05:03 - Source: CNN
China's slowing economy

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China's military budget increase accounts for 1.3% of the country's GDP

It is the smallest increase in 7 years

Beijing CNN —  

China on Saturday announced a 7% rise in annual military spending, the smallest increase in seven years.

It comes as the nation’s parliament convenes its annual meeting, amid ongoing tensions in the South China Sea and acrimony over South Korea’s deployment of a missile defense system.

A South Korean conglomerate approved a land swap deal with Seoul Monday, bringing the controversial THAAD missile defense system one step closer to reality despite Beijing’s strong opposition to it.

1.3% of China’s GDP

Fu Ying, the spokeswoman for the National People’s Congress (NPC), which begins its 11-day session Sunday, said the proposed budget “based on defense needs as well as the national economy” accounted for 1.3% of China’s GDP.

“We have to guard against external forces from getting involved in our territorial disputes,” she said in response to a CNN question. “The strengthening of China’s (military) capabilities help preserve peace and stability in the region, not the opposite.”

The single-digit increase comes after US President Donald Trump’s announcement that he wants to jack up US military spending by $54 billion next year.

That’s a 10% increase over the cap on defense spending imposed by a budget deal that Congress passed six years ago.

In 2016, China said its military budget would increase by 7.6% to $146 billion, the slowest pace in six years. Until last year, China’s budget had increased at a double-digit pace since 2010.

China’s defense spending is eclipsed by the United States, which in 2015 accounted for 36% of all military spending worldwide, according to the Stockholm International Peace Research Institute.

The NPC and the Chinese People’s Political Consultative Conference (CPPCC), an advisory body, meet each March for what’s known in China as the “two sessions.”

The event, which sees some 3,000 NPC delegates flock to the capital, is long on pageantry and short on legislative deliberation; while some voting takes place, the Communist Party’s proposals are always approved. It’s often described as a rubber stamp parliament.

Beijing is expected to release a GDP growth target and detail economic reforms.

How will it get spent?

00:48 - Source: CCTV
China shows off new J-20 stealth fighter (2016)

Yvonne Chiu, an assistant professor in politics and public administration at Hong Kong University, said the key thing to watch for is how the defense budget gets spent – Beijing typically gives few details. She said that China is likely to emphasize developing naval capacity.

The Global Times, a Chinese state tabloid, reported last month that China is close to completing its second aircraft carrier and a launching ceremony would be held soon. It’s expected to begin service by 2020.

Unlike China’s existing aircraft carrier, the Liaoning, which was a refitted ship built by Ukraine, the new carrier is Chinese built and designed. Chinese analysts have been quoted as saying that China needs at least five to six aircraft carriers.

China’s military build-up has unsettled its neighbors and Washington, particularly as Beijing has taken a more robust stance in territorial disputes in the South China Sea. Large-scale land reclamation by China has transformed sandbars into islands equipped with airstrips, ports and missiles.

President Trump and his Secretary of State Rex Tillerson have suggested the new administration will take a more muscular approach to the dispute – setting the stage for a potential showdown.

CNN Money’s Jeanne Sahadi contributed to this report.