By Phil Stewart
WASHINGTON (Reuters) - Chinese military spending exceeded $145 billion last year as it advanced a program modernizing an arsenal of drones, warships, jets, missiles and cyber weapons, the Pentagon said on Thursday, offering a far higher figure than Beijing's official tally.
The Pentagon's estimate, using 2013 prices and exchange rates, was 21 percent above the $119.5 billion figure announced by China. It was detailed in an annual report to Congress that cited steady progress in Chinese defense capabilities.
It acknowledged that estimating Chinese spending can be difficult, in part because of "poor accounting transparency and incomplete transition from a command economy."
The report came just days after Defense Secretary Chuck Hagel, using unusually strong language, accused Beijing of destabilizing the region in pursuit of territorial claims.
China claims almost the entire oil- and gas-rich South China Sea and dismisses competing claims from Taiwan, Brunei, Vietnam, the Philippines and Malaysia. Japan also has a territorial dispute with China over islands in the East China Sea.
The 96-page report said China was placing emphasis on preparing for potential contingencies in the South and East China Seas, noting an October drill named Maneuver 5 in the Philippine Sea.
The drill, the Pentagon said, was the largest Chinese Navy open-ocean exercise seen to date.
"China's military investments provide it with a growing ability to project power at increasingly longer ranges," the report said.
The United States last month charged five Chinese military officers and accused them of hacking into American nuclear, metal and solar companies to steal trade secrets, ratcheting up tensions between the two world powers over cyber espionage.
The Pentagon report renewed warnings over cyber intrusions.
"China is using its ... capability to support intelligence collection against the U.S. diplomatic, economic, and defense industrial base sectors that support U.S. national defense program," it said.
The Pentagon also cited advances in Chinese drone technology. It pointed to a Defense Science Board report cautioning Beijing's push "combines unlimited resources with technological awareness that might allow China to match or even outpace U.S. spending on unmanned systems in the future."
It noted that in September 2013, a "probable" Chinese drone was noted for the first time conducting reconnaissance over the East China Sea. China also unveiled details of four drones under development in 2013, including the Ligian, China's first stealth drone, it said.
(Reporting by Phil Stewart; Editing by David Storey and Grant McCool)