The Defense Department’s latest annual China Military Power Report gets a lot right. It accurately identifies the scope of China’s global ambitions and many of the structural changes being implemented by Xi Jinping to make China the preeminent military power in Asia and the Pacific. Even so, the report appears to undersell the threat posed by China and what will be required from the U.S. to counter it.

What the Report Gets Right

The report focuses correctly on the extent of China’s military buildup and modernization program. In 2022, the Chinese navy continued to beef up what is already the world’s largest fleet, working on delivering its third aircraft carrier and third amphibious assault ship, as well as additional guided missile destroyers, cruisers, and frigates. Beijing’s navy will soon be able to conduct long-range precision strikes against land targets from both its submarine and surface combatants.

The Chinese Air Force continues to modernize and produce increasingly advanced, domestically built manned and unmanned aircraft. Together with the Chinese navy’s air assets, it now constitutes the largest aviation force in the Indo-Pacific. Led by its fifth-generation fighter, the Ju-20, Beijing’s air force is on its way to becoming the largest in the world.

Perhaps most worrying, the report documents that, over the last 12 months, China built 100 new nuclear weapons—making it the fastest-growing nuclear power on the planet. Beijing is on track to numerically match the U.S. nuclear arsenal by 2032.

The report also notes that China is deploying its growing military power in increasingly provocative ways. Over the last two years, it conducted over 280 coercive and risky air intercepts against the United States and its allies.

Finally, the report documents the growing use of Chinese naval assets to intimidate and coerce fishing fleets operating in international waters—not only in the Western Pacific but as far afield as Latin America. All of this is done against the backdrop of an unprecedented number of air and maritime exercises in the waters and skies around Taiwan.

What the Report Gets Wrong

While these developments are all legitimate cause for concern, particularly for defense planners seeking to bolster America’s capabilities, the report errs by relying on China’s official defense budget topline of $230 billion.

On its face, this number is a fraction of the $886 billion Congress just authorized for the U.S. defense budget. This comparison will invariably lead some observers to claim the U.S. military is three to four times more capable than China’s, but that isn’t necessarily true. As the paper acknowledges, China’s real defense budget is likely far higher: European think tanks have estimated that real Chinese defense spending is at least 30-40 percent higher than the official budget. Numerous analyses have concluded the Chinese government excludes significant sums from the official figures to hide the extent of its military buildup.

At the very least, we know that China’s budget does not include details on research and development spending – a spending bucket that accounts for more than $140 billion in the U.S. defense budget. To its credit, the Pentagon report does consider Beijing’s military-civil fusion development strategy, in which China leverages its civilian technology and industrial base to massively enhance the capabilities of its defense industrial base. Confusingly, the report does not attempt to account for either of these significant considerations in its treatment of China’s defense budget topline.

The report also fails to account for differences in American and Chinese purchasing power. Simply put, defense spending goes a lot further in China than it does in the United States, because labor and material costs are lower in China. For example, Chinese military personnel earn only about one-fourth what American servicemembers do.

Confusingly, the report states that “Economic forecasters project that China’s economic growth will slow during the next 10 years, from about 3 percent in 2022 to around 4 percent in 2025.” Leaving aside the obvious math issue, economic growth of around 4 percent is more than enough for the world’s second-largest economy to continue growing its military spending.

Earlier this year, Sen. Dan Sullivan, R-Alaska, revealed that an internal U.S. government estimate put the Chinese defense budget at roughly $700 billion. If this number is accurate, the Department of Defense should have included it in its report. Internally estimating the Chinese budget to be around $700 billion while telling Congress and the public that it is only $230 billion will create a massive disconnect between the U.S. government’s sense of the threat posed by China’s military spending and the public perception of it.

During the Cold War, the Defense Department drew on its enormous quantitative and intelligence resources to accurately assess the Soviet defense budget. It should do so now, to better understand the actual Chinese defense budget and how it spends its financial resources in comparison with the United States. Because as worrying as this report is—it almost certainly underestimates the threat posed by China.

Robert Peters is the Nuclear Deterrence and Missile Defense Fellow at the Heritage Foundation. He served in various positions within the Department of Defense over a 17-year career, to include in the Office of the Secretary of Defense, National Defense University, and the Defense Threat Reduction Agency.

Wilson Beaver, a former Senate staffer and U.S. Army veteran, is the senior policy analyst for defense budgeting at the Heritage Foundation’s Center for National Defense.

This article was first published by RealClearDefense.

Image Credit: U.S. Air Force