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By Ben Blanchard and John Ruwitch
BEIJING, March 5 (Reuters) - China unveiled another double-digit rise in military expenditure on Tuesday, but for a third year in a row the defence budget will be exceeded by spending on domestic security, highlighting Beijing's concern about internal threats.
Spending on the People's Liberation Army (PLA) will rise 10.7 percent to 740.6 billion yuan ($119 billion), while the domestic security budget will go up at a slightly slower pace, by 8.7 percent, to 769.1 billion yuan, according to the budget released at the opening of parliament's annual meeting.
The numbers underscore the ruling Communist Party's vigilance not only about territorial disputes with Japan and Southeast Asia and the U.S. "pivot" back to the region, but also about popular unrest over corruption, pollution and abuse of power, despite robust economic growth and rising incomes.
The number of "mass incidents" of unrest recorded by the Chinese government grew from 8,700 in 1993 to about 90,000 in 2010, according to several government-backed studies. Some estimates are higher, and the government has not released official data for recent years.
"It shows the party is more concerned about the potential risks of destabilisation coming from inside the country than outside, which tells us the party is much less confident," said Nicholas Bequelin, a researcher at Human Rights Watch, a New York-based advocacy group.
"A confident government that is not afraid of its population doesn't need to have a budget for domestic security that is over defence spending," he added.
In his "state of the nation" address to the largely rubber-stamp legislature, Premier Wen Jiabao listed maintaining social harmony and stability as one of the government's priorities for this year.
"We should improve the mechanism for assessing potential risks major policy decisions may pose for social stability ... The purpose of this work is to preserve law and order and promote social harmony and stability."
CHINA'S MILITARY AMBITIONS
Still, China's defence spending is contained at about 5.4 percent of total expenditure, up from 5.3 percent last year, and remains at about one-fifth of the Pentagon's outlays. But even with its worries about domestic problems, Beijing has become increasingly assertive on the world stage.
Wen said the government "should accelerate the modernisation of national defence and the armed forces ... (and) should resolutely uphold China's sovereignty, security and territorial integrity and ensure its peaceful development".
China has advertised its long-term military ambitions with shows of new hardware, including its first test flight of a stealth fighter jet in early 2011 and its launch of a fledgling aircraft carrier - both trials of technologies needing years more of development.
Beijing is also building new submarines, surface ships and anti-ship ballistic missiles as part of its naval modernisation, and has tested emerging technology aimed at destroying missiles in mid-air.
China has repeatedly said the world has nothing to fear from its military spending which is needed for legitimate defensive purposes, and that the money spent on the PLA pales in comparison with U.S. defence expenditure.
The Pentagon's base budget under the current funding mechanism is $534 billion.
"It's not good news for the world that a country as large as China is unable to protect itself," parliament spokeswoman Fu Ying said on Monday. "China's peaceful foreign policies and its defensive military policies are conducive to security and peace in Asia."
Asian neighbours, however, have been nervous about Beijing's expanding military, and this latest double-digit rise could reinforce disquiet in Japan, India, Southeast Asia and self-ruled Taiwan, which China considers part of its territory.
A spokesman for Taiwan's main opposition Democratic Progressive Party accused China of being two-faced.
"China has been stressing a peace agreement with Taipei and portraying a peaceful image, but its high military budget and provocative actions in the East and South China Seas disputes run contrary to this image," said Lin Chun-Hsien.
Japan and China have locked horns over islands each claims in the East China Sea. Vietnam, the Philippines and other nations have challenged Beijing over claims to swathes of the South China Sea that could be rich in oil and gas.
Over the past six months, China's stand-off with Japan over a series of uninhabited rocky islands in the East China Sea known as the Senkaku in Japan and Diaoyu in China has become more acrimonious.
The increase announced in the national budget is at a slightly slower pace than the 11.2 percent rise planned for last year, though actual spending in 2012 reached 691.3 billion yuan compared with the budgeted 670.3 billion yuan.
Beijing's public budget is widely thought by foreign experts to undercount its real spending on military modernisation, which has unnerved Asian neighbours and drawn repeated calls from Washington for China to share more about its intentions.
"Traditionally, space development and the development of new weapons have not been included in defence spending in China. Even though China spends a lot in (defence-related) space programmes, it would not show," said Toshiyuki Shikata, professor at Japan's Teikyo University professor and a retired general. ($1 = 6.2251 Chinese yuan) (Additional reporting by Kiyoshi Takenaka in TOKYO, Clare Jim in TAIPEI and Paul Eckert in WASHINGTON; Editing by Raju Gopalakrishnan)