China's Military Modernisation Speedrun - Budgets, Industry, and Purchasing Power Parity

I think it's fair to say that the days of Moscow being the hub of the world's second most powerful conventional military are at an end. Now, that power rests in Beijing.

The PLA's budget is vastly larger than Russia's but a mere fraction of what the US spends. Despite that, China has gone through an incredibly rapid military modernisation over the last two decades, building new platforms and fielding new technologies so quickly that the gap between its capabilities and the USA has narrowed significantly.

How?

Today I look at the Chinese military budget, industry, and the wonders of purchasing power parity.

Patreon:

Timestamps:
00:00 -- Opening Words
00:07 -- Russia Stronk?
00:41 -- What about the PRC?
01:07 -- Where is all this coming from?
01:39 -- Capability Revolution
02:11 -- What Am I Covering?
03:45 -- Caveats
04:20 -- History
04:23 -- A Revolutionary Army
05:45 -- Contraction and Expansion
07:06 -- Force In Transition
08:21 -- Three Milestones
10:05 -- What's in a Budget?
10:12 -- Inclusions and Exclusions
11:27 -- The Paramilitary Factors
12:23 -- Meet the 中国人民武装警察部队
12:59 -- Chinese Paramilitaries
15:43 -- Inclusions and Exclusions
16:55 -- Building a better budget - IISS method
18:27 -- Getting Closer?
19:12 -- What's a Dollar Worth
22:04 -- Problems with PPP for Military Spending
23:26 -- Creating A defence PPP Index
25:13 -- The Global Picture
27:44 -- Industry
31:10 -- The SOE Problem
33:39 -- Black Holes and Questions
35:47 -- Progress & Momentum
36:06 -- The Spending Balance
37:44 -- Legacy Systems
39:56 -- The Buildup Benefits
41:18 -- Catching up is a curve
42:40 -- Does the line go up forever?
46:53 -- The Closing Picture
47:59 -- Conclusions
49:35 -- Channel Update
50:34 -- Scam Warning

Caveats:
At one point I mention that China was the second nation to field a 5th generation fighter with its J-20. That's lazy wording on my part as the F-35 is a multinational project. I hope my intention in that statement was clear.

As always - this video was produced on the basis of imperfect information, though the sources relied on or discussed are largely captured in the source list below.

This video has been produced to help explain the pace of Chinese military modernisation and give some context to how it has managed to rapidly catch up with other powers. It is my hope that it is taken in the spirit in which it is intended.

I accept that this video, out of necessity, simplifies a range of elements, ranging from the interaction between SOEs in the PRC to the specific budgetary arrangements that are in place in China.

In this video I reference a range of methodologies to try and more accurately compare the value of the PRC defence budget with others (such as Russia or the USA). These examples should be considered approximate, and use methodologies set out in the sources below - I do not personally endorse any given method - they are used to illustrate the concepts involved.

Sources:
PRC 2019 defence white paper:

China’s Military: The People’s Liberation Army (PLA) - CRS

Understanding China’s 2021 Defense Budget - CSIS

A NEW ESTIMATE OF CHINA’S MILITARY EXPENDITURE - SIPRI

Measuring Hard Power: China’s Economic Growth

China Naval Modernization: Implications for
U.S. Navy Capabilities—Background and Issues for Congress - CRS -

OECD PPP Data (retrieved week of 15/08) -

The known unknowns of China’s defence budget - Frederico Bartels -

[PerunAU]

Warning - this one is packed with economic theory and is comparatively short on things that explode, but it sets out concepts that are going to be relevant whenever we look at different nations in the future. If you can't account for purchasing power parity when dealing with things like troop salaries and construction costs, you'll never understand how anyone that isn't the United States manages to afford a half decent military.

Sorry this one dropped a little later than usual - it got stuck in YT checks for hours.

[matthiasroshardt]

"Hell yeah, a fresh 1 hour lecture on defense economics" is not something I thought I'd ever think while looking at my youtube feed, but here we are. Thanks Perun :)

[lewistingler]

“Sorry to anyone who found this episode dry”

Don’t play coy Perun, you know what we are here for

[MasterChiefCortana]

A bit of background for me: I’m a history teacher at the secondary level here in the USA (for those in countries with different education terminology, I mostly work with high school age groups). My background for my Master’s degree was focused on public history (for non-public historians, that term simply means the focus of our work is outside of academia and more focused on bringing history to people outside of classrooms, I.e. in museums, state and federal parks, nonprofit organizations, etc.).

Being a public historian, it’s a joy for me to see someone like you, Perun, excelling on a platform like YouTube with the content you put out. It’s precisely the type of way public historians are constantly talking amongst ourselves about innovating to reach normal people and educate them about important and complex subjects. Rest assured, I’ll be sharing your channel with several colleagues of mine. The fact that you constantly admit to any and all limitations you may have on certain subject areas alone makes your channel worthy of sharing more than 99% of other channels claiming to do the same things you do. You don’t and haven’t needed buzzy titles, overblown and exaggerated theses, or oversimplification of complex subjects to find the success you have. All you’ve needed is the hard work you’ve put in to put together some truly phenomenal and informative presentations. Keep up the great work and thank you for what you’ve given us already.

[santiagopm]

Man, stop apologizing for not just covering things that go boom. There are thousands of channels doing that. It's content like this that sets you apart. Keep it up!

[skyscraper]

I think YouTube is saturated with “capabilities” channels/videos. Your economic/procurement analysis is a unique skill you bring to the table. Honestly, you could even do retrospective analysis based on figures not available at the time or how unknown factors bucked trends/predictions if you ever run out of topics. As a PhD student, I love this in depth stuff and the 45min-1:15 min format is perfect - long but not too long, as long as an academic seminar.

[mikedrop]

I can't thank you enough for putting out these presentations each week. Your integrity and transparency is so appreciated in this environment of state sponsored propaganda.

[BrettCoryell]

Perun: '... and because you willingly subjected yourself to this presentation, [calculating PPP in defense spending] is exactly what we're about to try to do...'
Me: 🎉😁👍

[davis]

How did I get to the point where I get excited when I see a new 1 hour slideshow presentation regarding military spending. Perun these videos continue to be amazing and informative. Thank you

[andrewcraig-bennett]

One detail that you didn’t mention - Deng Xiaopeng was the officer in charge of logistics for the Long March. His success in that role was why Mao Zhedong called him “indispensable”.

[Betterhose]

36:48
When I read "this is the Germany problem" I felt a sudden sharp sting in my heart.
That pain when a problem with military spending is named after your country...

[clobberella]

As they say, "Amateurs study tactics, professionals study logistics." Yet another informative video. Much thanks Perun

[Wafftop]

I never thought i would get hype for a slideshow series but here I am

Congrats on your well deserved growth

[WangGanChang]

A interesting example of military companies with civilian income is 504 factory in Lanzhou, which makes centrifuges for uranium isotope isolation. They are also one of the biggest maker of industrial ice cream maker in China and for a time in the 1980s and 1990s makes one of the more well know brands of Ice Cream in the region. There was a very severely dry spell in the late 80s and early 90s for military orders, and many defence contractor need to branch out to the civilian market just to surrive. While it's not as obivous as Baotou Tank Factory making farming tractors, but, there is apparantly enought overlap between uranium centrifuges and making ice cream to make this work...

Here is not a non-military spending item, a benifit used for recuiter (other than the usual college financing deal) is that veterans enjoy the first two years after honorable discharge tax free if they start a small business. This is huge incenctive even if the veteran does not start one, as people will pay them start one in their name, and authorities usually look the other way. The money that can be earned this way are at least an order of magnitude more than base salary of enlisted personal (even if it's just a small restruant or boba shop), but this item is buried under local tax incentive programs for small business, and veterans are just one of the requirement. (though it is the most easily satisfied by ordinary people)

As for J-20, I believe the lastest count according to serial number loggers is 114, the actual number could be higher. The rate of production is also inceasing as CAC is moving its J-10 production line to GAC in order to make more room for J-20 production. GAC itself is also one of the top producer of motocycles, motoscrotters and E-bikes in China as well, to highlight the first point.

As for PPP, from the Chinese perpective defense programs in the US is unfathomablly expensive. One of the ongoin jokes is that CSSC should take the 052D and use it to bid on the Constellation-class frigate (tonnage wise it similar), outclass the competition and still make tons of the profit in the process.

[ZRecon]

This will get lost in the hail of comments - but I highly appreciate the fact that you're taking the time to go over more economic matters and in-depth areas such as this! It's very refreshing to see a channel that doesn't just stay surface level - will sub to the Patreon once gas doesn't take all my disposable :D

[Voxdalian]

"I'm not sure how this type of content will do." -> 50k views on the first day.
I think it's doing well.
Everyone studying warfare or military capability always mentions how important economy is to war, but few ever go into the numbers for specific cases. As a foreign relations worker, I have colleagues specialised in military, or even military in specific powers, and your videos are like what they do in miniature. Some of them have been surprised at me suddenly gaining more in-depth knowledge of their specific fields and nearly keeping up with them in their own specialisation (at least superficially). So for me, content like this is directly improving my image with colleagues, hahah.

[kostakatsoulis]

Who knew Australians would be owning the military and military-adjacent analysis scene on YouTube? Keep up the great work!

[jonathansturm]

It’s difficult to express how invaluable your analyses are for an in-depth understanding of the world today. Your efforts are very much appreciated, especially since you appear unrivalled! This particular presentation was beyond expectation a few weeks ago, yet you have delivered in spades. _Well done!_

[Edt]

27:05 first video I’ve seen that got China “conscription” situation right. So many other simple/sensational channels talking about China’s capabilities assume PLA is full of conscripts and therefore low quality.

[shirleyhaugaard]

Australian grandma here, I love your content and look forward to seeing the next one's, regardless of topic you come up with some really interesting information that is not covered elsewhere, not that I can find anyhow.
Thank you for your work 😊