And Beijing continues to develop weapons that threaten Taiwan, even though tensions between the two have been reduced significantly, according to the report scheduled for release later Wednesday.
The latest in a series of annual assessments for Congress of China's military power, the report says the U.S. "welcomes the rise of a stable, peaceful and prosperous China and encourages China to participate responsibly" in world affairs.
"However, much uncertainty surrounds China's future course, particularly regarding how its expanding military power might be used," said a summary of the report obtained by The Associated Press.
The report comes in the wake of heightened tensions between the U.S. and China this month, after Chinese vessels harassed a U.S. Navy surveillance ship in international waters in the South China Sea.
During a meetings with China officials after the incident, Secretary of State Hillary Rodham Clinton said both sides have agreed on the need to reduce tensions and avoid a repeat of the confrontation.
The new report notes that the People's Liberation Army is undergoing a comprehensive transformation from a mass army designed for long wars of attrition on its territory to one that can fight and win short, high-intensity conflicts along its periphery against high-tech adversaries.
"The pace and scope of China's military transformation have increased in recent years, fueled by acquisition of advanced foreign weapons, continued high rates of investment" in technologies and far-reaching doctrinal reforms in the armed forces, the report said.
"China's ability to sustain military power at a distance remains limited, but its armed forces continue to develop and field disruptive military technologies ... that are changing regional military balances and that have implications beyond the Asia-Pacific region," it said. It said that included technologies for nuclear, space and cyber warfare.
The report noted China's buildup of short-range missiles opposite Taiwan. Taiwan and China split amid civil war in 1949 and Beijing says it is intent on eventual unification, by persuasion if possible but by force if considered necessary.
"In the near-term, China's armed forces are rapidly developing coercive capabilities for the purpose of deterring Taiwan's pursuit of ... independence," the report said, adding China's military might could be used to pressure Taiwan toward a settlement on Beijing's terms "while simultaneously attempting to deter, delay or deny any possible U.S. support for the island in case of conflict."
Since taking office 10 months ago, Taiwanese President Ma Ying-jeou has moved aggressively to reverse his predecessor's pro-independence polices, sanctioning a rapid expansion in trade relations with the mainland, and raising the prospect of a formal peace treaty between the sides.
China's Premier Wen Jiabao said early this month that Beijing is ready to hold talks with Taiwan on political and military issues in the pursuit of ending hostility between the longtime rivals. But Taiwan's defense minister later noted publicly that China has made repeated threats to attack Taiwan if it moves to make its de facto independence permanent and that Taiwan remains concerned about the estimated 1,300 missiles Beijing has readied against the island.
Wednesday's report also noted that China has used its military muscle for good, such as peacekeeping and disaster relief.
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