China has consistently stressed rationally scaled expenditure on defence. The costs of defence are appropriately allocated based on the nation's financial capacities, while retaining the premise of overall balance. Key areas are guaranteed attention, funds are rationally used and strict economy practised so as to ensure maximum benefit and be sure that the minimum requirements for national defence work are met within the limited budget. Since the initiation of the reform and opening policy, China has placed work in defence in a position subordinate to and in service of overall national economic construction. Relatively major reapportionments and reductions have been made so as to strictly control defence spending.

China has consistently adopted a serious-minded attitude towards the management of spending on defence. A complete administrative and regulatory system tightly geared to the principles of strict control, strict management and strict supervision has been established and fine tuned. China's defence budget and final accounts are examined and approved by the National People's Congress and must be strictly implemented once approved. The state and military auditing departments examine and supervise defence appropriations and the results thereby produced so as to ensure that defence expenditure is strictly implemented and rationally used.

In 1994, China's expenditure on national defence totalled 55.071 billion RMB yuan; 34.09 percent (18.774 billion yuan) was spent on living expenses, principally on salaries, food and uniforms; 34.22 percent (18.845 billion yuan) was spent on maintenance of activities, principally military training, construction and maintenance of facilities, water, electricity and heating; 31.69 percent (17.452 billion yuan) was spent on equipment, including research, test, purchase, maintenance, transportation and storage. Thus, maintenance-type activities absorb the largest portion of the defence budget. Moreover, of this expenditure, in addition to that spent to ensure the personnel's living and normal activities a considerable sum, nearly 3.7 billion yuan, is spent to fund activities associated with social welfare, such as pensions for retired officers and schools and kindergartens for children of military personnel.

Plain living and hard working is the people's army's fine tradition. The PLA economizes by frequently inventorying warehouses to make the best use of stored goods and repairing rather than replacing old facilities and equipment. In addition, in so far as is within its capacity it joins in agricultural, sideline and industrial production and engages in business. These activities are primarily undertaken to provide employment for the families of military personnel, to improve life culturally and materially in grass-roots units and to support the nation's overall economic construction.

China's expenditure on national defence has consistently been kept at a low level necessary to ensure that the requirements for national security are met. Between 1979 and 1994 defence spending increased 6.22 percent annually in absolute terms. Over that same period, the general retail price index of commodities increased 7.7 percent annually. During these sixteen years an expenditure of 581.294 billion yuan would have been needed to maintain the 1979 level of defence spending. However, only 71.65 percent of this figure, 416.499 billion yuan, was appropriated. Expenditure on personnel's living expenses was increased by a large margin to keep up with the spiralling costs of living. In recent years, increases in annual defence spending have for the most part simply matched price increases or gone to ensure the standard of living of personnel.

China has a fairly low level of defence spending compared with that announced by other countries. It spent only US$ 6.39 billion on defence in 1994 (calculated at the average annual exchange rate of the RMB yuan to the US dollar), 2.3 percent that spent by the United States, 18.3 percent that by Britain, 18.6 percent that by France and 13.9 percent that by Japan. Per capita defence spending by that year was only US$ 5.36.

China's spending on defence is low in relative terms as well as absolute terms. In 1979, defence expenditure in China accounted for 5.6 percent of the gross domestic product (GDP); in 1994, 1.3 percent. This may be compared with 4.2 percent in the United States, 3.6 percent in Britain and 3.18 percent in France. Again, in 1979, defence accounted for 18.5 percent of total expenditure by the Chinese government; in 1994, 9.5 percent. In the United States this figure stood at 18.9 percent, in Britain 9.64 percent and in France 13.6 percent.

As these facts make clear, China has a pattern of low expenditure on defence. As long as there is no serious threat to the nation's sovereignty or security, China will not increase its defence spending substantially or by a large margin. It will never threaten or invade any other country.