China’s Defense Budget Is Bigger Than You Think

China just released its 2025 defense budget—and the figures merit skepticism.

During the Cold War, the United States never trusted its adversaries’ claims about their capabilities. Instead, it always sought to verify them through intelligence analysis. Today, China’s impressive and aggressive military expansion, allegedly achieved on a shoestring budget, should raise eyebrows, even from typically credulous consumers of official CCP reports. Specifically, China reported at the National People’s Congress (NPC) earlier this month that its defense budget included total expenditures of only $245 billion.

Historically, these reports are intentionally vague and conveniently oversimplified. This year’s announcement is no different. It’s hard to know what the real numbers are. Still, it’s even harder to believe China’s officially reported military budget of $245 billion, which would equate to an implausibly low 1.5 percent of GDP.

The U.S. Defense Department’s 2024 China Military Power Report estimated that China’s 2024 military budget was publicly understated by at least 40–90 percent. The DOD has not yet released its 2025 China Military Power Report, but we can infer from perennial experience that the same is true again this year; China’s real military expenditure, accounting for all (or at least some) “off-budget spending,” probably amounts to between $330 and $450 billion. Senator Dan Sullivan (R-AK) has estimated the real Chinese defense budget is as high as $700 billion—and that was last year.

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The CCP has expanded its military budget by at least 7.2 percent for two consecutive years. However, that figure itself also comes from official CCP reports and should be regarded with skepticism.

Consider the People’s Liberation Army’s substantial gains in hypersonic missile technology, stealth fighters, and ballistic missile submarines, as well as its exponential increase in nuclear weapons production. Most—if not all—of these involve close relationships between state-run and private enterprise, making military-industrial investments all the harder to ascertain. After all, this sort of fusionism often assumes subtle forms (such as talent and logistics pooling between public and private sectors).

More obvious examples of this include Chinese companies providing the PLA with drones, AI companies (like Baidu) possibly working with CCP defense corporations in shared laboratories, and Chinese shipping companies participating in “cross-sea transport drills” that would be executed in an invasion of Taiwan.

The Defense Department warns that the PRC “has mobilized vast resources for…espionage activities” and to “acquire dual-use military grade-equipment,” and that it has “substantially reorganized its defense-industrial sector to improve weapon system research, development, acquisition, testing, evaluation, and production.” To what extent China’s development, testing, and production is obscured by its civil-military fusion, and what percentage of China’s GDP is dedicated to military spending, our own spy agencies will have to reveal.

U.S. defense and intelligence services should publish unclassified estimates of real CCP military expenditures, including estimates of how the CCP’s civil-military fusionism skews reported spending in each sector. The intelligence community (IC) should candidly inform and forewarn Congress and the American public, and they, with Congress, should make appropriations and preparations accordingly.

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It makes no sense to craft foreign policy and defense strategies with inadequate information about the adversary.

The NPC’s annual reports always appear at odds with developments on the ground. Can the DOD and IC explain how much of this is attributable to intentional misreporting and deception by the CCP versus how much is a result of China’s comparatively large and cost-effective military industrial base, real yuan-to-dollar conversion rates, and purchasing power advantage?

This knowledge would signal to Congress, defense partners, and voters alike how best to respond and prepare for the escalating arms race with China.

If the United States aims to deter China from launching a war of aggression in the Western Pacific, our political leaders and others need to stop taking CCP claims about defense spending at face value. Failure to do so will only continue bolstering China’s strength relative to our own, which is exactly why they’re obscuring real military spending year after year.