"The defense budget's steady decline as a percentage of total government spending increasingly will challenge Taiwan's force modernization," it said.
Taiwan's army "still has major shortcomings as a fighting force," the report said. Despite its strengths, the navy's operations are not well integrated with the army's or air force's and suffers from an inability to conduct multiple missions at the same time. While air force personnel are "highly professional and hard-working," the report says they are overworked and some key pilot training is lacking.
Over the past year, the Pentagon notes, Beijing has toned down its Taiwan rhetoric, stressing its readiness to boost cross-strait ties.
The approach suggests that China wants "to appear to be the party willing to negotiate and to court public opinion in Taiwan, without making substantive compromises" in its Taiwan policy.
"Debate in Beijing over the more coercive options may wane in the run-up to [President] Chen [Shui-bian (
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