To achieve these goals Beijing, at present, does not have all the resources it would like. The Chinese defense budget has grown at more than 10 percent per annum for two decades, faster than the growth of GDP, though slower than the growth of overall public spending. However, military spending competes with other pressing needs-a middle class as large as the U.S. population, inequality between cities and countryside and among regions, an aging population (China's workforce will peak in 2015, and already the population is aging faster than it is growing richer), underdeveloped and bad-debt-burdened capital markets and so on-which means the government cannot hand the military a blank check.

THE UNITED States and most countries in the region might prefer to see China stuck in the Maoist People's War tradition. But the reality is, barring an economic slowdown or other catastrophe, China will develop its military power in parallel with its financial and political power, seeking to accomplish the missions its strategy dictates.

This has serious consequences for the U.S. military, U.S. policy in the region and other regional states. They are not welcome developments, but they are broadly consistent with the growing power of a "responsible stakeholder." As Chinese forces become more deployable, effective and experienced, they can also become more useful in countering international disorder, including terrorism-should China choose the "responsible stakeholder" model. But other effects will alter the military landscape of east Asia profoundly.

Japan, Russia, India and others will soon face a Chinese military much more formidable than in the past. China will slowly go from being a continental power to a regional (though not global) power by: modernizing its tactical air capability, airborne warning and control, mid-air refueling and airlift; acquiring more capable surface combatants (though not rivaling those of the U.S. Navy's blue-water force) and a fledgling carrier force; and bolstering the "informationalization" and joint capabilities of the military branches. Newer, mobile DF-31 and DF-31A ICBMs, solid-fueled ICBMs, and Jl-2 SLBMs, if not accompanied by a large jump-tens rather than hundreds and no MIRV'd missiles-in numbers of warheads, will not alter significantly the long-standing Chinese strategic nuclear threat to the United States.

The sheer weight of China's military investments will inexorably shift the balance between China and Taiwan in China's favor. China is fielding more numerous and accurate ballistic missiles, drone aircraft, mine-laying craft, diesel submarines and other capabilities that are clearly aimed at the Taiwan contingency rather than general growth of comprehensive military power. Taiwan is not spending nearly enough to counter these efforts, specifically the missile and blockade threats. (Taiwan's island geography, more than its military, counters the invasion threat.) As Taiwan's ability to defend itself declines, its dependence on the United States increases.

This power shift is mirrored economically and politically. Taiwan was once thought the gateway through which foreign investment would flow into China; now Taiwan is bypassed in favor of China. Politically, Chen Shui-bian's DPP is weak, and the Pan-Blue alliance is flirting with the mainland.

But alongside these developments are additional modernization efforts by the PLA to counter selected areas of U.S. military advantage. These developments are highly likely to continue. They are not natural ingredients of a post-Maoist general upgrade of China's military power; they are specifically aimed at U.S. forces and fueled by the Taiwan contingency.

China is stressing anti-satellite and information-warfare capabilities designed to deny U.S. forces the C⁴ISR that is their trademark. Reacting to this trend will require greater investment in satellite defense (through maneuvering, redundancy and other means). In addition, China is buying modern integrated air defenses, including the Russian S-300, to prevent the United States from gaining air dominance in the strait or over China itself.

Moreover, China wants the ability to locate and threaten U.S. carriers in nearby waters, especially the Taiwan Strait, through space and airborne long-range ocean surveillance, quiet diesel submarines and sophisticated anti-ship cruise missiles from Russia. China is also slowly buying the vessels and gaining the experience to patrol its trade routes, show the Chinese flag and make port calls or gain basing (e.g., in Pakistan) well beyond its shores. It is well on its way to a green-water, if not fully blue-water, navy. These trends are worrisome, but they can be countered in a manner that need not lead to tensions.

Yet we must watch for political and military developments that could dramatically change the United States's hedge strategy. Behavior inconsistent with a "responsible stakeholder's" power growth, bearing in mind the competition inherent in the Taiwan scenario, would suggest all-out competition and "cold war." We must monitor irredentist claims, aggressive rhetoric about "enemies" like Japan and the growth of hypernationalism among Chinese youth overdosing on "standing up proud."

A significant increase in defense spending would also be troublesome. A crash spending effort at the expense of economic objectives would signal a major change in Chinese intentions, and in time capabilities, as would any crash program to obtain amphibious and airborne forces to invade Taiwan.

Other potential alarming developments include: the emergence of offensive biological or chemical weapons programs, an attempt to match or exceed the U.S. strategic nuclear deterrent force in overall numbers, changing Chinese nuclear policy from no-first-use minimum deterrent to first-use or counterforce, or any large expansion in scale and scope of weapons purchases from Russia. (These purchases today, while of high-end items China cannot make for itself, total only about $2 billion per year.) Finally, major new military alliances or foreign basing of Chinese forces could signal Beijing's readiness to challenge America's global position.

CHINESE EFFORTS to undermine U.S. operational supremacy will require specific U.S. investments in response. These investments are in line with the Pentagon's budgetary plans and demand accommodation in future budgets. They constitute the near- and medium-term hedges a two-pronged U.S. strategy requires.

But if China's military has a portfolio problem, America's is even more complex. U.S. force structure and investment is being pulled in five directions at once. First, there are the costs of hedging against China. In terms of military investment, this means ultra-modern air and naval capabilities. It is the main budgetary rationale for advanced fighter aircraft, a new strategic bomber, new aircraft carriers and other surface combatants, stealthy unmanned aerial systems with long range and dwell time, nuclear attack submarines and a host of C⁴ISR assets. Yet this comes against the backdrop of the "long war" against terrorism-a mission that emphasizes the need for special operations forces and greater spending on intelligence, law enforcement, diplomacy and homeland security.

Meanwhile, experience in Somalia, Bosnia, Kosovo, Iraq, Afghanistan and elsewhere in the past 15 years suggests the world will call upon U.S. forces to conduct peacekeeping and stability operations, notwithstanding public ambivalence about such involvements. These missions require large ground forces with a wide range of capabilities, from combat to policing to economic reconstruction.

Next, the military must still be prepared to fight "traditional" major theater wars in North Korea and the Middle East, perhaps simultaneously. This requires a relatively large conventional force structure.

Finally, continuing threats from WMD underscore the need for deterrent forces (nuclear and non-nuclear) of reasonable size and survivability, and for protective measures ranging from chemical suits to missile defenses.

The United States must pursue these missions simultaneously, sacrificing none to fund the others. However, the Department of Defense (DOD) faces a looming budget crunch of huge proportions.

To a remarkable degree, the 50 percent increase in the DOD baseline since 9/11 has gone to funding the program of record on 9/11 (i.e., the weapons that were already in the pipeline on 9/11). This program was unrealistically budgeted before 9/11, as is true of most weapons systems. Additionally, exploding personnel benefit costs devour a larger and larger chunk of the Pentagon budget, as do the high operations tempo and intensive training schedule.

Perversely, the supplementals will contribute to the crunch in two ways. First, it appears they will not cover the costs of "resetting" the force (e.g., repairing or replacing vehicles used more intensively than planned). Second, some of the new and most innovative programs (i.e., programs that were not part of the program of record on 9/11) are funded in the supplementals and will have to fight their way into the baseline budget when the supplementals dry up. Many of them will not win this daunting battle against older and more entrenched programs, hindering the overall process of transformation.

The growth in the personnel, operations and maintenance portions of the budget squeezes out the investment portion (research, development, test and evaluation, and procurement) most relevant to the China-hedging mission. Moreover, a mixture of poor management, prolonged wars and chronic cost growth is creating a perfect storm that will limit the resources available to hedge against China.

Future administrations and Congresses will have to ensure adequate funding. The hedging must effectively counter these developments, not contribute unnecessarily to the Chinese build-up, be consistent with the "engagement" part of U.S. strategy towards China and be affordable within a constrained DOD budget.

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