By David Alexander and Phil Stewart
WASHINGTON (Reuters) - China is using espionage to acquire technologies to fuel its fast-paced military modernization program, the Pentagon said on Monday in an annual report that for the first time accused Beijing of trying to break into U.S. defense computer networks.
In its 83-page annual report to Congress on Chinese military developments, the Pentagon also cited progress in Beijing's effort to develop advanced-technology stealth aircraft and build an aircraft carrier fleet to project power further offshore.
The report said China's cyber snooping was a "serious concern" that pointed to an even greater threat because the "skills required for these intrusions are similar to those necessary to conduct computer network attacks."
"The U.S. government continued to be targeted for (cyber) intrusions, some of which appear to be attributable directly to the Chinese government and military," it said, adding the main purpose of the hacking was to gain information to benefit defense industries, military planners and government leaders.
A spokeswoman said it was the first time the annual Pentagon report had cited Beijing for targeting U.S. defense networks. Despite concerns over the intrusions, a senior U.S. defense official said his main worry was China's over lack of transparency about its military intentions.
"What concerns me is the extent to which China's military modernization occurs in the absence of the type of openness and transparency that others are certainly asking of China," David Helvey, deputy assistant secretary of defense for East Asia, told a Pentagon briefing on the report.
Helvey welcomed Chinese moves toward greater openness but said there were still many unanswered questions and warned of the "potential implications and consequences of that lack of transparency on the security calculations of others in the region."
The annual China report, which Congress began requesting in 2000, comes amid ongoing tensions in the region due to China's military assertiveness and expansive claims of sovereignty over disputed islands and shoals. Beijing has ongoing territorial disputes with the Philippines, Japan and other neighbors.
Beijing's publicly announced defense spending has grown at an inflation-adjusted pace of nearly 10 percent annually over the past decade, but Helvey said China's actual outlays were thought to be higher.
China announced a 10.7 percent increase in military spending to $114 billion in March, the Pentagon report said. Publicly announced defense spending for 2012 was $106 billion, but actual pending for 2012 could range between $135 billion and $215 billion, it said. U.S. defense spending is more than double that, at more than $500 billion.
The report highlighted China's continuing efforts to gain access to sophisticated military technology to fuel its modernization program. It cited a laundry list of methods, including "state-sponsored industrial and technical espionage to increase the level of technologies and expertise available to support military research, development and acquisition."
"China continues to engage in activities designed to support military procurement and modernization," the report said. "These include economic espionage, theft of trade secrets, export control violations, and technology transfer."
Dean Cheng, an analyst at the conservative Heritage Foundation think tank, said he was surprised by the number of cases of human espionage - as opposed to just cyber prying - cited in the report.
"This is a PLA that is extensively, comprehensively modernizing ... they're pushing across the board," Cheng said. "China is also comprehensively engaging in espionage."
China tested its second advanced stealth fighter in as many years in October 2012, highlighting its "continued ambition to produce advanced fifth-generation fighter aircraft," the report said. Neither aircraft of its stealth aircraft is expected to achieve effective operational capability before 2018, it said.
Last year also saw China commission its first domestically produced aircraft carrier, the report said. China currently has one aircraft carrier purchased abroad and conducted its first takeoff and landing from the ship in November, the report said.
It predicted China would spend three to four years training and integrating the ship into its fleet before having a fully operational aircraft carrier capability.
(Reporting By David Alexander and Phil Stewart; Editing by Cynthia Osterman and David Brunnstrom)