According to studies by Chinese officers, this training edge gives the American troops a major advantage in combat. To counter this, China is trying to develop tactics and techniques that will catch the Americans by surprise and exploit American weaknesses. The most obvious one is the Chinese Cyber War effort, which is extensive and growing. But China is also equipping about a quarter of their troops with modern gear, and training these troops hard, in the American style.
Thus if there ever were a war between China and the U.S., American forces would encounter some Chinese troops trained and equipped to offer some real resistance. And the Chinese hope that their "surprise weapons" will give China the edge.
August 1, 2006: China appears to be inflicting considerable damage on Taiwanese spy networks in China. In the past year, over half a dozen prominent Chinese have been arrested for spying, and one, the first since 1999, was executed for it. Normally, the Chinese like to keep captured spies alive. In this way, there's always the chance you'll get more information out of them, or be able to trade them for one of your own captured spies. However, some commentators in Taiwan see the increased number of captured spies as an indication of the growth of Taiwan's spy network within China. Taiwanese business interests inside China have grown enormously (billions of dollars worth a year) and that has provided new opportunities to recruit new people. It will be a generation or more before anyone knows what is actually happening here.
July 21, 2006: Taiwan held a major anti-invasion exercise, involving over 20,000 troops, plus dozens of warships and aircraft. Taiwan also believes the Chinese have some unconventional tactics in mind as well, like Cyber War attacks, and attempts to take out most of the Taiwanese senior leadership with ballistic missile and commando attacks.
China is increasing its official defense budget to $35 billion a year. Because of differences in how costs are accounted for, actual defense spending (by U.S. standards) is believed to be closer to $60 billion. That's still only about 15 percent of what the United States spends, and for nearly twice as many active duty troops. But the U.S. reserves are very well trained and organized (and the Chinese reserves are not), so the number of trained troops each country have is about equal (2.3 million in China, 2.4 million in the U.S.). About half the additional American defense spending goes to the troops, who have a much higher standard of living than their Chinese counterparts. But the rest, nearly $200 billion, goes to buying and maintaining superior weapons and equipment, and paying to use it in training.