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The growth of China's military is shrouded in secrecy which could give rise to "misunderstanding and miscalculation", a US defence department report says.

China has been upgrading its land-based missiles, expanding its submarine force and nuclear arsenal, the Pentagon's annual report to Congress said.

It also said that China has extended its military advantage over Taiwan.

The report confirms US concerns about the rapid growth of China's military.

China has 1,150 short-range ballistic missiles and an unknown number of medium-range missiles, the report says.

The billions of dollars in expenditure has been conducted largely out of the public eye, the report alleges.

"The limited transparency in China's military and security affairs enhances uncertainty and increases the potential for misunderstanding and miscalculation," it says.

Recent commentaries from the Chinese military establishment have complained about large-scale military exercises held by the US and South Korea.

They have spoken of an alleged policy of US "encirclement" that threatens China's core interests.

China has also criticised what it sees as unwarranted interference by the US in one of those core interests, China's claim to much of the South China Sea.

US Secretary of State Hillary Clinton recently told a regional summit in Vietnam that it supported non-Chinese claimants to the sea.

The US also recently held a week of visits and training exercises with Vietnam.

Washington is also embarking on a new round of exercises with South Korea which it describes as purely defensive.

Military-to-military contacts between the US and China have been suspended and China refused to meet US Defence Secretary Robert Gates.

"It's been ambiguous over the past several months," a senior defence official told the Associated Press when asked about the Pentagon's view of its relationship with China.

The Pentagon suggests that China's purchases show a growing military reach beyond its borders, and beyond Taiwan.

"The balance of cross-Strait military forces continues to shift in the mainland's favour," the report said, regardless of improving political and business ties with Taiwanese President Ma Ying-jeou.

And China was "already looking at contingencies beyond Taiwan," it says, citing work on longer-range missiles that could reach the Pacific.

"Current trends in China's military capabilities are a major factor in changing East Asian military balances and could provide China with a force capable of conducting a range of military operations in Asia well beyond Taiwan," it said.

The report alleges this reach could go beyond traditional boundaries of Okinawa in Japan and the South China Sea to Guam, mainland Japan and the Philippines.

In March this year, China said it would increase its defence budget by 7.5% to 532bn yuan ($77.9bn, £50bn), less than the usual double-digit increases.

The US annual military budget is about $700bn (£448bn).

The Pentagon said it wanted dialogue with China to avoid any "miscalculation" between the two militaries.