Rumors that China was planning to make further cuts in it's military manpower, in order to free up more money for modernization, have proved to be true. The Chinese government announced that military manpower would be cut  eight percent, to 2.3 million, over the next two years. This comes at the same time that China has increased its official defense budget to $20 billion (a 17.5 percent increase from last year.) Moreover, the United States Department of Defense insists that the Chinese are using the same deceptive military budgeting techniques the Soviet Union long used. The Department of Defense believes that the real Chinese defense spending is closer to $60 billion a year. Even so, a lot of that money goes towards maintaining old technology warplanes, ships and armored vehicles. The Chinese are known to carefully examine U.S. combat operations, and write about it in their professional military journals. After watching what U.S. (and Western) armed forces did in 1991, 1999 (Kosovo), 2001 (Afghanistan) and 2003, they appear to have concluded that their older weapons will serve mainly as targets if they ever go to war with the United States (or Japan, or South Korea). The Chinese think in terms of decades, and apparently believe that in 20-30 years they can build an armed force that could confront the United States on somewhat even terms. They have a long way to go. Only about five percent of their warplanes are modern, the rest are technology that is 20-30 years old. Same with their navy and army.