China's new defense budget, released last week, provides penetrating insight into the mind-set and priorities of the Beijing leadership at the dawn of the 21st century. It is not a particularly encouraging picture. The double-digit increases in defense spending indicate that the Chinese government sees its military playing a vital role in the future. That does not augur well for peace, stability and prosperity in Asia.

According to the budget, China will boost defense spending 17.7 percent this year, the largest increase in two decades. Although military spending has been climbing steadily since 1989, this year's boost is even more significant as China has no inflation, which erodes the buying power of new funds. Given the government's concern over the growing budget deficit, the generosity to the military is a troubling indication of Chinese priorities.

According to Finance Minister Xiang Huaicheng, the funds will go to raise military salaries. China's booming economy has hurt the military, as the private sector now has more allure than a career in the armed forces. The edict that forced the military to drop many of its businesses may refocus the People's Liberation Army on defense, but the PLA was also deprived of a crucial source of revenue. The new budget is intended to fend off the brain drain by making the services more competitive.