An annual report from the US Department of Defense says that China has extended its military capability and caught the Pentagon somewhat off guard.

The outside world has little knowledge of Chinese intentions and decision making of its key capabilities while China is modernizing its armed forces, said the 2006 "Military Power of the People's Republic of China", which was released on Tuesday .

The report, delivered to the US Congress, guesses Chinese defense expenditure at "two to three times the officially disclosed figures".

China's foreign ministry is yet to respond to the Pentagon report. China's military spending of less than US$40 billion in 2005 is only one-10th that of the United States.

Chinese officials have once and again dismissed US warnings about its modernization, saying the military build-up serves national security needs and protecting its territory as any large nation would.

The Pentagon report reads as if it was written to balance cautionary language about US military competition with China, with carefully chosen words expressing optimism for harmonious relations with Beijing, a report of the New York Times said.

The Times said that the report takes on a diplomatic life of its own, sparking an annual round of analysis and criticism from the United States that, in turn, prompts an annual round of criticism and analysis from China.

"The United States welcomes the rise of a peaceful and prosperous China," the report states. "US policy encourages China to participate as a responsible international stakeholder by taking on a greater share of responsibility for the health and success of the global system from which China has derived great benefit."

The Chinese military, according to the report, has embarked on a long-term effort to change from a large army designed for wars of attrition on its home territory into "a more modern force capable of fighting short duration, high intensity conflicts against high-tech adversaries."

While acknowledging that China has only a limited ability to sustain military operations at great distances, its armed forces have the potential to compete with the United States by fielding "disruptive military technologies that could over time offset traditional U.S. military advantages."

What that means in the near term, the report adds, is that China will continue its efforts to build up its forces across the strait from Taiwan.

"Several aspects of China's military development have surprised US analysts," the report states, "including the pace and scope of its strategic forces modernization." The term "strategic forces" applies to long-range nuclear weapons.

China is modernizing its longer-range ballistic missiles by upgrading some systems and replacing others with mobile, quick-launch models, the report states.

The report details trends in China's ability to deny other military forces access across the region by a combination of strike aircraft, submarines and precision missiles. In all, the report argues, these weapons "have the potential to pose credible threats to modern militaries operating in the region."

Source: China Daily/agencies