The increase in the draft defence budget focuses towards military hardware upgrade and modernisation, military training, human resource development and improving the living standards of the Red army, said Li Zhaoxing, spokesman for the annual session of China's national legislature.
The hike in military spending comes a day ahead of the opening of the National People's Congress which is to chalk out the country's new social and economic goals.
The raise also comes at a time when the Chinese military has embarked on development of new weapons system like carrier killer and space missiles, aircraft carrier and new range of nuclear submarines.
China spent about USD 77 billion last year as defence expenditure, which was an increase of 7.5 per cent compared to 2009's budget.
Defending the 12.7 per cent increase this year, Li, the former Chinese Foreign Minster said, the ratio of China''s military spending in its total gross domestic product (GDP) is lower than many countries, including India.
When asked about concerns in India and other neighbouring countries over steady increase of China's defence budget, Li said while China's military spending amounted to about 1.4 per cent of its GDP, "that ratio in India is much higher than two per cent as far as I know."
"China is willing to maintain friendly relations with neighbouring countries such as India in spite of the increase of its defence spending. China and India have reached a consensus on maintaining peace and tranquillity of their border areas before border issues are eventually settled," Li said.
"China is ready to work with India to implement relevant agreements to maintain a stable situation in border areas, which is conducive to the interests of the two countries," he said.
"It is true that China''s defence budget is raised a bit, but the ratio of the defence spending in the country''s GDP remains very low, much lower than those of many other countries," he said.
"The government has always tried to limit military spending and it has set the defence spending at a reasonable level to ensure the balance between national defence and economic development," Li said.
"There is no such thing as the so-called hidden military expenditure in China, and the budget is subject to auditing from the government and military. China is committed to peaceful development and a national defence policy that is defensive in nature," Li said.
Commenting on China's defence allocation, Major General Luo Yuan, a researcher with the Chinese People's Liberation Army (PLA) Military Science Academy said, "China's military spending is dwarfed by that of the United States which, at 725 billion US dollars, accounted for about 4 per cent of the country's GDP for the 2011 fiscal year."
:Both countries have reached a consensus on maintaining peace and tranquillity at their borders before the dispute is eventually settled," Li said.
Furthermore, added that Beijing is ready to work with its "friendly neighbour" to implement relevant agreements to maintain a stable situation in border areas, which is conducive to the interests of both the countries.
There have been more frequent high-level exchanges, deeper mutual political trust, more integration of economic interests and further expansion of people-to-people and cultural exchanges, he said.