China defense spending seen rising as territorial rows deepen

China's first aircraft carrier, which was renovated from an old aircraft carrier that China bought from Ukraine in 1998, is seen docked at Dalian Port, in Dalian, Liaoning province September 22, 2012. Picture taken September 22, 2012.

(Reuters) - A series of territorial disputes with its neighbors will ensure China boosts defense spending when it reveals this year's military budget ahead of the annual parliamentary sitting next week, security experts say.

After almost three decades of sharply increased military outlays, an increasingly assertive China now has the firepower to challenge rivals claiming strategically important and resource-rich territory in the East China and South China seas.

The Chinese navy, now second in size only to the U.S. fleet in terms of raw numbers, has become a genuine blue-water force and is conducting almost continuous patrols and exercises in these contested waters.

Over the past six months, China's stand-off with Japan over a series of rocky islands in the East China Sea known as the Senkaku in Japan and Diaoyu in China has become more acrimonious.

Beijing is also in dispute with the Philippines and Vietnam, as well as Taiwan, Brunei and Malaysia, over territory in the South China Sea.

To pay for these deployments and new hardware in the pipeline, most analysts expect that this year's budget will continue the long-term trend of double-digit percentage increases in annual spending.

"Estimates are still for steady growth," said Ni Lexiong, a military expert at Shanghai University of Political Science and Law.

"With China's current attitude, it's not going to let itself get bullied by anyone."

Alongside missions to assert sovereignty over disputed territory, the Chinese navy is also deploying naval flotillas to the Gulf of Aden and waters off Somalia as part of its contribution to UN-authorized anti-piracy operations in the Indian Ocean.

Beijing last month announced the departure of the 14th of these missions since December 2008.

These high-tempo operations are a sharp departure for a military that was largely confined to exercises and training within China's land borders and coastal waters until recent years.

But they impose a new burden on a budget that had largely been devoted to the rapid modernization of military hardware including big orders for new warships, submarines, strike aircraft and missiles.

Beijing last year announced a 11.2 per cent increase in military spending to $106 billion.

However foreign military analysts say much of China's military spending is not included in the published budget.

The Pentagon last year estimated that Beijing's real outlays for 2012 would be between $120 billion and $180 billion.

China's spending is now second only to the United States although the Pentagon is bracing for a sharp drop in outlays as part of government-wide budget cuts, known as a sequester, starting from March 1.

However, China has its own budget woes as senior political and military officials complain of rampant corruption and waste in its 2.3 billion-strong People's Liberation Army (PLA).

The PLA headquarters has issued new rules to tighten spending across a range of areas including construction, procurement, conferences and receptions in a bid to curb waste and corruption, the official Xinhua news agency reported this week.

The new rules, approved by Xi Jinping, China's Communist party leader and chairman of the Central Military Commission, were also intended to redirect spending toward combat readiness, high-technology weaponry and training, Xinhua said.

(Editing by Raju Gopalakrishnan)