China Shrewdly Diverted Military Spending as City’s Island Building

The large airport on China’s artificial island on Yongshu Reef (Fiery Cross Reef).

In my post “Why China Can Win in Its Arms Race with the US?” on January 16, 2016, I said:

In the arms race between China and the US, China is the sure winner because China relies on its enterprises including state-owned and private ones for the development and production of advanced weapons. Those enterprises do not live on the country. They have to make money through their own sales. Only when their products meet the country’s needs in its arms race with the US can they sell their products to the state. Even so, they can only make normal profits. Often they cannot sufficiently recover their R&D costs by their sales to the state alone and have to make ends meet through their sales to other customers or of other products.

A typical example is Chinese state-owned aircraft producer’s development of J-31 stealth fighter jet on its own without government funding.

In the US however, weapon developers and producers live on their country. They are ensured not only recovery in full their R&D costs but also a substantial profit in developing and producing weapons for their country.

That is why China can win even though its military budget is much smaller than the US.

In addition, state owned enterprises (SOEs) may be ordered to provide military hardware at very low prices with little profit. That is no problem for the state as after all the profit belongs to the state. However, the burdens on military budget are shifted on SOEs so that the military can get hardware with a much smaller budget.

The above are shrewd ways to make do in its arms race with the US with a much smaller military budget than the US. However, the shrewdest way to divert military spending to civil one is China’s treatment of the construction of artificial islands for defense against US submarines as a civilian project for fishery, fish farming, energy exploitation and tourism.

China’s military budget will be far from enough if the huge costs of island building are included in the budget. However, China has justified reasons to do so as the islands will indeed be used as fishery, fish farming and energy exploitation bases and tourist resorts. China has indeed been building the islands as parts of its prefecture-level Sansha City for civilian purposes as it claims though first of all for military purpose.

Everybody is clear that the islands have been built for defense, but cannot deny their civilian usage. That upsets US military especially profoundly as China is now able to fully control the South China Sea if those islands have been militarized. US military can do nothing except sending warships to conduct freedom of navigation operations, but that gives China the excuse to militarize the islands as it wishes.

Article by Chan Kai Yee