China's GDP was 21,192.3 billion yuan in 2006 and 25,730.6 billion yuan in 2007. The state financial expenditure was 4,042.273 billion yuan in 2006 and 4,978.135 billion yuan in 2007, up 19.1 percent and 23.2 percent respectively over the previous year. China's defense expenditure was 297.938 billion yuan in 2006 and 355.491 billion yuan in 2007, up 20.4 percent and 19.3 percent respectively over the previous year. The shares of China's annual defense expenditure in its GDP and in the state financial expenditure in 2006 were roughly the same as those in 2007, being 1.41 percent and 7.37 percent in 2006 and 1.38 percent and 7.14 percent in 2007. China's defense expenditure mainly comprises expenses for personnel, training and maintenance, and equipment. Expenses for personnel and training and maintenance account for two thirds of the defense expenditure. In 2007, the defense expenditure was used to cover the expenses of the active force (343.439 billion yuan), the reserve force (3.693 billion yuan) and the militia (8.359 billion yuan). China's defense budget for 2008 is 417.769 billion yuan.

Note: Personnel expenses mainly cover the salaries, allowances, food, bedding and clothing, insurance and welfare benefits for officers, NCOs, enlisted men and contracted civilians, as well as pension for the disabled or the family of the deceased. Training and maintenance expenses cover troop training, institutional education, construction and maintenance of various undertakings. Equipment expenses mainly cover R&D, experimentation, procurement, maintenance, trans portation and storage of weaponry and equipment.

In the past two years, the increased part of China's defense expenditure has primarily been used for the following purposes: (1) Increasing the salaries and benefits of servicemen. Along with the rise of the income of civil servants and the living standards of both urban and rural residents, China has increased the relevant allowances and subsidies of servicemen to ensure the parallel improvement of their living standards. (2) Compensating for price rises. With the rise of the prices of food, building materials, fuel, etc., China has accordingly increased the boarding subsidies and other funds closely related to servicemen's life as well as the expenses on education, training, petroleum, oils and lubricants for the armed forces, and improved the working and living conditions of border and coastal defense forces, units in remote and tough areas, and grass-roots units. (3) Pushing forward the reform and innovation. China has augmented the input into military informationization and moderately increased the funds for equipment and supporting facilities, so as to raise the defense capabilities in conditions of informationization.

Both the total amount and per-service-person share of China's defense expenditure remain lower than those of some major powers. In 2007 China's defense expenditure equaled 7.51 percent of that of the United States, 62.43 percent of that of the United Kingdom. China's defense expenses per service person amounted to 4.49 percent of that of the United States, 11.3 percent of that of Japan, 5.31 percent of that of the United Kingdom, 15.76 percent of that of France and 14.33 percent of that of Germany. As for the share of defense expenditure in GDP, that of China was merely 1.38 percent, while that of the United States was 4.5 percent, that of the United Kingdom 2.7 percent, and that of France 1.92 percent.

The Chinese Government has established defense expenditure reporting and publishing mechanisms. Since 1978 the Chinese Government has submitted a financial budget report to the NPC and published the total amount of the defense budget each year. The relevant data of China's defense expenditure has been made public in the China Economy Yearbook since 1981, and in the China Finance Yearbook since 1992. And since 1995 the composition and main purposes of China's defense expenditure have been published in the form of government white papers.

XIII. International Security Cooperation

China persists in developing friendly relations, enhancing political mutual trust, conducting security cooperation and maintaining common security with all countries on the basis of the Five Principles of Peaceful Coexistence.

Regional Security Cooperation

The Chinese Government is actively involved in multilateral cooperation within the framework of the Shanghai Cooperation Organization (SCO). At the Bishkek Summit in August 2007 the SCO member states concluded the Treaty on Long-Term Good-Neighborly Relations, Friendship and Cooperation, laying a solid political and legal foundation for security cooperation and ushering in a new phase of political mutual trust among the member states. Over the past two years, the member states have also signed the Agreement on Conducting Joint Military Exercises, the Agreement on Cooperation of Defense Ministries and the Agreement of SCO Governments on Cooperation in Combating the Illegal Circulation of Weapons, Ammunition and Explosives, finalized such legal documents as the Agreement on the Training of Counter-Terrorism Professionals, and launched cooperation in such new areas as information security by formulating the Action Plan to Ensure International Information Security. Procurators-general, heads of supreme courts, defense ministers, and leaders of law enforcement and security agencies from the member states have regularly held meetings, deepening cooperation in the justice, defense, law enforcement, security and other fields.

China attaches great importance to the ASEAN Regional Forum (ARF). At the 14th ARF Ministerial Meeting in August 2007 China stressed that the new security concept is based on the diversity and common interests of the Asia-Pacific region, and accords with the inherent law and requirements of the region's pursuit of peace, development, progress and prosperity. In the past two years China has co-hosted with Indonesia and Thailand respectively the ARF Round Table Discussion on Stocktaking of Maritime Security Issues and the ARF Seminar on Narcotics Control. The ARF General Guidelines for Disaster Relief Cooperation proposed and drafted by China was adopted at the 14th ARF Ministerial Meeting, making it the first ARF framework document providing guidance for disaster relief cooperation.

China-ASEAN and ASEAN Plus Three (China, Japan and the Republic of Korea) cooperation in non-traditional security fields is developing in depth. At the China-ASEAN Summit and the ASEAN Plus Three Summit, held respectively in January and November 2007, China put forward a series of initiatives for strengthening cooperation in non-traditional security fields, and emphasized the importance of conducting institutionalized defense cooperation and military exchanges. China hosted the First China-ASEAN Dialogue between Senior Defense Scholars (CADSDS) in March 2008 and the Second ASEAN Plus Three Workshop on Disaster Relief by Armed Forces in June 2008.

Participating in UN Peacekeeping Operations

As a permanent member of the UN Security Council, China has consistently supported and actively participated in the peacekeeping operations consonant with the spirit of the UN Charter. Since 1990 the PLA has sent 11,063 military personnel/time to participate in 18 UN peacekeeping operations. Eight lost their lives on duty. As of the end of November 2008, China had 1,949 military peacekeeping personnel serving in nine UN mission areas and the UN Department of Peacekeeping Operations. Among them, there were 88 military observers and staff officers; 175 engineering troops and 43 medical personnel for the United Nations Organization Mission in the Democratic Republic of the Congo (UNMONUC); 275 engineering troops, 240 transportation troops and 43 medical personnel for the United Nations Mission in Liberia (UNMIL); 275 engineering troops, 100 transportation troops and 60 medical personnel for the United Nations Mission in the Sudan (UNMIS); 275 engineering troops and 60 medical personnel for the United Nations Interim Force in Lebanon (UNIFIL); and 315 engineering troops for the African Union/United Nations Hybrid Operation in Darfur (UNAMID). Since 2000, China has sent 1,379 peacekeeping policeman/time to seven mission areas. At present, 208 Chinese peacekeeping policemen are in Liberia, Kosovo, Haiti, Sudan and East Timor for peacekeeping operations.

Military Exchanges and Cooperation With Other Countries

Implementing the nation's foreign policy, the PLA develops cooperative military relations with other countries that are non-aligned, non-confrontational and not directed against any third party, and engages in various forms of military exchanges and cooperation in an effort to create a military security environment featuring mutual trust and mutual benefit.

Creating a new situation in military diplomacy that is open, practical and dynamic. China has established military ties with over 150 countries, and has military attach offices in 109 countries. A total of 98 countries have military attach offices in China. In the past two years senior PLA delegations have visited more than 40 countries, and defense ministers and chiefs of the general staff from more than 60 countries have visited China. Practical cooperation between the military forces of China and Russia at various levels and in multiple fields has continued to develop in depth. The military forces of the two sides have deepened their strategic mutual confidence and held frequent exchanges of high-level visits. The defense ministers of the two countries have a direct telephone link, which is the first of its kind between China and another country. China-U.S. military relations have made gradual progress. The two countries have formally established a telephone link between China's Ministry of National Defense and the U.S. Department of Defense, held the first exchange of their NCOs, and formally launched military archive cooperation on information relating to U.S. military personnel missing in action around the period of the Korean War. Meanwhile, China-Japan defense relations have made headway. The two sides have held the seventh and eighth China-Japan Defense and Security Consultation, made their first exchange of port calls by naval ships, and held the first consultation over the establishment of a maritime liaison mechanism between their teams of experts. China's defense exchanges with its neighbors, including ASEAN, India and Pakistan, have been further expanded. China has begun to hold defense and security consultations with India. The channels of communication between the defense sectors and military forces of China and European countries remain open. China's military cooperation with developing countries has been strengthened.

Actively holding bilateral or multilateral joint military exercises with other countries. Since 2007 China has held over 20 joint military exercises or joint training exercises with a score of countries. In August 2007, within the framework of the SCO, China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan held a joint counter-terrorism military exercise in the Xinjiang Uygur Autonomous Region, China, and Chelyabinsk, Russia, focusing on the task of combating terrorism, separatism and extremism. This was the first time for the PLA to participate in a major land-air joint exercise outside the Chinese territory. In July 2007 and July 2008 China and Thailand conducted joint counter-terrorism training involving both countries' army special operations respectively in Guangzhou, China, and Chiang Mai, Thailand. In December 2007 and December 2008, armies of China and India staged joint counter-terrorism training exercises respectively in Kunming, China, and Belgaum, India. During the past two years, the Chinese Navy has held bilateral joint maritime training exercises with the navies of 14 countries, including Russia, the United Kingdom, France, the United States, Pakistan, India and South Africa. China has also conducted various forms of multilateral joint maritime training exercises with relevant countries, focusing on various tasks. In March 2007, China held the "Peace-2007" joint maritime training exercise in the Arabian Sea with seven other countries, including Pakistan. In May 2007 China and eight other countries, including Singapore, conducted a multilateral joint maritime exercise in Singaporean waters within the framework of the Western Pacific Naval Symposium (WPNS). In October the same year China, Australia and New Zealand staged a joint maritime search-and-rescue training exercise in the Tasman Sea.

Conducting cooperation and exchanges in personnel development. China is sending an increasing number of military students overseas. In the past two years it has sent over 900 military students to more than 30 countries. Twenty military educational institutions in China have established and maintained inter-collegiate exchange relations with their counterparts in over 20 countries, including the United States, Russia, Japan and Pakistan. Meanwhile, some 4,000 military personnel from more than 130 countries have come to China to study at Chinese military educational institutions.

To further military exchanges and cooperation, and enhance mutual military confidence, China's Ministry of National Defense officially set up a spokesperson system in May 2008. The newly-founded Information Office of the Ministry of National Defense of the PRC releases important military information through regular or irregular press conferences and written statements.

(To be continued)