China on Sunday increased it military budget by 17.8 per cent, by just under $ 45 billion, setting off alarm bells across world capitals.

The increase in defence spending comes weeks after the Communist giant successfully tested its anti-satellite missile system and the People's Liberation Army deployed its first state-of-the-art jet fighter, the J-10.

The increase in military spending is almost twice its pace of economic growth, and is the largest in 10 years. Western analysts say the actual spending could be twice or even thrice the budgeted figure, since so much of military spending is concealed.

A spokesman for the National People's Congress � China's highest legislative body --  pointed out that despite the increase China's military budget was less than a tenth of the Pentagon's. Assuaging fears of an arms race in the region, notably with India, Jiang Enzhu said, 'China has neither the wherewithal nor the intention to enter into an arms race with any country, and China won't constitute a threat to any country.'

'China's military must modernize. Our overall defenses are weak,' the New York Times quoted Jiang as saying.

Defense analysts seems to agree that China's primary focus is Taiwan, and also to be able to create a deterrent to a military intervention by the United States. China has numerous missiles aimed at Taiwan despite America, which is obliged to defend Taiwan militarily, expressing its concern.

John D Negroponte, the newly-appointed deputy secretary of state currently on a tour of Asia, told a news conference in Beijing on Sunday that China needed to be less secretive about its military spend.

However, he was forced on the backfoot by Chinese officials who criticised him over the  US agreeing to sell $400 million worth of air and ground missiles to Taiwan and lobbied hard to reverse the deal.

China will be spending the budgetary increase on missile systems, electronic warfare and other hi-tech items. News agency Xinhua has reported that China's 2.3 million troops have been awarded a handsome pay rise, with salaries expected to rise at least 20 per cent from July.

On an average, China's defense outlays grew by 15 percent annually from 1990 to 2005.

The commander of the PLA general logistics department, Liao Xilong, told Xinhua that the budget rise was needed at a time of international uncertainty.

'The present-day world is none too peaceful,' the Guardian, London, quoted him as saying. 'To protect national security, stability and territorial integrity, we must suitably increase spending on military modernisation.'

It's not an argument the rest of the world is willing to buy yet.