President Jiang Zemin has given his support for more spending on sophisticated weapons as a way to thwart Taiwan's independence and to counter the threat of what Beijing sees as an expansionist American foreign policy.
An army source said yesterday Mr Jiang approved more military spending during leadership meetings at the seaside resort of Beidaihe earlier this month.
'We should devote more resources to modernisation of weaponry,' Mr Jiang reportedly said.
'We should focus our limited funds on cutting-edge areas of military science and technology.' It is understood these included developing sophisticated weapons such as missiles and submarines as well as importing top-of-the-line hardware from countries such as Russia.
Mr Jiang, who is also chairman of the Central Military Commission, indicated he did not think more funds should be spent on conventional weapons.
He added money could be saved through further streamlining of the army establishment, including ditching non-combatant units.
The bulk of spending on development and procurement of hi-tech weapons does not come from the officially publicised budget, which is currently 104 billion yuan (HK$96.7 billion) a year.