China plans to increase defense spending 11.2 percent this year as the country’s expanding global commitments and lingering territorial disputes drive demand for more warships, missiles and fighter planes. 
 
 Military spending is set to rise this year to about 670 billion yuan ($106.4 billion), Li Zhaoxing, spokesman for China’s National People’s Congress, said yesterday ahead of a speech today by Premier Wen Jiabao to open the annual 10-day session of the country’s legislature. 
 
 China’s defense spending, the second highest in the world after the U.S., has risen in tandem with the expansion of its economy and a new focus by the Obama administration on the Asia- Pacific region. China is also involved in spats with Vietnam, the Philippines and Japan over control of oil- and gas-rich waters and has a lingering territorial dispute with India that erupted into a war in 1962. 
 
 “China’s got a lot of things that require a state to have military hardware for,” Geoff Raby, who was Australia’s ambassador to China until last year, said in a telephone interview. “China lives in a neighborhood where it doesn’t have any natural allies or friends.” 
 
 Satellite Maker Rises 
 
 China North Optical-Electrical Technology Co. (600435), the maker of military control systems and sensors, rose as much as 9.7 percent in Shanghai trading, the biggest intraday gain in more than a month. The Beijing-based company was up 6.3 percent at 10.31 yuan as of 10:14 a.m. China Dongfanghong Spacesat Co. (600118), which builds satellites, advanced as much as 3.9 percent. 
 
 Defense spending has more than doubled since 2006, tracking a rise in nominal gross domestic product from 20.9 trillion yuan to 47.2 trillion yuan in that time. China’s spending on domestic security will be higher than military spending this year for the third straight year, according to Finance Ministry figures released today, underscoring the government’s concerns about growing social unrest and threats to stability in Tibet and Xinjiang province. 
 
 The growing defense budget has stoked concerns among China’s neighbors and the U.S., which announced last year a strategic shift toward Asia including deploying forces to a base in Australia. Chinese defense spending as a percentage of GDP was about 1.3 percent in 2011, falling from about 1.4 percent in 2006. 
 
 ‘Reasonable and Appropriate’ 
 
 “The Chinese government has maintained reasonable and appropriate growth of defense spending on the strength of rapid economic and social development and the steady increase of fiscal revenues,” Li said. 
 
 He spoke a day before the start of the annual meeting of the National People’s Congress, the 3,000-member parliament that is legally the highest governmental body in China. Sessions run from today to March 14. 
 
 U.S. analysts say actual Chinese defense spending is much higher than the amount announced by Li yesterday. Phillip Saunders, director of the Center for the Study of Chinese Military Affairs at National Defense University in Washington, estimates China’s true defense spending is 50 percent higher than the official budget because items such as research and development as well as foreign weapons procurement are not included. Li said research and procurement are included. 
 
 Off-Budget Items 
 
 Taylor Fravel, a professor at the Massachusetts Institute of Technology who studies China’s relations with its neighbors, said the number of off-budget items such has foreign arms procurement have decreased in recent years. China includes support for veterans in its budget while the U.S. does not, Fravel said. 
 
 While Chinese military spending is still officially less than a fifth of U.S. defense spending, its neighbors are concerned about the country’s expansive territorial claims. China claims indisputable sovereignty over the islands, reefs and shoals of the South China Sea and their surrounding waters, demarcating a tongue-shaped claim on Chinese maps extending hundreds of miles from mainland China. 
 
 China is “always ready” to use force if necessary to ensure its territorial integrity in the South China Sea, Maj. Gen. Luo Yan, deputy secretary general of the Chinese Academy of Military Science, said today. China’s military should be “strong and big,” and the country should do more to mark its rightful claim to the area, he told reporters in Beijing. 
 
 ‘Scared Its Neighbors’ 
 
 It also contests control over the Senkaku, or Diaoyu islands with Japan, which sparked a diplomatic standoff in 2010 after Japan detained a Chinese fishing boat captain when his vessel collided with a Japanese patrol boat. Japan is “closely watching” China’s military spending and is seeking greater transparency in its outlays, Chief Cabinet Secretary Osamu Fujimura told reporters today in Tokyo. 
 
 Vietnam recently filed a protest saying China assaulted its fishermen and prevented them from entering the Paracel Islands. China responded by claiming sovereignty over the islands and said it didn’t board the vessels. 
 
 “China scared its neighbors,” Saunders said in an e-mail. “Now it is back on the path of greater restraint, but its neighbors are still alarmed.” 
 
 U.S. concerns stem from Chinese progress in developing modern fighters and precision ballistic missiles that can target U.S. aircraft carriers, Saunders said. 
 
 In the past year, China began sea trials of its first aircraft carrier, a refurbished Soviet-era vessel acquired from Ukraine more than a decade ago. 
 
 Military Buildup 
 
 Beijing is also continuing a military buildup across the Taiwan Strait. The U.S. is obligated by a 1979 law to provide defensive weapons to Taiwan, which China claims as a province. A Pentagon report published last August said that as of December, 2010, China’s People’s Liberation Army had deployed between 1,000 and 1,200 short-range ballistic missiles to units opposite Taiwan even as cross-Strait ties have improved. 
 
 Last year the U.S. announced it would sell Taiwan $5.3 billion in upgrades for its 145 Lockheed Martin Corp. (LMT) F-16 fighters. 
 
 China will boost spending on domestic security by 11.5 percent this year to 701.8 billion yuan, outstripping spending on defense by 31.5 billion yuan, according to a table in the work report issued by the Finance Ministry. 
 
 Economic Interests 
 
 Economic interests around the world, including 812,000 workers abroad at the end of 2011, mean China’s military may increasingly deploy across the globe. China set a frigate to Libya last year to help evacuate thousands of Chinese nationals during the revolt that saw the overthrow of Muammar Qaddafi. Li said Chinese warships have made eight deployments to help international efforts to protect sea lanes from Somali pirates. Chinese peacekeepers now patrol as part of a United Nations mission in Sudan. 
 
 The country is also increasingly dependent on global commerce for its well-being, factors which in past eras led countries such as the U.K. and the U.S. to boost military spending. Combined imports and exports last year amounted to $3.6 trillion, and China, the world’s biggest energy consumer, is also the world’s second-biggest oil importer after the U.S. 
 
 The U.S., with an economy less than three times the size of China’s, has a military budget about between five and six times as big. The Pentagon is asking for $613.9 billion next year, which also includes $88.5 billion in supplemental spending for wars. Unlike China’s, the U.S. defense budget is shrinking. The Pentagon’s request is $31.8 billion less than the amount enacted by Congress for 2012. 
 
 China’s defense spending increased an average of 16.2 percent a year from 1999 to 2008, according to figures from a defense white paper published in 2009. While building up spending, China has also proclaimed that it takes a nonconfrontational approach in the region. 
 
 “China’s limited military strength is aimed at safeguarding sovereignty, national security and territorial integrity,” Li said. “It will not in the least pose a threat to other countries.” 
 
 To contact Bloomberg News staff for this story: Michael Forsythe in Beijing at mforsythe@bloomberg.net; Yidi Zhao in Beijing at yzhao7@bloomberg.net 
 
 To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net ||||| A member of the People's Liberation Army's navy guard of honour adjusts military uniforms before an official welcome ceremony outside the Great Hall of the People, in Beijing April 15, 2013. 
 
 WASHINGTON (Reuters) - China is using espionage to acquire technologies to fuel its fast-paced military modernization program, the Pentagon said on Monday in an annual report that for the first time accused Beijing of trying to break into U.S. defense computer networks. 
 
 In its 83-page annual report to Congress on Chinese military developments, the Pentagon also cited progress in Beijing's effort to develop advanced-technology stealth aircraft and build an aircraft carrier fleet to project power further offshore. 
 
 The report said China's cyber snooping was a "serious concern" that pointed to an even greater threat because the "skills required for these intrusions are similar to those necessary to conduct computer network attacks." 
 
 "The U.S. government continued to be targeted for (cyber) intrusions, some of which appear to be attributable directly to the Chinese government and military," it said, adding the main purpose of the hacking was to gain information to benefit defense industries, military planners and government leaders. 
 
 A spokeswoman said it was the first time the annual Pentagon report had cited Beijing for targeting U.S. defense networks. Despite concerns over the intrusions, a senior U.S. defense official said his main worry was China's over lack of transparency about its military intentions. 
 
 "What concerns me is the extent to which China's military modernization occurs in the absence of the type of openness and transparency that others are certainly asking of China," David Helvey, deputy assistant secretary of defense for East Asia, told a Pentagon briefing on the report. 
 
 Helvey welcomed Chinese moves toward greater openness but said there were still many unanswered questions and warned of the "potential implications and consequences of that lack of transparency on the security calculations of others in the region." 
 
 The annual China report, which Congress began requesting in 2000, comes amid ongoing tensions in the region due to China's military assertiveness and expansive claims of sovereignty over disputed islands and shoals. Beijing has ongoing territorial disputes with the Philippines, Japan and other neighbors. 
 
 Beijing's publicly announced defense spending has grown at an inflation-adjusted pace of nearly 10 percent annually over the past decade, but Helvey said China's actual outlays were thought to be higher. 
 
 China announced a 10.7 percent increase in military spending to $114 billion in March, the Pentagon report said. Publicly announced defense spending for 2012 was $106 billion, but actual pending for 2012 could range between $135 billion and $215 billion, it said. U.S. defense spending is more than double that, at more than $500 billion. 
 
 The report highlighted China's continuing efforts to gain access to sophisticated military technology to fuel its modernization program. It cited a laundry list of methods, including "state-sponsored industrial and technical espionage to increase the level of technologies and expertise available to support military research, development and acquisition." 
 
 "China continues to engage in activities designed to support military procurement and modernization," the report said. "These include economic espionage, theft of trade secrets, export control violations, and technology transfer." 
 
 Dean Cheng, an analyst at the conservative Heritage Foundation think tank, said he was surprised by the number of cases of human espionage - as opposed to just cyber prying - cited in the report. 
 
 "This is a PLA that is extensively, comprehensively modernizing ... they're pushing across the board," Cheng said. "China is also comprehensively engaging in espionage." 
 
 China tested its second advanced stealth fighter in as many years in October 2012, highlighting its "continued ambition to produce advanced fifth-generation fighter aircraft," the report said. Neither aircraft of its stealth aircraft is expected to achieve effective operational capability before 2018, it said. 
 
 Last year also saw China commission its first domestically produced aircraft carrier, the report said. China currently has one aircraft carrier purchased abroad and conducted its first takeoff and landing from the ship in November, the report said. 
 
 It predicted China would spend three to four years training and integrating the ship into its fleet before having a fully operational aircraft carrier capability. 
 
 (Reporting By David Alexander and Phil Stewart; Editing by Cynthia Osterman and David Brunnstrom) ||||| U.S. Defense Secretary Chuck Hagel speaks during the first plenary session of the 12th International Institute for Strategic Studies (IISS) Asia Security Summit: The Shangri-La Dialogue, in Singapore June 1, 2013. (Edgar Su/REUTERS) 
 
 Defense Secretary Chuck Hagel took China to task Saturday for alleged cyberespionage, drawing a sharp response from a Chinese general who questioned whether the United States’ growing military presence in Asia is anything more than a challenge to Beijing’s rise. 
 
 Delivering the keynote speech at the annual security summit here known as the Shangri-La Dialogue, Hagel said the United States is “clear-eyed about the challenges in cyber” and echoed past assertions by the Obama administration that multiplying cyberattacks on U.S. government and industry portals “appear to be tied to the Chinese government and military.” 
 
 It was the latest public charge by the administration, which has concluded that calling out China publicly could curb what U.S. officials call a brazen and sophisticated quest for American secrets stored online. 
 
 The Obama administration has repeatedly sought to engage China in a dialogue on the issue. In a visit to China in April, Secretary of State John F. Kerry won agreement from Beijing to set up working group discussions on cyber issues. 
 
 “We are determined to work more vigorously with China and other partners to establish international norms of responsible behavior in cyberspace,” Hagel said in his remarks Saturday delivered in a conference hall packed with Asian military officials. 
 
 China has denied Washington’s accusations, most pointedly last week, when it said it did not need to steal U.S. military-hardware blueprints because it was more than capable of producing its own. 
 
 After Hagel’s speech, a Chinese general took to the microphone. In unusually pointed remarks, Maj. Gen. Yao Yunzhu, director of China-America defense relations at the Chinese military’s Academy of Military Science, started with a wry remark. 
 
 “Thank you for mentioning China several times,” she said to Hagel, drawing laughter and muttering. U.S. officials have long said their growing footprint in the Asia-Pacific region is not meant to offset China’s military might, Yao said, but noted that “China is not convinced.” 
 
 Hagel said the United States is hoping to build a more constructive relationship with China by fostering closer ties between their militaries. 
 
 “The only way you can do that is you talk to each other,” Hagel said. “You have to be direct with each other.” 
 
 Hagel’s lengthy speech was meant to reassure allies in the region that steep defense cuts and security challenges in the Middle East and North Africa have not derailed an initiative to shift the U.S. military’s attention toward Asia as it wraps up a period of messy, unpopular wars. 
 
 China’s ascendance in maritime affairs, space and cyberspace has alarmed many in the region in recent years, said Patrick M. Cronin, an Asia-Pacific expert at the Center for a New American Security. 
 
 “The 2008 global financial crisis and overcommitment of U.S. forces in Iraq and Afghanistan served to accelerate the perception of China as the next superpower and the decline of America,” he said. “The gradual global awakening to China’s cyberespionage heightened doubts about America’s power, a foundation on which regional security has rested since the end of World War II.” 
 
 America’s fiscal crunch will not derail its policy goals, Hagel said. 
 
 “It is true that the Department of Defense will have fewer resources than in the past,” he said. “It would be unwise and shortsighted to conclude, however, that our commitment to the rebalance cannot be sustained.” 
 
 U.S. military spending will continue to represent roughly 40 percent of worldwide defense expenditures “even under the most extreme budget scenarios,” he added. 
 
 By 2020, Hagel said, the United States intends to base 60 percent of its naval assets in the Pacific. The Air Force, meanwhile, has stationed 60 percent of its overseas troops in the Asia-Pacific region. 
 
 The United States is working to expand its partnerships with Washington’s closest allies in the region: Japan, South Korea and Australia, Hagel said. The U.S. defense establishment continues to produce “cutting-edge” technology from which allies can benefit, he said. 
 
 Hagel also warned attendees about conducting “business as usual” with North Korea, a pariah state that counts China as its main ally in the region. 
 
 “The United States will not stand by while North Korea seeks to develop a nuclear-armed missile that can target the United States,” he said. 
 
 Ellen Nakashima contributed to this report.
– China will up its defense spending by 11.2% in 2012 to $106.4 billion, citing its unhappiness with the US military presence in the Asia-Pacific region, reports the AP. China has made double-digit increases to its military spending in all but two of the years since the early 1990s, although this year's increase is down slightly from the 12.7% rise in 2011. Despite the seemingly dramatic rise, China's economy has also grown quickly over the past two decades, and military spending as a percentage of GDP has stayed relatively low, officially 1.3% last year. “Our defense spending is relatively low compared with other major countries,” says one Chinese official. However, security experts think China's true spending is likely much higher (the CIA estimated 4.3% of its GDP in 2006). With maritime disputes with Vietnam, Japan, and the Philippines and rough relations with India, China faces an array of security threats. “China lives in a neighborhood where it doesn’t have any natural allies or friends," a former Australian ambassador to China tells Bloomberg. “China’s got a lot of things that require a state to have military hardware for."