China is responding angrily to a new U.S. Defense Department report which describes the country's military modernization as a threat to regional military balances.

In a commentary Thursday, the official Xinhua news agency dismissed that suggestion as an “utterly cock-and-bull story” based on “a wild guess and illogical reasoning.” Xinhua also noted that U.S. military spending far exceeds that of China.

The Pentagon report to Congress was released Wednesday in Washington. It noted China has made major strides in the past year, including the development of a stealth jet fighter and initial sea trials of its first aircraft carrier. Pentagon official Michael Schiffer told reporters that China will likely become a major military power in this decade.

The report said the Chinese build-up appears aimed at preventing outside powers from interfering in any future conflict with Taiwan, but that China is also developing a capacity to project power into the western Pacific Ocean.

Schiffer, the deputy assistant secretary of defense for East Asia, told reporters in Washington that China is developing capabilities he described as “potentially destabilizing to regional military balances.”

He said the United States is closely watching the development of China's new weapons systems.

The Xinhua commentary found some positive elements in the U.S. report, notably a comment that China has made modest improvements in the transparency of its military and security affairs.

But it said the report exaggerated the threat posed by China's military development, and said a competent Chinese military will be conducive to regional and world peace and stability.

The Pentagon estimates that China spent more than $160 billion for its military in 2010. Xinhua estimated U.S. military spending at almost $700 billion a year.