OF ALL OF THE UNCERTAINTIES of the Asian security environment, none is more compelling than that surrounding the future role and status of the People's Republic of China (PRC). To some observers, the combination of rapid economic growth and military modernization signals Beijing's intention to establish itself as a regional hegemon. Others acknowledge that China can "spoil" regional stability, but, citing potential economic and political problems, numerous constraints on military modernization, the growing national strength of the other regional powers, and China's interest in maintaining regional stability, they tend to discount the rise of a China threat.
Clearly, China is an emerging great power. It already plays a defining role in the affairs of the Asia Pacific region. In the future, Chinese power and influence are certain to grow. This in turn will lead to the discovery of new and expanded Chinese interests and, as a stronger China pursues them, there is bound to be some disruption of the political, economic, and military status quo. In this sense, China obviously poses a challenge to East Asian security. The military dimension, however, is far less clear. Even today, if Beijing were willing to pay the price, the People's Liberation Army (PLA) could seriously damage potential adversaries in limited campaigns. But this does not mean that China will inevitably choose to use the military instrument in pursuit of its foreign policy goals.
In assessing China's future potential as a military threat, the economic, political, and strategic constraints on its program for modernizing its armed forces must be considered. Larger questions concerning Beijing's perception of the security challenges facing China and the related question of its strategic intentions must also be addressed. Such considerations suggest, first, that the PLA is years away from achieving the capability to project military force in a sustained manner, and, second, that with certain well-defined exceptions, Beijing is likely to be extremely judicious about using military force as an instrument of foreign policy.
Since the early 1980s, the PRC has pursued the goal of transforming the PLA into a modern, high-technology military force. During the last decade, the PLA reduced its numbers by more than one million, introduced ranks, reformed its education and training systems, implemented a reserve system, began to modernize its operational doctrine, and entered upon a modest program of weapons and equipment modernization.
The military modernization program has produced a self-sustaining cadre of highly professional officers, and the PLA is slowly developing the doctrinal concepts required for high-technology warfare. The PLA has also identified a number of key mission areas and weapons systems for future development. The effort to procure and field modern weapons, however, is proceeding at a relatively slow pace. Our assessment of the future will concentrate on China's defense budget and force structure.
The Defense Budget
Between 1986 and 1994, the PLA's official budget increased in nominal terms about 159 percent to just less than US$8 billion. This sharp rise in military expenditure, coupled with Chinese secrecy, is a major source of concern to regional analysts. However, these figures may be misleading. First, the amounts must be discounted for the effects of inflation. Chinese yearly inflation averaged around 5.1 percent during the 1980s and accelerated significantly in the 1990s. Adjustment for inflation yields an increase of only four percent in real terms.
Second, the official defense budget does not tell the whole story. Any figure must include an estimate of military funds from other sources. Indeed, most outside observers believe that the figure must be at least doubled. Nonetheless, there is good reason to speculate that one of the important reasons official outlays have increased in recent years is to offset shrinking non-official budget revenues. …