPECTS OF BURDEN

A standard measure employed in the West to measure the burden of defense is to relate military spending to gross national product. (GNP). A few years ago, the defense share of Chinese GNP, estimated according to Western concepts, was believed to be roughly 10 percent. With the decline in military procurement and the continued growth in GNP, the percentage allocated to military purposes, whatever it was then, is appreciably lower now. Table 1 shows the approximate shares of GNP allocated to defense in several important

countries.

Chinese planners, however, probably are more interested in what portion of the physical output of key machinery and industrial materials is absorbed by the defense effort. In particular, they must focus attention on the defense share of the output of the "metal processing industry." This sector not only supplies hardware to the military but also is the source of machinery and equipment for capital investment and for R.D.T. & E.-the two activities vital for modernization and growth. Finally, the sector supplies a small amount of consumer products.

Peking also must reckon with the escalating cost of developing, manufacturing, and deploying new generations of weapons. From their experience in developing missiles, the Chinese must have discovered what United States and Soviet planners learned long agoeach new generation of weapons becomes increasingly expensive to produce and operate. The advantage to the remainder of the economy in postponing large-scale production and deployment of, say, a missile system becomes greater and greater.

OUTLOOK

Chinese defense spending in the next few years no doubt will be forced upward by the expansion of the land-based strategic missile force, deployment of a new sea-based ballistic missile system, and the introduction of new aircraft. Institutional forces inherent within the military and defense industries can be expected to actively support these programs.

The programs involve the use of technology at or beyond the frontier of China's industrial and technological capabilities. Large-scale production and deployment of these modern weapons will be at an increasingly high cost in terms of opportunities forgone in the remainder of the economy. The question is one of pace. Given that absolute defense expenditures will pick up, this does not necessarily mean an increase in the percent of GNP going to defense or a revocation of the new agricultural support program. The tight resource situation in the Chinese economy will continue to provide incentive for holding military spending down as the tasks of providing for a growing population and modernizing industry continue to mount.

Arthur G. Ashbrook, Jr., "China: Economic Policy and Economic Results, 1949-71," People's Republic of China: An Economic Assessment, Washington, Joint Economic Committee of the U.S. Congress, 1972, p. 45.

The present general ordering of military versus civilian priorities probably will persist through this decade even if Mao passes from the scene. The basic rationale for this ordering the high cost and the technical difficulty of a more ambitious strategic weapons effort and the urgency of the claims of the agricultural and industrial sectorswill continue throughout this decade and beyond. The change in the nature of the military forces puts the emphasis on resources in which China is comparatively weak. The small burden of the former groundbased PLA is being replaced by the large burden of an evolving modern defense establishment.

TABLE 1.—Estimated military spending as a percent of GNP, 1974

Source for countries other than China: The Military Balance 1974-75, London, The International Institute for Strategic Studies, pp. 78–79.

THE ECONOMIC CONSEQUENCES OF DEFENSE
EXPENDITURE CHOICES IN CHINA

By ROBERT F. DERNBERGER

When the Chinese Communists swept into power and established the People's Republic of China at the end of the 1940's, their success was largely, but not solely, attributable to the field armies of the People's Liberation Army. The PLA had its origin (only two decades earlier) in the Communist guerrilla base areas and received its training in the Communist's struggle against both a militarily powerful foreign invader, the Japanese, and a better equipped domestic rival, the Nationalists, during the Second World War. As a result of their remarkable success against such overwhelming odds and their sincere dedication to serving "the people," members of the PLA have enjoyed a position of honor and respect as one of the most important elite groups in Chinese society and government today. The initial flush of victory in the Civil War did not, however, serve to resolve the monumental task of providing China with the defense prerequisites of a major world power.

At the end of the 1940's, the PLA consisted of a sizable force of capable, dedicated, well-disciplined, and mobile field armies, without any significant air or naval forces. Its domestic economic base was not only underdeveloped with a relatively small industrial sector, what industry did exist would have to be reconstructed merely to reestablish the relatively low prewar levels of production. Moreover, the PLA was still responsible for the continued conflict with the Nationalists who had fled to the island of Taiwan, less than 100 miles off the coast of the mainland, and would shortly enter the Korean conflict against the strongest military power in the world.

Despite this disadvantageous and inauspicious situation at the beginning of the period and the several ensuing internal political leadership crises which saw the demise of many of its most prominent leaders, only a superficial review of the history of the PRC is necessary in order to determine that the PRC today is a major world power with credible defense capabilities and has an economy which not only feeds and clothes one-fourth of the world's population but also is becoming a major industrial power as well.

Given the constraints presented by China's resource endowments, and present level of development, however, China's military potential and capabilities still derive from China's manpower resources. Thus, in terms of manpower alone, China's armed forces are on a par with those of the two major superpowers (the United States and the Soviet Union) and are slightly larger in size than the total armed forces in NATO.1 In terms of modern armaments and supporting services, such

1 Based on estimates of 3.5 million military personnel for the Soviet Union, 3.1 million for the PRC, and 3.1 million for the United States. The data used in this paragraph are from the statistical tables in the annual reports of the U.S. Arms Control and Disarmament Agency. The estimates for military manpower and expenditures in China are based on fragmentary data and are knowledgeable guesses at best. Nonetheless, they are sufficiently accurate for the purposes of the discussion in this paragraph.

as air and naval power, however, China ranks far behind the major superpowers with annual defense expenditures less than one-fifth those in the United States and the Soviet Union and less than one-half those in the NATO countries combined. In terms of annual defense expenditures per man in the armed forces, therefore, the comparison shows an even greater gap between China and the other superpowers.

This atypical mix of manpower as against modern, sophisticated weaponry, and air and naval power explains why China has been able to provide the third largest military force in the world, even though China is an underdeveloped country. In absolute and aggregate terms, China's economy is the seventh largest in the world, but its per capita income is still less than 200 U.S. dollars. The emphasis on a manpower intensive military in a labor abundant country such as China, therefore, has only served to keep within manageable limits the economic burden of China's recognized military capabilities. Given China's desire to equip its armed forces with some modern weapons and to provide a creditable military threat by means of carefully selected modern weapon systems, however, means that the economic burden of China's defense expenditures still claims a significant share of China's production about one-tenth of China's total GNP. To put it in the popular terminology, China's emphasis on manpower in its military strategy has allowed the Chinese to obtain the biggest bang for their buck, but to obtain that bang they still have found it necessary to spend a significant share of the bucks they have available.

Attempts to evaluate the total burden of China's defense expenditures could conclude that the economic burden of these defense expenditures has been relatively small because they have not precluded the Chinese from obtaining considerable progress in their civilian economic development program. On the other hand, a similar study could conclude that this burden has been relatively large because the Chinese obviously could have achieved significantly higher rates of growth if they had devoted these expenditures to investments and output in other sectors. Still other studies could seek to determine the economic burden of an attempt by China to create a military force comparable in size and composition to that possessed by the Soviet Union or the United States, concluding the economic burden of such a military strategy would be beyond China's present capabilities.

Attempts to estimate the economic burden of China's existing defense expenditures are important and useful in providing for a better understanding of the resource flows in China's economy and the economic consequences of the military policies and strategies China's leaders have adopted. Nonetheless, provision of a creditable military threat will continue to be a priority objective of China's leaders, no matter what the results of these studies would show, and the same would be true of any responsible leadership group of any country desiring to be a major power in today's world.

Our purpose in this paper, however, is not to analyze and estimate the absolute economic burden or consequences of any one particular, past or potential future level or pattern of defense expenditures in the PRC. Rather, taking China's present defense expenditures and their costs as given we proposed to determine the economic consequences of

2 An attempt to evaluate the economic burden of China's recent defense expenditure patterns is the subject of another paper included in this volume, see Jammes, supra.