Puts in place plans to modernise its Army against the backdrop of an uncertain regional environment.

China has announced it will increase defence spending by 11.2 per cent in 2012, for the first time taking its annual military expenditure beyond $100 billion as it puts in place plans to modernise its Army against the backdrop of an uncertain regional environment.

The planned defence budget was announced in Beijing on Sunday as 670.274 billion yuan ($106.39 billion), an increase of 67.604 billion yuan over the expenditure in 2011 and an 11.2 per cent year-on-year rise. The proposed budget is expected to be approved this week when the National People's Congress (NPC), the top legislative body, begins its annual session on Monday.

Li Zhaoxing, spokesperson for the NPC, told reporters the rise in military spending was in keeping with the growth in the GDP and fiscal expenditure. He pointed out that the spending as a share of GDP was only 1.28 per cent, lower than many countries including the U.S. and the U.K. “where it exceeds 2 per cent”.

It however remains unclear how China's neighbours will perceive the double-digit percentage rise, with several countries, from Japan to those involved in disputes over the South China Sea, having expressed concerns in recent months over the rise in military spending.

The defence budget grew by 12.7 per cent last year to $91 billion, though spending grew by a lower than expected 7.5 per cent in 2010, the first time in two decades that the increase was a single-digit figure on account of the global financial crisis.

China's spending in 2012 will exceed what India spent last year by three times — India's defence expenditure was reported at $36 billion in the 2011-12 budget.

While Indian defence officials have expressed concern over the widening gap between both military spending and infrastructure in border regions, Mr. Li of the NPC stressed on Sunday that China's military “will not in the least pose a threat to other countries” and followed a policy that was “purely defensive” in nature. China's military spending mainly comprised the living expenditures of service people, expenses for training and spending on equipment, he added.

But many analysts say China does not include in its budget a range of costs that contribute to its military modernisation, as well as a number of dual use technologies and military research and development programmes that are accounted for under civilian budgets, such as the space programme.

“Since the Chinese budget does not include modernisation, dual-use technologies, R&D aspects and export-import numbers, the figure that we saw on Sunday is not the ultimate truth,” said Srikanth Kondapalli, an expert on the Chinese military at Jawaharlal Nehru University.

“Western estimates say the actual figure should be at least double, although Indian estimates place the budget at $150 billion rather than the Pentagon's $220 billion figure.”

He added that all militaries, from the U.S. to Asian countries, “obfuscate a little”, but in China's case there were particular accounting problems, in part because Beijing only adopted more accurate zero-based budgeting, rather than merely listing incremental estimates, in the past decade.

Analysts say the main focus of China's military spending is directed towards deployments in the South China Sea, where disputes have surfaced with many of China's neighbours and Beijing wary over increasing U.S. activity in the Asia-Pacific, and also towards Taiwan, which has historically been the People's Liberation Army's focus but has begun to recede as a priority with the recent warming in Cross-Strait relations.

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