China military budget to keep climbing -think tank

LONDON, May 25 (Reuters) China's military spending may be about 1.7 times higher than officially stated and will continue to rise sharply, according to a leading international think.

The International Institute for Strategic Studies (IISS) assessment came a day after the Pentagon said China's military buildup had altered power balances in the Asia-Pacific region and called on Beijing to explain its actions.

The IISS said there was a growing risk that military competition between the United States and China would play an increasing role in relations between the two countries.

In its research, the London-based think tank focused on 2003. It estimated Chinese military-related expenditure for that year at 39.6 billion dollars -- based on market exchange rates -- compared to the 23 billion dollars officially stated.

The IISS also produced an estimate based on purchasing power parity which put the true figure at 75.5 billion dollars. IISS director general John Chipman urged some caution with that estimate but said the trend in Chinese military spending was clear.

''Expenditure is on a sharp upward trend and will remain so in view of popular and elite support for accelerated defence modernisation,'' he said at the launch of the IISS's annual survey of global might, ''The Military Balance''.

China's military spending has risen by double-digit percentages for the last few years.

But Beijing has said its military poses no threat and that it spends less on defence as a share of its economy than many Western countries including the United States.

Chinese defence spending was 2.7 percent of gross domestic product in 2003, while the U.S. figure was 3.7 percent, the IISS said.

Washington has been raising alarms over China's defence modernisation for several years. Tuesday's annual Pentagon report on China's military power said Beijing had yet to adequately explain the purposes of its military expansion.

''The military dynamic of the U.S.-China relationship... remains implicitly but decidedly competitive, and there is little that augurs for change,'' Chipman said.

''With that, the risk will grow that this military dynamic will over time have a greater bearing on the tone and content of the relationship as a whole,'' he said.

The IISS said China's military spending was hard to calculate as official figures did not contain items which would be included in Western defence budgets such as weapons procurement from abroad and state subsidies.

But it said it had come up with its estimate thanks to increased transparency in Chinese budgetary planning and new research into Chinese language documents.

Reuters DH RN0459