According to a new forecast by the research group IHS Global Insight, China is set to double its defense spending between 2011 and 2015. This increase from $119.8 billion to $238.2 billion will exceed the combined spending of the next twelve largest defense budgets in the Asia-Pacific region, solidifying China's status as a regional superpower.

This increase in military capability has been enabled by China's rapidly expanding economy. From 2000 to 2009, China's defense budget grew by an average of 12 percent annually. The projected surge of China's gross domestic product over the next three years will accelerate this growth, allowing for an annual increase in defense spending of 18.75 percent.

This rise is unlikely to subside anytime soon, notes IHS Asia-Pacific chief economist Rajiv Biswas. He says “Beijing has been able to devote an increasingly large portion of its overall budget towards defense and has been steadily building up its military capabilities for more than two decades. This will continue unless there is an economic catastrophe.”

I recently discussed the issue of China’s growing defense budget and ways that the United States can meet China’s military challenges in an article I wrote for Aviation Week. You can read that article here.

A new piece from The Diplomat titled “China’s 2012 Challenges” lays out twelve key challenges that the People’s Republic of China and the Chinese Communist Party will face during the next year.  These challenges range from the need for economic reforms, to social instability and expected friction in the South China Sea.  It is vital that American policymakers know and understand these challenges while prioritizing U.S. foreign policy initiatives.  Here are three of the twelve challenges identified in the piece:

• The run-up to Beijing’s once-in-a-decade political transition in October 2012 is likely to generate intensified clampdowns internally and assertive rhetoric abroad as China faces rising domestic challenges, and finds itself constrained internationally. Fearful neighbors may further strengthen ties with the United States. Pariah/failed state “allies” North Korea, Pakistan, and Iran will likely experience problems that affect China’s own interests.
• China’s government will likely tighten domestic media reporting guidelines, as it remains highly concerned about social unrest and seeks to suppress news that might create controversy ahead of October 2012. Investors will have to take particular care that important data points are not swept under the table.
• There is a heightened risk that inflation will exceed expected levels. If growth falters as real estate prices continue to fall and the economies of major trading partners remain weak, Beijing may be forced to loosen lending restrictions. Such monetary supply expansion would very likely push inflation well beyond the 2.8% figure that Li Daokui of People’s Bank of China forecasts for 2012.

The piece can be read in its entirety here: http://the-diplomat.com/china-power/2012/01/08/chinas-2012-challenges/