A report issued Tuesday by the office U.S. Defense Secretary Donald Rumsfeld says China is at a "strategic crossroads" as it works intensively to increase and modernize its military capabilities. The annual report on China's military, required by congress, was delayed for several weeks as officials from several U.S. government departments worked to consolidate their views in the document.

The report portrays an active, multi-faceted and secretive Chinese military modernization program, encompassing new and improved air, sea, missile and outer space systems, as well as restructured ground forces that are more mobile, more lethal and more technologically advanced. The report says China has drawn on lessons from the U.S. and allied military campaigns in Iraq and the NATO mission in Serbia both to improve its own plans, and to detect weaknesses in potential adversaries.

It says China's military modernization includes efforts to make rapid leaps in some of the most modern systems under development in other countries, such as improved military satellites, anti-satellite weapons and the capability to disable an adversary's computer networks and communications systems.

The result, according to the report, is a change in the Asian military balance and the potential for challenging U.S. and other modern foreign forces operating in the region. But the report says China's ability to project military power beyond Asia remains limited.

The Defense Department report says the main focus of China's military planning continues to be Taiwan - which it says leaders in Beijing are determined to prevent from acquiring independence. That includes plans for quick, limited strikes on the island by missiles and aircraft in order to remove leaders or convince them to change their plans before any U.S. or other foreign force could intervene, as well as efforts to prevent foreign forces from getting to or operating in the air and sea lanes close to the Taiwan Straits. The report indicates that approach appears to be taking precedence over any large-scale invasion of the island, even though China is becoming more capable of doing that.

The report says China deploys its most advanced new military systems to the coastal region directly across from Taiwan, including more and better short and medium range missiles, but that most of China's military hardware remains somewhat less capable. Still, some of the more modern systems are mobile, including the medium-range missiles, which the report says can now reach from Indonesia in the south to Russia's Kamchatka Peninsula in the northeast and nearly to Moscow in the northwest. That area includes a large percentage of deployed U.S. Pacific forces.

U.S. Defense Secretary Donald Rumsfeld declined Tuesday to characterize any potential threat from China, and instead referred reporters to the report itself.

"It's a very accurate characterization of behavior, the behavior and the collective decisions that are being made in that country with respect to military investment and acquisitions," he says.

The report says China is working to improve its military largely by acquiring hardware and technology from abroad. It lists Russia as China's main foreign military supplier, but also says Israel has provided some key technology, and that European countries and even the United States have sold some important military equipment to China. Secretary Rumsfeld says the report provides further evidence to support U.S. opposition to the European Union's desire to lift its arms embargo against China.

"It clearly points up the reason that the president and the United States government have been urging the E.U. to not lift the arms embargo on the People's Republic of China," Mr. Rumsfeld indicates.

Specifically, the report says lifting the EU arms embargo would help China improve its weapons systems and its ability to produce its own modern military equipment, would encourage Russia to sell more advanced military equipment to China and would give China easier access to Europe's modern military training methods, logistics expertise and management practices. The report says Europe's proposed new system of controls on military exports to China is "inadequate" and lifting the embargo would have "serious and numerous" consequences.

The report also expresses the concern that China's increased military capability could make Chinese leaders more likely to use force against Taiwan or elsewhere - a situation the report says could result in dangerous miscalculations that "could lead to a full-fledged conflict." But at the same time, the report says China's military is becoming more capable of using force in limited and relatively precise ways.

The Defense Department report also expresses concern that for all the United States knows about China's military development, there is much it does not know. It says U.S. analysts knew nothing of several new Chinese weapons systems until they were officially unveiled. The report says the United States does not even have a firm figure for China's fast-growing defense budget, which it estimates could be as much as $90 billion, three times the figure China has officially announced for this year. Even that official figure of about $30 billion is double the official figure for the year 2000. If the U.S. estimate is right, China would have the world's third largest defense budget, after the United States and Russia. And the report says China's strong economic growth and desire to further modernize its military are being coordinated and are fueling each other.

The U.S. Defense Department's report also warns Taiwan that it must develop countermeasures to avoid being "quickly overwhelmed" by China's growing capabilities. It says Taiwan's defense spending has declined steadily in real terms during the last ten years, and that although Taiwan, with U.S. support, tries to maintain advantages in selected key military areas, the growth of China's capabilities is "outpacing" that effor