The just concluded session of the National People's Congress has made public the nation's 2006 defence expenditure 283.8 billion yuan (roughly US$35.1 billion), a 14.7 per cent increase on last year. The figure accounts for 7.4 per cent of the total financial expenditure.

This signifies that the country's defence budget mechanism is operating in a smooth and steady manner, an indication that a beneficial cycle of interaction between defence spending and the national economy has now been set in motion. In the past the country has travelled through twists and turns in this regard.

The economy constitutes the vital physical basis for defence, while defence provides the economy with indispensable security guarantees. Co-ordination is therefore needed to ensure that the two develop in harmony.

Since the founding of the People's Republic of China in 1949, authorities have had some success in handling the relationship between defence and economic development, but there have also been some mistakes.

In the early 1950s, defence spending was as high as 42 per cent of the total budget, in the context of the Korean War. The defence budget accounted for 22.99 per cent in the early 1970s, when the country was believed to be threatened by outside imperialist and revisionist elements.

The excessively heavy input into defence, though framed in particular historical contexts, imposed a heavy burden on the economy and hindered its development.

Defence spending dropped sharply in the 1980s when the country became preoccupied with reviving the economy, devastated by the "cultural revolution" (1966-76). As a result, negative growth in defence spending was witnessed for seven years in a row during this period. The average negative growth rate was 3.99 per cent.

The low investment in defence delayed the country's defence modernization and weakened the security assurance for the economy, although it removed a sizeable financial burden off the shoulders of the State.

Since the early 1990s, however, the mechanisms of proper and balanced budgetary growth have been gradually introduced to defence spending, with the rapid development of the national economy as the guarantee.

The new mechanisms basically contain the following principles.

First, meeting the minimum security needs of the nation.

Homeland defence is a Herculean task, taking into account the country's 9.6 million square-kilometre territory, 3 million square-kilometre territorial waters, the 22,000-kilometre-long land borders and 18,000-kilometre-long coastal lines.

Moreover, power politics still exists in the geopolitical arena, and the root causes of war have not yet been uprooted.

In addition, the country has to deal with secessionism, terrorism and extremism.

In the face of such a grave security situation, we must make necessary defence investments to meet the minimum security needs of the country, ensuring that the nation's economic progress can be sustained, the sovereignty, territorial integrity and the maritime interests of the country are not encroached upon, and this golden opportunity for the country's overall development is not wasted.

Second, determining the optimum defence spending ratio.

Defence spending should not go beyond an economy's capacity to meet a nation's security requirements.

What is needed is "proper proportion." Although China's defence budget has been on the rise over the past decade or so, it is still nowhere near some other countries either in actual amount or relative amount.

The United States' defence budget in fiscal year 2006, for instance, stands at US$500 billion, compared with China's US$35.1 billion. According to statistics released by the Stockholm International Peace Research Institute, in 2002 the total global military spending was US$794 billion, 2.5 per cent of the global GDP that year. The majority of countries spent on average 3 per cent of their GDP on defence, compared with 3.5 per cent by the United States.

By contrast, China has been funnelling an average 1.43 per cent of its GDP into defence since 1986.

In addition, the defence share is generally 12-16 per cent of a country's total financial expenditure, while China has been spending around 8 per cent for years.

Third, switching from "maintaining status-quo" to "limited-growth" development mode.

For a long time, China's defence budget has been divided into three categories: personnel cost, operational cost and equipment investment, each making up roughly one-third of the total.

Currently, a significant portion of defence spending is used to make up for the deficits accumulated over the years and raise the income of servicemen. Investment in military equipment, therefore, is relatively low.

Now that the pace of armament upgrading is accelerating around the world, China will be left way behind if it fails to raise military equipment investment. So, our input into military hardware is expected to increase modestly in the years to come, a shift towards a "limited growth" development mode.

Fourth, optimizing use of funds.

Taking into account the country's huge population, the still relatively weak economy and the fact that numerous sectors and undertakings clamour for money, the State is not expected to allocate sufficient money to fully meet the needs of the defence sector. Authorities should therefore strive to achieve the goal of using the money more efficiently.

By Peng Guangqian, a researcher with the Chinese Academy of Military Science