In an annual report to Congress, the Pentagon said China is developing and testing new types of missiles, expanding the reach of its navy and upgrading its air force. China is also investing in military capabilities in cyberspace, space and electronic warfare.
The report said China's military modernization was driven primarily by potential conflict in the Taiwan Strait, but also by its expanding interests and influence abroad, and increased tensions in the East China and South China seas. In November, China conducted its largest naval exercise to date in the Philippine Sea.
China has been engaged in territorial disputes with several of its neighbors, including U.S. allies Japan and the Philippines. China is currently locked in a tense, offshore standoff with the Vietnam.
In a long-standing U.S. criticism of China's military expansion over the past two decades, the Pentagon criticized China's lack of openness about its strategy, which it said has caused concerns in Asia.
China's government in March announced a 12.2 percent increase in military spending to $132 billion. That followed last year's 10.7 percent increase to $114 billion, giving China the second-highest defense budget for any nation behind the U.S., which spent $600.4 billion on its military last year.
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