Both the total amount and per-serviceman share of China's defense expenditure is low compared with those of some other countries, particularly major powers. In 2005, China's defense expenditure equaled 6.19 percent of that of the United States, 52.95 percent of that of the United Kingdom, 71.45 percent of that of France and 67.52 percent of that of Japan. China's defense expenses per serviceman averaged RMB107,607, amounting to 3.74 percent of that of the United States and 7.07 percent of that of Japan.

China practices a strict system of financial appropriation of defense funds . The PLA's budgeting is based on the defense development strategy, military building objectives and annual military tasks set by the state. Budgeting units at each level carry out studies to decide on their budget items, make calculations of their requests for funds and then report to the next-higher authorities. The General Logistics Department, working with the relevant departments of other general headquarters/departments, analyzes, calculates and verifies the annual budget requests submitted by all the military area commands, the Navy, Air Force and Second Artillery Force, and draws up the defense budget. After being reviewed and approved by the CMC, the defense budget is submitted to the Ministry of Finance. The latter, on the basis of medium- and long-term fiscal plans and the estimated revenue of the year, puts forward a plan for military expenditure appropriations after consultation with the General Logistics Department, and then incorporates it into the annual financial budget draft of the central government. Upon approval by the State Council, the annual financial budget is submitted to the Budget Work Committee of the NPC Standing Committee and the Finance and Economic Committee of the NPC for review before it is submitted to the NPC for review. After the budget of the central government is approved by the NPC, the Ministry of Finance informs in writing the General Logistics Department of the approved defense budget. The defense budget is then implemented down to troops at different levels through prescribed procedures.

Financial departments are instituted at the General Logistics Department, military area commands, Navy, Air Force and Second Artillery Force, and units at the levels of corps, division (brigade) and regiment. These departments are responsible for the appropriation, management and supervision of the defense funds. The auditing offices of the state and the PLA conduct strict supervision of the defense budget.

Chart 4: Comparison of Defense Expenditures of Major Countries in 2005 (unit: US$ billion)

Chart 5: Comparison of Percentages of Defense Expenditures in GDP of Major Countries in 2005

Chart 6: Comparison of Per Serviceman Share of Defense Expenditure of Major Countries in 2005 (unit: US$1,000)

Source of the figures: Defense reports, budget reports or other government reports released by these countries.
Note: One pound is equivalent to 1.7439 US dollars.
One Euro is equivalent to 1.3029 US dollars.
One US dollar is equivalent to 28.5470 Russian rubles.
One US dollar is equivalent to 106.9998 Japanese yen.
One US dollar is equivalent to RMB8.0759 yuan.

X. International Security Cooperation

China pursues a new security concept featuring mutual trust, mutual benefit, equality and coordination, and adheres to the Five Principles of Peaceful Coexistence. It works to promote good-neighborliness, mutual benefit and win-win, and endeavors to advance international security cooperation and strengthen military relations with other countries.

Regional Security Cooperation

Since its founding five years ago, the Shanghai Cooperation Organization (SCO) has steadily deepened and expanded cooperation in security, economic and cultural areas in practical terms. A decision-making mechanism has taken shape, with the Council of Heads of State and the Council of Heads of Government being its core. Two permanent bodies, namely, the Secretariat and the Regional Anti-terrorism Structure, have also been established. A number of documents on cooperation in fighting terrorism, separatism, extremism and drug trafficking have been adopted. In April 2005, the SCO, ASEAN and the Commonwealth of Independent States signed a memorandum of understanding on conducting cooperation in counter-terrorism. In July, the Concept of Cooperation between SCO Members on Combating Terrorism, Separatism and Extremism was adopted at the SCO Astana Summit. In April 2006, a meeting of SCO defense ministers was held in Beijing, and the Sixth SCO Summit was held in Shanghai in June. Ten documents, including the Declaration on the Fifth Anniversary of the Shanghai Cooperation Organization, were signed during the Summit.

China attaches great importance to the ASEAN Regional Forum (ARF). At the 13th ARF Ministerial Meeting in July 2006, China called for enhancing mutual trust, respecting diversity and properly handling the ARF's relations with other mechanisms. In the past two years, China has, within the ARF framework, hosted the Seminar on Enhancing Cooperation in the Field of Non-traditional Security Issues, sponsored the ARF Seminar on Non-proliferation of Weapons of Mass Destruction with the United States and Singapore, held the Fifth and Sixth ARF Inter-sessional Meetings on Disaster Relief with Indonesia, and held the Fourth ARF Inter-sessional Meeting on Counter-terrorism and Transnational Crime with Brunei.

China's cooperation in the non-traditional security area with ASEAN and within the framework of ASEAN and China, Japan and the Republic of Korea has achieved significant progress. In January 2005, China proposed a series of initiatives on disaster prevention and reduction at the Special ASEAN Leaders' Meeting on the Aftermath of Earthquake and Tsunamis. In August, China hosted the Workshop on Policing Exchanges and Cooperation among the Capital Police Agencies of ASEAN, China, Japan and the Republic of Korea, during which the Beijing Declaration on Policing Exchanges and Cooperation among the Capital Police Agencies of ASEAN, China, Japan and the Republic of Korea was signed. In October, China hosted the Second International Congress of ASEAN and China on Cooperative Operations in Response to Dangerous Drugs. The Beijing Declaration and other documents were adopted. In November, China attended the Second ASEAN and China, Japan and the Republic of Korea Ministerial Meeting on Transnational Crime and the First China-ASEAN Informal Ministerial Meeting on Transnational Crime.

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