Second, despite the seemingly high expenditures, foreign affairs still were not high on the Chinese list of priorities. Foreign affairs spending growth for 2003-2017 (CAGR 14.5 %) remained slower than overall government spending growth (CAGR 16.3 %) over the same period.
As a consequence, the share allocated to foreign affairs in China’s total government spending actually declined from 0.32 percent in 2003 to 0.26 percent in 2017. In contrast, over the same period, key domestic spending buckets such as social security and employment (CAGR 23.7%), public health (CAGR 23.3%) or education (CAGR 18.1%) grew a lot faster.
In sum, these findings suggest there is still substantial room for China to catch up before it reaches the foreign affairs spending level of other countries. This catch-up is underway with higher spending growth rates than those in the United States or Germany.
Despite difficult trade-offs, China likely to further scale up its foreign affairs
Xi has started to demonstrate his foreign policy ambitions, but he also has to balance them with slowing growth and rising domestic spending obligations. In order to overcome the “middle income trap” and pursue continued economic development, China is required to sustain substantial funding for critical domestic policy goals (e.g. “moderately prosperous society by 2021,” “Made in China 2025,” “Healthy China 2030,” as well as PLA modernization, environmental protection, educational reforms) in the longer term. Decisions in favor of even more foreign affairs resources become particularly sensitive trade-offs.
However, in face of the Trump administration’s “America First” policy, but also of the EU aspiration to become a more important global player (with its recently announced substantial 30 percent external action budget increase), the Chinese government is likely to continue scaling up its foreign affairs spending to use the geopolitical openings left by the United States’ retreat from multilateral formats – and to secure its influence in an increasingly multipolar world.
Some caveats for the use of official Chinese data
This analysis relies on Chinese government sources, in particular on the annual accounts of the Chinese government expenditures published the by National Bureau of Statistics of China (NBS).
To facilitate reading, this blog post uses the so-called Compounded Annual Growth Rate (CAGR) indicator which focuses on the growth trend via annualized growth rates and eliminates growth fluctuations.
The following specific methodological points need to be flagged:
- Foreign affairs spending comparisons across countries are inherently problematic, as organizational, accounting and political labeling practices vary.
- Accounting or budgeting methodologies may have changed over time.
- Currency conversions were made at a 6.5-to-1 USD to CNY rate and 1.16-to-1 EUR to USD.
- For 2018, earmarked budget figures were used.
Although a lot of China’s international activities, e.g. infrastructure funding, defense activities or party diplomacy, are not formal part of the published foreign affairs expenditures, looking into “classical” Chinese foreign policy government expenditures can still provide an important pointer for assessing the nature of China’s current and future global reach.
Continue reading part 5 of the blog series.
This series is also published by our partner publication The Diplomat.