Chinese entities world's biggest economic spies: Pentagon

WASHINGTON (Reuters) - The Pentagon said on Friday it believes China spent up to $180 billion on its military buildup last year, a far higher figure than acknowledged by Beijing, and it accused "Chinese actors" of being the world's biggest perpetrators of economic espionage.

China rejected the report as irresponsible, saying the United States was spreading a "China military threat" theory.

The Pentagon, in its annual report to Congress on China's military, flagged sustained investment last year in advanced missile technologies and cyber warfare capabilities and warned that Chinese spying threatened America's economic security.

"Chinese actors are the world's most active and persistent perpetrators of economic espionage," the report said.

"Chinese attempts to collect U.S. technological and economic information will continue at a high level and will represent a growing and persistent threat to U.S. economic security."

David Helvey, acting assistant secretary for defense, stopped short of saying the Chinese government was behind cyber intrusions, and instead repeated that they were "from China."

"As we learn more about them, we have a better understanding of the nature of the operations and that helps us to say with greater confidence that some of these are in fact coming from China," he told reporters in a briefing on the annual report.

Analysts said espionage and aggressive acquisition of dual-use technology could accelerate China's military modernization.

The United States could be in for a surprise in 2013-15 if "China successfully exploits it extensive cyber-espionage efforts and unveils new weapons systems that are on par with U.S. systems," said Capital Alpha Partners LLC, a investment analysis group, in a research note on the Pentagon report.

China expressed its opposition to the report for painting its military development as a threat, saying it was for defensive purposes and not aimed at any country or target.

"China is committed to maintaining and promoting the peace, stability and prosperity in the Asia Pacific region, and even the world," Foreign Ministry spokesman Hong Lei said in a statement. He called on the United States to halt the annual publication of the reports and do more to promote Sino-U.S. military relations.

The report was the first by the Pentagon since President Barack Obama last year launched a policy "pivot" to reinforce U.S. influence across the Asia-Pacific region, even as planned belt-tightening shrinks the size of the military in many other parts of the world.

That pivot has fanned unease in China, with some People's Liberation Army officers calling it an effort to fence in their country and frustrate Beijing's territorial claims. The Pentagon report identified China's rapid development of Anti-Access/Area Denial weaponry, such as missiles targeting aircraft carriers, as a potential threat to U.S. movements in Asia.

STEALTH FIGHTER, AIRCRAFT CARRIER

China has advertised its long-term military ambitions with shows of new hardware, including its first test flight of a stealth fighter jet in early 2011 and its August launch of a fledgling aircraft carrier - a refitted former Soviet craft.

The Pentagon noted that some components of China's first indigenously produced carrier may already be under construction. It said that carrier could achieve operational capability after 2015.

"China likely will build multiple aircraft carriers and associated support ships over the next decade," it said.

It would be 2018 before China's stealth fighter would have "operational capability," said Helvey, citing the need to field more aircraft, integrate weapons and conduct training.

China announced in March that 2012 outlays on the PLA will reach 670.3 billion yuan for 2012 (about $106 billion), an 11.2 percent increase over 2011. That follows a near-unbroken string of double-digit rises across two decades.

The Pentagon suggested that China's 2011 figure was an underestimate, noting "poor accounting transparency and China's still incomplete transition from a command economy."

"Using 2011 prices and exchange rates, (the U.S. Department of Defense) estimates China's total military-related spending for 2011 ranges between $120 billion and $180 billion," the Pentagon said.

"Some of their nuclear forces modernization occurs off-budget, some of the research and development monies that go to their defense industry we also think comes from a different budget ... some of the foreign acquisitions comes from a different account as well," said Helvey.

In contrast, U.S. lawmakers are now debating a bill seeking $554 billion in base defense spending for the 2013 fiscal year beginning in October and $88.5 billion for the Afghan war and other overseas operations.

Taiwan, the self-ruled island that China claims as a renegade province to be recovered by force, if required, "remains the principal focus and driver of much of China's military investment," the report said.

Despite an ongoing improvement in China-Taiwan relations under Taipei's Beijing-friendly President Ma Ying-jeou, "China's military shows no sign of slowing its efforts to prepare for Taiwan Strait contingencies," said Helvey.

The report underscored the Pentagon's desire for more steady and continuous military-to-military relations with China, noting that "this aspect continues to lag behind other aspects of the broader bilateral relationship."

But Helvey noted that although China canceled some military exchanges after the September 2011 U.S. announcement of arms sales to Taiwan, dialogue continued and the two powers have set a "robust" schedule for 2012, which has already seen a U.S. visit by Defense Minister Liang Guanglie.

The 43-page report is posted at http://www.defense.gov/pubs/pdfs/2012_CMPR_Final.pdf

(Additional reporting by Don Durfee in Beijing; Editing by Ron Popeski)

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