America leads the world in defense spending, accounting for a staggering 39% of global military expenditure in 2020 – more than the other top 10 countries combined. The People's Republic of China is the next biggest spender, representing 13% of the worldwide total in 2020. As tensions between Washington and Beijing mount, read on as we reveal what each government allocates to national security, and why China's defense spending might not be what it seems.

America spends around 3.7% of its GDP on defense. The US government sets the budget for the fiscal year (rather than the calendar year), which runs from 1 October to 30 September, meaning that we're technically in the 2022 fiscal year now. Back in May, President Biden proposed a national defense budget of $752.9 billion for 2022. Out of that grand total, $715 billion was earmarked for the Department of Defense.

According to the Pentagon, the current budget reflects the president's pledge to end “forever wars”, and to invest in state-of-the-art novel technologies. This is to tackle what the government believes are the biggest threats to national security. Prominent worries include everything from COVID-19, climate change, and extremism to specific countries such as China, North Korea, and Russia.

This year's budget represents a shift in resources to better meet the nation's priorities. It includes bumper investments in the Navy and Air Force to address strategic competition with China. It also features changes to funding of the Army due to the withdrawal of US forces from Afghanistan, with the military turning its primary focus away from the Middle East and onto the Asia-Pacific region instead.

In September, the House of Representatives voted to pass an inflated annual defense policy budget totaling $777.9 billion. The figure included the addition of an extra $25 million on top of the $752.9 billion proposed in May. This was an increase of around $37.5 billion (or 5%) on the previous year's military budget, with the figure up from the initial 1.4% hike put forward earlier in the year.

The additional money will fund a pay increase of around 2.7% for servicemen and women, as well as the funding of 13 extra combat ships. Amid opposition from fiscally-responsible Republicans and left-leaning Democrats, who decry increased military spending, the Senate blocked the bill in late November. However, it's likely to eventually pass into law, as the National Defense Authorization Act has always done this over the past 60 years.

On paper, China spends 1.7% of its GDP on defense, much less proportionally than America. Its budget is calculated for the calendar year but 2021's figure wasn't announced until March. The country's current defense budget has been set at 1.36 trillion yuan which, given the exchange rate in March, translates to $209.2 billion. This makes it almost four times smaller than America's funding total for the Department of Defense.

The 2021 budget is 6.8% higher than last year's, which was set at 1.28 trillion yuan, around $188 billion, although the growth is significantly more modest than the average of 12.8% recorded annually between 2009 and 2014, and remains below the yearly average between 2015 and 2019, which stood at 8.1%. This, however, mirrors economic growth in the country, which has slowed considerably compared to the late 2000s and early 2010s.

Since the US is a democracy, the nation is extremely transparent when it comes to military spending, providing the public with a detailed breakdown of costs. China, on the other hand, is far more secretive, tending to not release information on how it allocates the budget. That said, the powers that be did release a vague breakdown in July 2019, covering the 2010-2017 period.

China's official budget may be best taken with a grain of salt, as it fails to include a myriad of defense-related expenditure made by the Central Military Commission, the country's highest national defense organization. This includes paramilitary entities, as well as government branches like the China Coast Guard, China National Space Administration, and other areas of military spending.

Research indicates Beijing's defense expenditure is up to 40% higher than the official figure. Plus, China's spending is a lot closer to America's when adjusted for purchasing power parity (PPP). By way of example, what the US spends on just one soldier would cover the cost of several soldiers in China's People's Liberation Army. In fact, one 2019 analysis showed that China's expenditure in terms of PPP was more than half of that of the US, rather than less than a third.

Breaking down the $715 billion proposed in May for the 2022 fiscal year, the US Air Force gets the highest share of the budget with its allocation of $212.76 billion, closely followed by the Navy with $211.72 billion. The Army is next, with $172.73 billion, while the defense-wide budget comes in at $117.78 billion. Operation and Maintenance (O&M) costs take up the biggest share overall.

Set at $290.36 billion for 2022, the O&M budget funds a wide range of activities. These include military operations, personnel education and training, maintenance of supplies and equipment, upkeep of military hardware (such as aircraft, ships, and tanks), healthcare, civilian salaries, and environmental restoration.

Breaking the budget down, $47.81 billion has been allocated to air operations in order to operate, maintain, and deploy the US military's aviation forces. Ship operations, which include training of personnel, as well as maintaining ships and related equipment, will have a budget of $20.81 billion in 2022, while the training and supply of land forces is expected to cost $13.28 billion. The total cost of maintaining all military equipment, including aircraft, missiles, tanks, and submarines, is projected at $30.47 billion.

Healthcare for America's armed forces eats into a large chunk of the O&M budget, swallowing up $47.55 billion. Defense-wide O&M spending comes in at $9.37 billion while environmental programs have a budget of $3.6 billion, with civilian personnel costs totaling $815.5 million. The running of military bases in 2022 is projected to cost $30.39 billion; training and education is estimated at $10.81 billion, while communications comes in at $12.24 billion.

Up-to-date figures on China's O&M spending haven't been released yet, and the most recently available expenditure total, from 2017, doesn't break the figure down. In that particular year, the People's Republic allocated 28.1% of the overall defense budget to “training and sustainment expense”, which translated to 293.35 billion yuan. Based on the exchange rate for March 2017, that works out at $42.6 billion.

The country's latest Five-Year Plan does, however, provide a hint as to whether the Chinese military is spending more on O&M this year. The plan concentrates on modernizing weapons and equipment. So, in all likelihood, the budget has been beefed up. Of course, this is pure speculation given the lack of publicly available data.

The number of US active military personnel stands at 1.35 million in total. The Army leads the way with 485,000, followed by the Navy, which has 346,200. The Air Force is next with 328,300, then the Marine Corps with 178,500, and finally the Space Corps, which has 8,400. The number of reserve personnel stands at 799,500.

The total budget for military personnel for 2022 stands at $167.29 billion. This doesn't take into account the recent, yet-to-be-approved hike, which includes a supplementary pay rise. The budget encompasses all salaries and bonuses. Benefits such as housing allowances, pensions, retirement healthcare costs, and other personnel-related costs are also included.

As is to be expected, the Army, which has the greatest number of personnel, has been allocated the largest sum of money. The figure sits at $66.16 billion, which includes $5.2 billion for reservists. The Navy is next due to having the second largest number of personnel. Its allocation for 2022, minus the recent pay rise addition, is $56.57 billion. 

The figure for the Navy also includes the budget for Marine Corps personnel, which totals $15.74 billion, and all reservists to boot. Lastly, the Air Force has an allocation of $44.56 billion in 2022, which will obviously be higher once the pay rise is taken into account. This figure includes reserve and Space Corps personnel costs.

As we've mentioned, Beijing hasn't released a breakdown of its defense budget for 2021, although we do have the vague breakdown from 2017 to work with. In that year, 30.8% of the budget was spent on personnel, compared to the 23.4% that America has allocated for military staff in 2022. The figure for 2017 was 321.05 billion yuan which, based on the March 2017 exchange rate, is the equivalent of $46.6 billion.

China has the largest armed forces in the world in terms of raw numbers, with over 2.1 million active members. Despite this, it manages to spend a fraction of what the US does, even though it has something in the region of 750,000 additional personnel. This comes down to pay and other expenses, which are considerably lower. As we've already highlighted, what the US pays for one soldier would cover the cost of several counterparts in the People's Liberation Army.

Next up is procurement. For 2022, the Pentagon's budget for obtaining everything from new aircraft to missiles, subs, tanks, and ammo comes in at $133.64 billion, without taking into account the recent hike, which will pay for an extra 13 combat ships. Modernizing the country's military hardware is top of the agenda for the current fiscal year.

The nation's military has put together a long shopping list for 2022. The $27.7 billion Nuclear Modernization program, for instance, includes $5 billion for the Columbia-Class Ballistic Missile Submarine, $3 billion on B-21 Long Range Strike Bombers, and $2.6 billion on the Ground Based Strategic Deterrent (GBSD).

Other hefty procurement-related expenditures include new hardware to support the $5.1 billion Pacific Deterrence Initiative, $12 billion on 85 F-35 Joint Strike Fighters, $20.6 billion on space-related systems, two Virginia Class Submarines at $6.9 billion, and large investments on equipment to counter cyberspace threats.

Again, there are no figures outlining China's procurement spending for 2021. However, in 2017, the country's military was allocated 428.84 billion yuan, the equivalent of $62.3 billion for “equipment expense”. This made up the largest proportion of the budget at 41.1%, against America' 18.7%, although the figure presumably also includes research and development, neither of which are mentioned in the breakdown. This official data only tells part of the story though.

The latest Five-Year Plan suggests that Beijing will be spending heavily on weapons procurement as its seeks to modernize equipment and weapons, a key part of the strategy. A ground-up analysis by defense consultancy LTSG has found that the People's Liberation Army has actually been prioritizing procurement over personnel and other expenditures, and in reality has been splurging like crazy, so much so that it will be outspending the US by 2024.

The other big chunk of America's defense budget for 2022 has been earmarked for RDT&E (Research, Development, Test and Evaluation), and is the largest ever allocated to these activities. It amounts to $112 billion as the country steps up its game to develop new technologies and stay ahead of its foes with the most advanced weaponry, combat vehicles, and other equipment.

In addition to developing new weaponry, combat aircraft, ships, and other hardware, $874 million has been allocated to artificial intelligence (AI) and machine learning RDT&E, $2.3 billion on microelectronics, and large sums of cash on quantum science, novel engineered materials, and more. Finally, the remainder of the budget, $1.9 billion, has been set aside for so-called revolving and management funds.

As alluded to in the latest Five-Year Plan, China is ramping up its research and development spending too, much of which is likely to be spent on military-related technologies. Mirroring the US, its focus is on AI, quantum computing, semiconductors, deep space, and a whole lot more besides.

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