China has announced another large increase in its military spending.
China's huge military will take many more years to transform
The increase of nearly 12% - higher than that of 2003 - will see an extra $2.6bn allocated to defence, officially raising the budget to more than $25bn.
The BBC's Rupert Wingfield-Hayes in Beijing says analysts believe the real figure is at least double that.
The announcement comes as Taiwan prepares to hold a referendum this month calling on China to end its military intimidation of the island.
The BBC's Caroline Gluck in Taipei says the timing is likely to bolster the position of President Chen, who faces presidential elections on 20 March.
Mr Chen said on Saturday that, if re-elected, he hoped to cut the size of the island's armed forces by 30% - but he also stressed that "national security is the most important thing".
Other countries in the region are also showing signs of alarm, with Japan in particular voicing disquiet.
China's military potential is one of the reasons Prime Minister Junichiro Koizumi has urged the Japanese people to consider changing the country's pacifist constitution, says the BBC's Tokyo correspondent, Jonathan Head.
But our correspondent in Beijing says it will take China's huge military many years to transform itself into a modern fighting machine.
Inflation at 3%, overall spending up 7%
Overall revenue: $157bn, an increase of 7% on 2003
Deficit set at $38.7bn - no change on 2003
Military spending to rise by 11.6%, agricultural spending by 20%
Source: Associated Press
The hike in the military budget was announced by Finance Minister Jin Renqing at the annual 10-day meeting of the National People's Congress - China's parliament - in the Great Hall of the People in Beijing.
Mr Jin said the rise would help to improve combat readiness.
China is struggling to make its poorly equipped 2.5
million troops more effective and to adapt to a high-tech world.
But many in the military are poorly paid, and another priority identified by the finance minister was to raise salaries and pensions for ex-servicemen.
He also promised farmers a rise in spending of 20% on 2003, in line with Premier Wen Jiabao's declaration at the opening of parliament that the countryside was the chief priority.
Mr Jin forecast that the country's budget deficit would be $38.6bn - the same amount as last year.
Overall government spending in China will rise by 7% this year.
Meanwhile, Planning Minister Ma Kai has pledged economic stability amid fears of overheating.
He told the Congress that economic growth would be kept to 7% this year after 9.1% in 2003.
Mr Ma cited as priorities the development of China's western regions and the revitalisation of its industrial north-east, where dissatisfaction at factory closures and redundancies has been vocal and, at times, violent.
During the parliamentary session, the constitution will be changed to allow private property ownership for the first time since the Communist Revolution in 1949.
Leaders of the ruling party have already endorsed this as essential for China's continued economic development.
The expected changes to property laws appear to mean the Chinese Communist Party will become communist in name alone.
Those once condemned as "capitalist running dogs" are also being welcomed into the party.