China Secret Military Spending

It is becoming increasingly apparent that China is becoming a "player" when it comes to the world's superpowers.  With their recent moves in the South China Sea and their displays of game-changing weapons, the United States could find itself sharing top spot as the world's number one "cop".  A recent study by Transparency International provides us with a glimpse of the secretive nation, showing us that the People's Republic of China may be spending far more "off-the-books"  on defense than either we or its citizens are aware of, leading to both corruption within the PRC and mistrust and instability in the region.

Transparency International defines secretive military spending as "military expenditures where no meaningful details are released either to the public or to parliament.".  To give us a sense of the size of China's spending on its military, in early 2014, the nation announced that its defense budget would rise by 12.2 percent to $132 billion dollars after increasing by 10.7 percent in 2013.  This high growth rate has caused concern among outside nations, particularly since China's spending on defense is growing at a far faster rate than its economy.  While there is no doubt that $132 billion is a lot to spend on defense, as you can see on this graphic, China's spending on defense still pales compared to that of the United States:

Let's start by looking at how the rankings work, followed by a look at Transparency International's 2015 Government Defense Anti-Corruption Index rankings for the Asia-Pacific Region as a whole, keeping in mind that Asia is home to some of the world's emerging military powers and fastest growing populations.  The Government Defence Anti-Corruption index measures levels of corruption risk within each nation's defense system and scores each nation on a scale of A (the best) to F (the worst).  The bands are based on an assessment which consists of 77 questions which each receive a score of between 0 and 4 as follows:

Countries are scored in five key areas:

1.) Political Risk

2.) Financial Risk

3.) Personnel Risk

4.) Operations Risk

5.) Procurement Risk

Once the assessment is complete, each nation has the right to conduct a review of their own assessment and provide further information that may clarify the issues involved.  Transparency International considers nations that have a lack of transparency in their defense structure to be ones that have a higher risk of corruption since there are a lack of public and parliamentary checks and balances.

Here is a graphic showing the 2015 Government Defense Anti-Corruption Index ratings for the Asia-Pacific Region as a whole:

There are only two nations that received a poorer score than China; the very secretive Myanmar and Cambodia.  As well, only six out of the seventeen nations in the region publish enough details about their defense budgets that public oversight could stop potential corruption from taking place.

Now, let's focus on China.  As I noted above, China has seen substantial growth in its military budget with very consistent double-digit annual increases in spending since 1995.  In fact, China now accounts for 12 percent of the world's total military spending. 

Here are China's scores for the five key areas as noted above, keeping in mind that the lower the score, the lower the level of transparency:

1.) Political Risk: 32 percent

2.) Financial Risk - 23 percent

3.) Personnel Risk - 50 percent

4.) Operational Risk - 15 percent

5.) Procurement Risk - 29 percent

China's score in Band E puts it in the category of "very high risk" of corruption in the defense sector.  

Most of China's military spending problems lie in five areas:

1.) Only broad details on acquisitions and acquisition planning are released to the public.

2.) Only highly aggregated data on defense spending is available with spending on research and development, the military component of space exploration and strategic forces being completely hidden from public view.

3.) The extent to which spending on the aforementioned items are kept outside of the official budget is unknown with estimates of off-book spending ranging from 35 to 50 percent of total defense expenditures.

4.) The expenses for China's paramilitary forces are undefined.

5.) The revenue created by corporations that are owned by the People's Liberation Army are undefined.  These corporations are involved in telecommunications, hotels, transportation services and light industry.  Earlier in 2015, China cracked down on PLA personnel that received income from sources other than their government salaries.

The study shows that China is now responsible for nearly 30 percent of the world's total secretive military spending.  Off-the-book spending could be as high as 50 percent of China's total official defense expenditures, totalling as much as $65 billion.  Interestingly, although China's defense policies are supervised by the National People's Congress, it appears that China's Congress has very little impact on the nation's defense policy and that the defense sector is not accountable to it.  In fact, the research suggests that the United States Congress has received more detailed information about China's military capability and defense budget than China's central government.  As well, the report suggests that China's citizens would learn more about their own defense structure from reading foreign press coverage than they would from their own government.

China's spending on its military is key to the security of the region.  This is particularly the case in the South China Sea where territorial claims overlap as shown on this map:

China's lack of transparency on its defense spending and resulting high risk of corruption leads to greater instability in the region.  On top of that, recent moves by the United States Navy in the South China Sea have added to the region's growing instability. 

Transparency and Corruption in Egypt

Every year, Transparency International publishes its Corruption Perception Index for the world, looking at the perceived level of government corruption in all nations.  Each country is ranked on a scale of zero to one hundred; the higher the score, the more transparent the country's public institutions.  

In 2012, the study showed that two-thirds of the 176 nations ranked a score of 50 or less showing that there are a great many nations and national leaders that need to become more accountable.  Denmark, Finland and New Zealand were tied for the least corrupt with scores of 90 and Afghanistan, North Korea and Somalia were tied for the most corrupt with scores of 8.  By way of comparison, Australia came in tied for 7th with a score of 85, Canada came in tied for 9th with a score of 84, the United Kingdom came in tied for 17th with a score of 74 and the United States came in 19th with a score of 73.  Among major developing economies, China came in tied for 80th with a score of 39 and India came in tied for 94th with a score of 36.

Now, let's look at Egypt, the subject of recent news headlines.  Egypt scored 32, tied for 118th place with the Dominican Republic, Indonesia, Ecuador and Madagascar.  This puts Egypt in the bottom third among all 174 nations in the report, slightly ahead of Iran (with a score of 28) and Syria (with a score of 26).

Let's look back in time to see where Egypt stood in the past according to Transparency International:

2011:  112th place - score 2.9 out of 10

2010:  98th place - score 3.1 out of 10

2009:  111th place score 2.8 out of 10

2008:  115th place - score 2.8 out of 10

2007:  105th place - score 2.9 out of 10

2006: 70th place - score 3.3 out of 10

2005:  70th place - score 3.4 out of 10

2004:  77th place - score 3.2 out of 10

2003:  70th place - score 3.3 out of 10

2002:  62nd place - score 3.4 out of 10

2001:  54th place - score 3.6 out of 10

2000:  63rd place - score 3.1 out of 10

Not terribly surprising, the level of Egyptian government transparency reached its lowest level of the last decade and a half in 2012.  While the nation's raw score has shown some decline (in general) since the beginning of the new millennium, its drop from the top half of the pack to the bottom third is of most concern.  It is the perception of the nation's ever-rising level of corruption compared to its peers that will make it increasingly difficult for Egypt to attract economic investment that will help reduce its rather high unemployment rate as shown here, a big part of the nation's problem:

Let's look at a couple of examples that show where Egypt could improve its standing.  Back in November 2012, Transparency warned that the constitutional declaration announced by President Morsi concentrated too much power in the Executive Branch of the government, counter to Egypt's move toward democracy.  This declaration does not allow for the independence of the nation's judicial system, a move that acts against the protection of the rights of Egyptians.  The nation's judicial system recently sentenced 43 civil society workers from four democracy-based NGOs to a prison term of one to  five years because they allegedly used foreign funds without a licence.  Those sentenced include 19 Americans.  Those who were imminently headed to prison have since fled the country.  Unfortunately, the 11 Egyptians who were found guilty received one year suspended sentences and will be imprisoned if they engage in "similar activities" over the next three years.  Interestingly, as background, the United States Agency for International Development (USAID) was the source of $65 million that was distributed to civil society groups in April 2011.  It was this donation that created the brouhaha, with Egypt's Ministry of Justice threatening that groups found guilty of using the funds could be charged with treason.

Egypt has a long way to go before its citizens reap the benefits of their hard-fought battle to rid themselves of a series of dictatorships by finding themselves with a less corrupt government.  Unfortunately, the elections held in 2012 did little to resolve the nation's deep-seated problems and it appears that their is a strong perception that the nation is becoming even less transparent.

The Perception of Corruption and the Ease of Doing Business in Syria

Since the situation in Syria does not seem to be improving, I thought I'd take a look at an aspect of the country that  might be of interest but doesn't receive a lot of mainstream media coverage; the perception of corruption among public officials and processes and the ease of doing business in the Syrian Arab Republic.

First, let's look at the perception of corruption in Syria.  Transparency International, a politically non-partisan organization that was formed in 1993 to take a stance against corruption around the world in an effort to see that the daily lives of people are free of government and business corruption, publishes an annual Corruption Perceptions Index.  This index ranks countries based on their perceived levels of public sector corruption.  Data is gathered using surveys and assessments including questions about bribery of public officials, kickbacks in public procurement, the embezzlement of public funds and looks at the efficacy of government anti-corruption efforts. 

Transparency International's Corruption Perceptions Index is a score out of ten, with ten being a perfect score (i.e. very little corruption in the public sector) and a country rated at zero being perceived as having a highly corrupt public sector.

The top three scores (the least corrupt nations) in the world are:

1.) New Zealand (9.5)

2.) Denmark (9.4)

3.) Finland (9.4)

The bottom three scores (the most corrupt nations) in the world are:

182.) Somalia (1.0)

181.) North Korea (1.0)

180.) Myanmar (1.5)

As a frame of reference, Australia comes in tied for 8th place with a score of 8.8, Canada comes in 10th place with a score of 8.7, the United Kingdom comes in  tied for 16th place with a score of 7.8 and the United States comes in 24th place with a score of 7.1.

Now, back to Syria.  Syria comes in 129th place out of 182 nations with a score of 2.6.  How does this compare to its Middle East and North African neighbours?  Here is a graphic showing the continuum from Qatar (the best in the area coming in 22nd place with a score of 7.2) to Iraq (the worst in the area coming in 175th place with a score of 1.8):

Among Middle Eastern and North African countries, Syria comes in ahead of the aforementioned Iraq as well as Libya (168th place at 2.0) and Yemen (164th place at 2.1) but scores slightly lower than Iran (120th place at 2.7) and Egypt (112th place at 2.9).  Saudi Arabia, the major economy in the area, scores a relatively respectable 4.4 (57th place).

Here is a screen capture of part of Transparency International's world map showing the Corruption Perceptions Index with the darker red nations being the most corrupt and the yellow-coloured nations being perceived as less corrupt:

The International Finance Corporation, part of the World Bank, ranks doing business in Syria as follows:

Note that the ranking is out of 183 economies around the world.  Notice that the issue of enforcing contracts, an issue that always concerns international traders, comes in at 175th place out of 183.  It takes an average of 872 days from filing of a sale of goods dispute lawsuit until actual payment is received as shown here:

Notice that this is nearly 360 days or one year longer than what a similar action would take in an OECD economy and over 200 days longer than it would take, on average, in other Middle East and North African nations.

Let's close with one last graphic.  Here is a bar graph showing the ease of doing business in Syria compared to other economies in the area with the lowest scores being the most business-friendly economies:

In light of the recent conflict in Syria, my suspicion is that during 2012, it has become even more difficult and far riskier for anyone interested in doing business in the Syrian Arab Republic.  It will be interesting to see how dramatically the situation changes if, and when, the Assad clan is unseated.