March 4 (Bloomberg) -- China will boost its 2007 defense budget by the most in five years, as an expanding economy gives the world's largest regular army resources for upgrades to rival Japan, the U.S. and Taiwan.

Spending will rise by 17.8 percent to 350 billion yuan ($45 billion), to increase salaries for the 2-million strong People's Liberation Army and for ``modernization'' to deter Taiwan's push for independence, the National People's Congress spokesman Jiang Enzhu said at a press conference today in Beijing.

``Deterring Taiwan's independence and maintaining peace in the Taiwan Strait remains the most pressing task,'' because China expects ``to see Taiwan continuing its push for de jure independence this year,'' he said.

China's 2006 defense budget expanded by 14.7 percent, the fastest annual pace in four years. The spending spree by the Chinese army raised concern among U.S. officials including Vice President Dick Cheney, who said on Feb. 23 that the military buildup and an anti-satellite missile test in January were ``not consistent'' with China's stated goal of a ``peaceful rise.''

U.S. Deputy Secretary of State John Negroponte, who is visiting Beijing and met Chinese officials today, called for China to be more ``transparent'' about its military spending so the U.S. can better understand the nation's intentions.

Relative Spending

``We had some discussions between the Pentagon and China's military, and we should continue to intensify that dialog so we would have a better idea of what China has in mind with this military modernization and buildup,'' Negroponte said at a press conference at the U.S. Embassy in Beijing today.

The PLA's budget, equivalent to an estimated 1.6 percent of China's 2007 economy, is still less than a 10th of the U.S.'s $401.7 billion military expenditure, or 3.6 percent of the U.S. economy, according to figures given by Jiang at today's briefing.

The U.K. spends $48.8 billion, or 2.6 percent of GDP, on defense and Japan spends $45.3 billion, Jiang said. Still, China has the ``greatest potential'' to compete militarily with the U.S., Taiwan's main defense ally, according to a 2006 Pentagon strategy review.

``China's real defense spending is much higher, at least three to four times higher than the official released figures,'' said Andrew Yang, secretary general of Taiwan's Council for Advanced Policy Studies, a Taipei-based military research group, in a March 2 phone interview.

Satellite Destruction

China is building an increasingly modern and highly accurate missile force, Taipei-based military analyst Yang said. The Chinese military may have up to 1,000 missiles aimed at Taiwan, according to a Jan. 27 interview by the island's president Chen Shui-bian on Cable News Network.

In January, China's space agency destroyed one of the country's own obsolete satellites using a missile, the first country to hit an orbiting object with a ground-fired projectile.

The destruction of satellite ``demonstrates that China's long-range precision is stronger and stronger,'' Yang said. Technological improvements in the past decade has enabled ``the People's Liberation Army to target any city in the U.S. with high accuracy,'' he said.

China also built a new jet fighter using Russian and Israeli designs, improved the computer systems and information technology in the defense forces.

The Chinese navy has been shopping for aircraft carriers to help expand the operational range of its defense forces beyond the country's eastern and southern borders into the South China Sea. The air force also needs aerial warning aircraft and planes for refueling jet fighters.

Deterring Taiwan

China considers Taiwan, an island of 23 million people that's been self-administered since 1949, a renegade province and has repeatedly threatened to use military power to force reunification.

``China must increase the military budget for protecting national security and promoting the reunification of the motherland,'' Jiang said today. ``China's military must modernize: our overall defenses are weak. Our officers are not paid adequately, we need to increase their allowances.''

China continues to deploy its most advanced weapons opposite Taiwan and is increasing its emphasis on new technologies and strategies with the aim of winning ``short- duration, high-intensity conflicts,'' the Pentagon said in a 2005 report.

The U.S. is committed under the 1979 Taiwan Relations Act to support the island's defense. The pace and scope of China's military buildup go beyond the nation's needs and already put regional military balances ``at risk,'' according to the Pentagon.

Taiwan's Missiles

To counter China's attacks, Taiwan plans to spend an estimated $421 million buying almost 600 air-to-air and air-to- ground missiles from Raytheon Co. for its jet fighters.

``We have a one-China policy and we also have a Taiwan Relations Act, and we believe the provision of defensive weapons to Taiwan are consistent with that one-China policy,'' Negroponte said today.

State Councilor Tang Jiaxuan, who met Negroponte today, urged the U.S. not to send ``wrong signals'' to Taiwan, and that separatists on the island ``pose a major threat to peace,'' China's official Xinhua news agency reported.

China's 2005 defense budget rose 12.6 percent, following an 11.6 percent increase in 2004 and a 9.6 percent rise in 2003.

The world's fourth-largest economy has grown more than 10- fold since late leader Deng Xiaoping ditched predecessor Mao Zedong's hard-line communism in favor of pro-market policies in the late 1970s.

Scaring the Neighbors

Last year, the Chinese economy expanded 10.7 percent, the fastest pace in 11 years. Urban incomes are three times those in rural areas, a gap that doubled in the past 25 years.

Increasing military spending has raised concerns among China's neighbors and trading partners. Japanese Prime Minister Shinzo Abe said on Feb. 27 that China should be more open about its increased spending.

Japan has been ``asking China to provide more transparency in its accounts on military spending,'' Abe told reporters in Tokyo last month. ``As for the anti-satellite test, I'm asking for an explanation that would convince the international community.''

To contact the reporter for this story: Allen T. Cheng in Beijing at acheng13@bloomberg.net

Last Updated: March 4, 2007 05:55 EST