China: lowest defence budget growth in years

“We are aware of the difficulties and challenges. The changing external environment and geopolitics are having a deeper impact on China, while domestic development continues to encounter both old problems and new challenges,” Prime Minister Li Qiang declared on March 5 during the opening of the annual session of the National People’s Congress (NPC).

Defense spending is set to increase by 7%, the lowest rate in five years since 6.8% in 2021. However, it still outpaces broader economic growth targets and leaves the rest of Asia trailing behind. The International Institute for Strategic Studies (IISS) reports that “China’s share of Asia’s total military expenditure grew to almost 44% in 2025, while it averaged 37% between 2010 and 2020.”

China’s economy is expected to rely on “new quality productive forces,” which in practice means investments in artificial intelligence, quantum technologies, and domestic semiconductor production. Beijing is responding in this way to “unprecedented external shocks” and the growing protectionism in global markets.

Despite the slowdown in the pace of spending growth compared to previous years, the modernization of the armed forces remains a top priority for Chinese leader Xi Jinping. The Prime Minister emphasized the need to maintain discipline following anti-corruption purges within the military. “Zhang Youxia, a veteran military ally of Xi, was placed under investigation in January, while another, He Weidong, was expelled in October last year,” Reuters reports.

China remains opaque about its defense spending. What we know from the information presented to us is that China is not only an economic goliath but also a formidable military power in the region. It keeps trying to change the status quo in the East via “force or coercion”, because of which other countries in the region are forced to adapt. Further increases in military drills and deployments around Taiwan are expected. Chinese policy towards Taiwan has not changed as it still views the island as part of its own territory.