China's rapid growth in military spending since 1989 has steadily raised concerns about how it intends to use its increased power, and the potentially destabilizing impact it could have on the international system. However, much of the analysis on this subject has focused too narrowly on the relationship between China's defense budgets and its external security environment, and has missed the important ways in which China's internal security concerns also affect its defense expenditure levels. In looking closely at China's defense spending decisionmaking from 1978 to the present, this dissertation will show that since 1989, China's defense spending has been affected by both internal and external constraints and imperatives.

Since the Tiananmen protests in 1989, China's government has exhibited clear concerns with internal security, and has relied on the PLA to be an internal, as well as external, security guarantee. This in turn has given the government a clear incentive to be sensitive to PLA interests, in order to maintain reliable support for the government within the ranks. Before Tiananmen, the military's constrained budgetary growth was stifling its modernization effort and leading to a worrisome decline in troop living standards. After internal security concerns – and the PLA's role in defending against them – became more prominent, a policy of higher budgets was initiated (in part) to satiate the military and ensure that it would not fail to carry out its internal security mission.

This dynamic continues to affect current Chinese decisionmaking, because the government still wants the PLA to play an internal security role, and the military still has a strong interest in higher budgets. Living standards within the ranks still lag, compared to other parts of Chinese society, and its fighting capabilities are still deficient, relative to world standards and China's own strategic needs. This has helped offer the government a clear incentive to continue raising defense budgets.