A new Defense Department report describes China’s military modernization, the country’s use of state-sponsored industrial espionage and the Chinese army’s interaction with other forces, including those of the United States.

"China continues to leverage foreign investments, commercial joint ventures, academic exchanges, the experience of repatriated Chinese students and researchers, and state-sponsored industrial and technical espionage to increase the level of technologies and expertise available to support military research, development, and acquisition," David Helvey, the U.S. Deputy Assistant Secretary of Defense for East Asia the U.S. Defense Department, said at a Pentagon news conference Monday.

The 83-page annual report to Congress on Chinese military developments provides a detailed overview of China's military progression. Beijing's publicly announced a 10.7 percent increase in military spending to 119 billion in March and has grown at an inflation-adjusted pace of nearly 10 percent annually over the past decade.

The Pentagon estimates that China's actual spending for 2012 could range between $135 billion and $215 billion.

The cost for People’s Liberation Army personnel has risen from about one-third of its budget to roughly one-half, in an effort to increase the quality of the Chinese force, but that ambition is eating at its wider budget, James Mulvenon, director of Defense Group, Inc.’s Center for Intelligence Research and Analysis told Foreign Policy.

“Over the past decade, these double digit nominal increases have quadrupled spending, and they have made the PLA budget second in size only to that of the U.S. military budget,” he said, “albeit several hundred billion dollars less.”

The U.S. defense budget is contracting and China’s has been growing steadily but military outlays are still about six times more in the U.S.President Obama reportedly will request roughly $526 billion in defense spending for fiscal 2014.

The Defense Department’s report comes as the Obama administration pursues a strategic “pivot” to bolster U.S navel resources in the Asia-Pacific. The administration has said China shouldn’t view the change as an effort to contain its growing presence and assertiveness.

Beijing's military modernization, in an effort to keep up with the Pentagon, is concentrated on the development of armed, medium-range ballistic missiles, advanced-technology stealth aircraft , an aircraft carrier fleet to project power further offshore and investments to conduct a wider range of missions beyond its immediate territorial concerns.

The report said China is acquiring greater numbers of conventional medium-range missiles to increase the range at which it can conduct precision strikes against land targets, naval ships, including aircraft carriers, operating far from China's shores.

China’s DF-21D anti-ship missile, according to the report is capable of attacking “large ships, including aircraft carriers, in the western Pacific Ocean.”

“We are concerned about the ability of China to develop missiles that can project its military power with precision at great distances from China,” Helvey said."In combination with other weapons systems, China is gaining the capability to deny the U.S. a military presence in the western Pacific."

The Pentagon in this report, for the first time, directly accuses the Chinese government, military and civilian experts of using state sponsored industrial espionage to break into US defense computer networks to obtain sensitive data that would fuel its fast paced military modernization and cut its reliance on foreign arms makers. The report warned that the computer skills needed for such espionage is similar to those needed to conduct cyber-warfare.

"China continues to engage in activities designed to support military procurement and modernization," the report said and“ is using its computer network exploitation capability to support intelligence collection against the U.S. diplomatic, economic, and defense industrial base sectors that support U.S. national defense programs. These include economic espionage, theft of trade secrets, export control violations, and technology transfer."

China filed a protest with the U.S. over the report.

"We firmly oppose any groundless criticism and hype, because groundless hype and criticism will only harm bilateral efforts at cooperation and dialogue," Chinese Foreign Ministry spokeswoman Hua Chunying told reporters. “We are firmly opposed to this and have already made representations to the US side."

The US Defense Department had repeatedly "made irresponsible comments about China's normal and justified defense build-up and hyped up the so-called China military threat," Hua said. China's defense build-up was geared towards protecting its "national independence and sovereignty."

The report’s assertions are irresponsible and harmful to trust between the U.S. and China, says Wang Xinjun, a researcher with the Academy of Military Sciences at the People’s Liberation Army. “Although it is common sense that you cannot determine sources of cyber-attacks only through IP addresses, some people in the Pentagon still prefer believing they are from China as they always bear a sense of rivalry. It is an allegation based on presupposition.”

The accusations in the report continue an escalating effort by U.S. officials to call out the Chinese on the cyber-attacks and to press for a more open dialogue with Beijing on the problem U.S. National Security. A U.S.-based cyber-security firm, Mandiant Corp, issued a report in February accusing a secret Chinese military unit in Shanghai of years of cyber-attacks against more than 141 companies worldwide since 2006, a majority of them American.

The Obama administration, as part of its fiscal 2014 budget request, is seeking to increase total U.S. government spending on cyber security to $13 billion, about $1 billion more than current levels.