Analysis: China’s 7% Military Spending Increase and 5% GDP Growth Goal

My appearance on Taiwan Plus News speaking about China’s military spending and the prospects for the economy.

September 2, 2025

2–3 minutes

Question: China has kicked off the two Sessions meeting in Beijing with an announcement to increase its defense spending by 7.2%. What does this mean for Taiwan and the region?

Stephen Nagy: Over the past 20 years, China has consistently increased its defense spending by about 10% annually. While 7.2% of the current GDP is slightly lower than that trend, it remains a significant increase with real implications for peace and stability across the Taiwan Strait. This increase will impact the types of military assets China acquires to pursue reunification on its own terms.

China is expected to focus its defense spending on modernizing the People’s Liberation Army (PLA) and acquiring advanced capabilities to handle modern warfare. In light of Russia’s invasion of Ukraine, China will likely invest heavily in drones and frontline military technologies. However, this increase in defense spending should also be viewed within the broader context of U.S.-China competition. With Donald Trump reaffirming his commitment to strengthening the United States’ military presence and securing peace through strength, it is likely that U.S. resources will be redirected from Europe to the Indo-Pacific, further intensifying regional tensions.

Question: Is China’s 5% GDP growth target for 2025 realistic amid global challenges?

Stephen Nagy: Unfortunately—or perhaps fortunately—this target is unlikely to be achieved. According to credible research groups such as the Rhodium Group, Gavekal Dragonomics, and the Peterson Institute for International Economics, 5% growth is not feasible. These independent research institutions estimate that China’s actual growth rate is closer to 2-3%, facing significant headwinds.

One major challenge is the additional 10% tariffs on Chinese products, which were implemented this week by President Trump. These tariffs will put further pressure on China’s economy, making the 5% target even more unrealistic.

Question: Will Chinese Premier Li Qiang’s stimulus measures be enough to boost the economy?

Stephen Nagy: Under President Xi Jinping, there has been a firm commitment to prioritizing political control over economic fundamentals. Rather than addressing the structural issues within China’s economy, political considerations continue to drive policy decisions.

As a result, even if Premier Li Qiang introduces additional stimulus measures, they will likely have only a limited impact. While extra spending may encourage some short-term consumer activity, it does not resolve the fundamental economic challenges that China faces. Without sustainable, long-term reforms, China’s economy will continue to struggle to achieve meaningful growth.

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Author

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Professor Stephen

Dr. Stephen Nagy is Professor of Politics and International Studies at the International Christian University, specializing in Indo-Pacific geopolitics and great power competition. He holds strategic appointments as Senior Fellow at the MacDonald Laurier Institute, Research Fellow at the Canadian Global Affairs Institute, and Visiting Fellow at the Japan Institute for International Affairs. His expertise is further recognized through affiliations with the Institute for Security and Development Policy, the East Asia Security Centre, and the Research Institute for Peace and Security. From 2017-2020, he served as Distinguished Fellow at the Asia Pacific Foundation. As Policy Studies Director for the Yokosuka Council of Asia Pacific Studies, Dr. Nagy leads the Indo-Pacific Policy Dialogue Series, and has contributed to regional business governance as a former Governor for the Canadian Chamber of Commerce in Japan. His academic credentials include previous tenure as Assistant Professor at the Chinese University of Hong Kong (2009-2014) and a doctorate in International Relations from Waseda University (2008). Dr. Nagy’s funded research examines critical regional dynamics, including “Sino-Japanese Relations in the Wake of the 2012 Territorial Disputes” and “Perceptions and Drivers of Chinese Views on Japanese and US Foreign Policy.” His current work focuses on middle power strategies amid great power competition in the Indo-Pacific. His policy-relevant consulting portfolio encompasses CPTPP expansion analysis, online extremism assessment in Japan, Sino-Japanese economic relations, and trilateral US-Japan-China dynamics. A sought-after geopolitical analyst, Dr. Nagy provides strategic insights to governments, corporations, and media outlets. His scholarly contributions appear in peer-reviewed journals including China Perspectives, East Asia, and International Studies Review. His policy analyses feature in prestigious publications such as China Economic Quarterly and World Commerce Review, while his commentary regularly reaches audiences through Diamond OnLine, SCMP, East Asian Forum, and global media platforms including the New York Times, BBC, CNN, Japan Times, cNBC, and Al Jazeera.