China Faces an 'Impossible Challenge' on Budget, Tax and GDP

Lynette Rowe
March 7, 2018

China on Monday unveiled its largest defence spending increase in three years, setting an 8.1 percent growth target this year, fuelling an ambitious military modernisation programme and making its neighbours nervous.

Foreign investors will have wider access to sectors like telecommunications, medical services, education, elderly care and new energy vehicles, said Li when delivering a government work report to the first session of the 13th National People's Congress.

Diplomats say China's defense numbers probably underestimate true military spending for the People's Liberation Army (PLA), the world's largest armed force.

But it opted for a significantly higher increase in defence spending at 8.1% over last year's defence budget, reflecting Beijing's rising military ambitions.

The U.S. Defense Department did not immediately respond to a request for comment on the increased spending by its main strategic rival in Asia.

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Xu Qiliang, a vice chairman of the Central Military Commission, which runs the armed forces and Xi heads, told military delegates to parliament that China needed to "fully strengthen troop training and war preparedness and raise the ability to win", state news agency Xinhua said late on Monday. The premier also promised progress on developing electric cars and other technology and better regulation of China's scandal-plagued financial industries.

The target of "around 6.5 percent", announced in a report by Premier Li Keqiang to the ceremonial National People's Congress, is down slightly from 2017 but would be among the world's strongest if achieved.

At the same time, he pledged tax cuts of 800 billion yuan ($126 billion) for companies and individuals and set a 6.5 percent annual economic growth target - the same as last year's target but slower than the actual performance of 6.9 percent. Earlier this year, the president rallied thousands of troops for a military address and grand display of might in Baoding, in the northern province of Hebei. "It is extremely alarming for Australia and many other countries in the region", said Sam Roggeveen, a visiting fellow at the Strategic and Defence Studies Centre of the Australian National University in Canberra.

In recent years, China has built artificial islands in the South China Sea, militarizing them with airstrips, ports, hangars and other military-related infrastructure.

At a news conference on Sunday Zhang said "In recent years, China has moderately raised defense investment". The United States and the European Union complain that surplus of Chinese steel and aluminum flooding into global markets depresses prices and threatens jobs. The most dramatic Chinese military spending surge occurred during the previous decade, when annual increases ran into double digits, albeit with a lower military spending baseline and smaller economy factored into those percentages.

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