The annual Pentagon report on China said its defense spending is estimated to be two to three times greater than acknowledged by Beijing, or up to 90 billion dollars this year, the largest in Asia and the third largest in the world after the United States Russia.

The report detailed China's efforts to increase its ballistic missile strength and modernize its conventional forces with acquisitions from Russia and other countries of advanced fighter aircraft, warships, submarines, precision weapons and computerized information systems.

"China does not now face a direct threat from another nation," the report said. "Yet, it continues to invest heavily in its military, particularly in programs designed to improve power projection."

"The pace and scope of China's military build-up are, already, such as to put regional military balances at risk," said the 45-page report to Congress entitled "The Military Power of the People's Republic of China."

It said China has deployed 650-730 mobile short range ballistic missiles opposite Taiwan, and is adding about 100 missiles a year. Newer missiles have improved range and accuracy.

In addition, it has 375,000 ground forces deployed in three military regions opposite Taiwan. Two-thirds of its naval assets in the East and South China seas, including two new Russian-built guided missile destroyers. And it is acquiring Russian-made surface-to-air missile systems that would allow China's air defenses to engage aircraft over Taiwan, according to the report.

"The cross-Strait military balance appears to be shifting toward Beijing as a result of China's sustained economic growth, growing diplomatic leverage, and improvements in the PLA's military capabilities," the report said.

The report, which has delayed by intense discussion within the government over its findings, puts a spotlight on an issue that has been a source of growing US concern as well as tension with Beijing.

Its release came only days after a Chinese general warned that Beijing would retaliate with nuclear weapons if the US military intervened in a conflict over Taiwan.

US Defense Secretary Donald Rumsfeld defended the report as a "factual presentation" that reflected the views of the State Department and the National Security Council as well as the Defense Department.

"It clearly points up the reason the president and the United States government has been urging the EU to not lift the arms embargo on the Peoples Republic of China," Rumsfeld told a press conference.

The report said that in improving its military capabilities China was seeking to deter or slow a US military response in defense of Taiwan.

Despite a 15.3 billion dollar special budget to buy Patriot PAC-3 air defense systems, diesel submarines and PC-3 Orion surveillance planes, Taiwan has failed to keep pace with the growth in China's military capabilities, the report said.

Beijing now has a range of options short of a full-scale invasion of a Taiwan, including limited strikes to break the will of Taiwan's leadership or population, the report said.

China could unleash a campaign involving computer network attacks, sabotage by special forces and strikes on key military or political sites with short-range missiles or warplanes, it said.

"Although Beijing might view these as a complement to non-military coercion and as less than a full use of force, others may view such actions differently," the report warned.

"Such a Chinese miscalculation could lead to a full-fledged conflict."

Another option cited was a surprise attack using short-range missiles and precision air strikes to "decapitate" Taiwan's political and military leadership before United States or others could intervene.

Although Beijing might try to disrupt sea trade with Beijing, the report said the Chinese navy still lacks the means to sustain and enforce a conventional naval blockade.

The report also questioned the Chinese military capacity to sustain an amphibious invasion of Taiwan, calling it "a significant political and military risk for China's civilian and military leaders."

Deterring China from using force are the repercussions on its economic development, the threat of instability on the mainland and the probability of US intervention in any conflict in the Taiwan Strait, the report said.

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