Taiwan's Defense Option (ii): Arms Procurement "Accounting"

As the debate continues, and the disguise in "accounting" of the Revised Special Budget was able to mislead the mass (even some professional journalists) into believing that the deal has been renegotiated, I tried to understand the contents of the arms procurement deal in Taiwan by googling. But it seems hard to find any detailed breakdown of the changes in this Special Budget. No wonder the pan-Blue criticized the Special Budget as a "$2bn/character" special budget (in the original proposal, it was NT$610.8bn on a few paragraphs totalling 299 characters).

• The Special Budget contains 3 items: 12 P3C anti-sub aircraft (picture above), 8 diesel submarines and 6 PAC-3 batteries (see below for picture and discussions)

Here is a great analysis ("挖肉补疮 台湾军购分文不减") comparing the figures NT$610.8bn, NT$480bn and NT$340bn (US$BN 18, 15, 11) in subsequent proposals. The article does not try to hide its being critical on the deal, so I believe the author is a pan-Blue writer (he used to be columnist for Taiwan's largest newspaper "China Times"). But the facts he listed are consistent with what we read elsewhere. I would be interested if any of you could find flaw in his analysis or mistake in the data. (Sub-bullets in brown are my additional research and comments)

• "Minister of National Defense (MND) Li Jye said, the reductions of the Special Budget is the most painful, and punishing experience in his life. He had to delete 53 items in his original defense budget (i.e. not the "Special Budget"), and this affects the improvement of the combatting ability...
• To get from 610.8bn to 480bn, MND cancelled its plan to co-produce naval ships (71.9bn), other accesory and engineering costs (21.8bn) , shifted 19.8 "local spending" into the daily budget of MND, the total amount shifted was 113.5bn, plus a small adjustment in USD/NTD exchange rate (about 20bn), you got 480bn
• To get from 480bn to 340bn, the same trick was used again. This time it eats into the annual defense budget in coming years. Out of 480bn, 140bn worth of PAC-3 will be shifted into the 'normal budget' in the next 6-8 years, therefore, the Special Budget becomes 340bn!
• No wonder Lee Jye said it was the most painful exercise
• There are more questions: the Diesel submarines cost $1.5Bn each, 3 times what it would cost for comparable products

• France/Spain sold similar (Scorpene) diesel submarines to Malaysia, India and Chile for $0.25-0.58bn each, at a volume of 2-6. If Taiwan is ordering 8, the volume discount should be higher.
• The problem is US does not produce diesel submarine any more, as they have upgraded to nuclear powered submarines which can stay undersea for a year. John Tkacik at Heritage.org said, "This would make Taiwan’s putative diesel subs as expensive as American nuclear attack boats and each lumbering propeller-driven P-3C aircraft nearly twice as costly as a Boeing 777."
• Worse still, the subs won't arrive until 8 years later! (See this table for delivery: PAC-3, 2009-2012; P3-C anti-sub planes, 2009-2011; diesel subs, 2013-2019)
• MND had said in the past that it needs 21 PAC-3 batteries to counter the 700 missiles from PLA. Taiwan already has 3 PAC-2 systems, adding the 6 PAC-3, still not enough. More than half of the missiles will not be intercepted
• The PAC-3 really makes no economic sense, see this old report from Taipei Time: PLA has 700 missiles, costing about $1M each.
• It takes 4 PAC-3 missiles to intercept one. so a total of 2800 is needed. (each cost $3M) so this is a $12M vs $1M arms race. Meizhongtai quoted that pentagon alleged China is adding 75-120 per year, this would mean 300-480 PAC-3 needed for Taiwan in such a race, or US$1-1.5BN per year in cost, 0.2-0.3% GDP, versus 0.004-0.006% GDP for mainland China. 50:1, not a fair or sustainable race.
• Now taiwan has 200 missiles from its 3 PAC-2 batteries (192 to be precise, 64 missiles per battery), and is going to get 6x128 pac-3 (each set has 128 missiles) in next 10 years, total=768+200=968, capable to intercepting 242 missiles.
• Therefore, assuming PLA does not add any single missle (they could add75-120 p.a. if they want), it will still have 448 missiles after all the PAC-3 and PAC-2 are fired (assuming 100% interception!, reality is 70-95%). So what is the point?
• But honestly, Taiwan does not have the resources to enter an arms race. Therefore, it has been suggested we should instead pay the US directly in exchange for protection
• Meanwhile, MND will reduce the army by 270k soldiers. There will only be 3 brigades, about 5000 soldiers in Quemoy (Jinmen). DPP/MND said the best defense for Quemoy is not with army, but by promoting tourist! -- this is the most brilliant statement by DPP, as the best defense option is to seek peace. This is a valid strategy for any in the world."

In short, the fact is that all these changes are 'accounting adjustments' and shifting of budgets from other areas of MND. The total cost of the purchase is still at $610bn, the list of procurement has not been changed (6 PAC-3 batteries, 12 P-3C patrol aircrafts and 8 diesel submarines), and the price for each item is still the same. The Special Budget has been changed, but the arms deal has not. It would be met by different budgets. What has changed are the other procurement items and plans for Department of Defense, outside the list of these 6+12+8 items.

• In the corporate world, if the CEO use this trick in manipulating the budget, if would be against most corporate by-laws. The board of directors has the right to ensure the approved budgets are used for what it is intended to do. Most likely it would be a mis-conduct, or lead to a Spitzer investigation. I am surprised no one in Taiwan has raised this issue.

As a result, the defense power of Taiwan is weakened by this special budget, because to pave way for this deal, MND had to cut 611-340=NT$271bn in other areas of its budget in the coming 10 years. What this means is that the reason for US blaming Taiwan's lack of seriousness in self defense is totally groundless. I hope Meizhongtai would agree with this. It was precisely the external political interference of this deal that has disrupted Taiwan's defense plan and weakened its defense. Ironically, by bending to the defense industry and hence disrupting Taiwan's defense planning, the US is making it a lot more costly to execute its Taiwan Relation Act when needed, unless, of course, if US does not believe that a war would ever happen. I surely hope for such scenario.

DPP inherited this from Lee Tenghui's KMT. So it is not its fault to be in this strange decision. The mainland is also to be blame for putting Taiwan into such bad negotiation position (by blocking virtually every potential supplier, and pointing the missiles at the island). However, as I have argued before, the best option for Taiwan is to bide its time. Similarly, the best strategy for the mainland is to remove the missiles and win the hearts of the Taiwan people. I still believe the chance of a war is extremely low, and that whether Taiwan spend this $610.8bn or not is irrelavant in the likelihood of a war. Furthermore, from what DPP said (and did) about Quemoy (Jinmen), Chen SB obviously understands the best strategy to defend the island, but he seems unwilling to adopt the same strategy for Taiwan, or was pressured into doing something else. If, as DPP said, the best defense for Quemoy is to develop tourism. What makes the strategy for defending Taiwan so different?

(I have a theory to explain this paradox for A-Bien, see next post)

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Update: official explanation for the need of these 3 weapons, seems the main strategic objectives are for 'psychological effect' and 'anti-blockade'. The ability of PLA to blockade Taiwan is an enormorous myth, if you look at US establishment in the east and NE of Taiwan. As for PAC-3 as psychological deterrant, I will leave it for you to judge :).

• P3C: (Head of Navy Preparatory Training Chen Yongkang) "Taiwan strait is too shallow for submarine activities, so the subs are needed to patrol the open sea on the east" in order words, it is for anti-blockade (or assist US intervention?) in the sea between Taiwan and the Phillipines.
• Diesel-submarine: (Navy Chief of Staff, Admiral Lee Haidong) same reason as above, for anti-blockade and protect sea-route
• PAC-3: (Admiral Lee Haidong) "although the PAC-3 is expensive and seems un-economical, the value is the psychological image of protection on our strategic assets and morale"

On the other side of the strait (not related to this issue), there is a great analysis on China's Grand Strategy (via Simonworld and Zenpundit); and a treatise on 'modern history' of Tibet.