China is building two aircraft carriers as part of a military modernization program that is causing concern among other Asian countries, sources said on Wednesday.

President Hu Jintao has made the navy a keystone of China's defense upgrade and the carriers will be among the most visible signs of its rising military prowess.

China is ramping up its military spending as the United States considers cutting its defense budget, although Washington still far outspends China on security and is much more technologically advanced.

"Two aircraft carriers are being built at the Jiangnan shipyard in Shanghai," one source with ties to China's Communist Party leadership told Reuters, requesting anonymity because he was not authorized to talk about the program.

The Defense Ministry has confirmed the existence of one carrier, a former Soviet vessel which was bought from Ukraine in 1998 and was once destined to become a floating casino.

That will be used for training and research purposes, ministry spokesman Geng Yansheng said, seeking to reassure other countries that China would stick to its defensive military policy.

But he said it had a right to protect its extensive maritime territory and coast.

"This is the sacred responsibility of China's armed forces," Geng said in a statement.

"Building a carrier is extremely complex. We are currently refitting an old aircraft carrier, to be used for research and testing."

"An aircraft carrier is a weapons platform; it can be used for offensive or defensive purposes. It can also be used to maintain global peace and for rescue and relief work," he added.

Geng gave no timetable for starting sea trials but said pilots were being trained to operate from the carrier.

Sources with ties to the Communist Party and the military said that the ship would likely be based in the southern island province of Hainan, which sits atop the trade lanes of the sensitive South China Sea.

China has been flexing its muscles more aggressively in those waters, where a territorial dispute with Taiwan and several nearby countries, including Vietnam and the Philippines, has festered for years.

Geng said the timing "had nothing to do" with the tension there though the message will be clear to many in Asia.

"China can now project its power to even further away from its coastline," said Alexander Huang, professor of strategic studies at Taiwan's Tamkang University.

"That will have significant security implications to forces operating in the Western Pacific, including the U.S., Japan and Australia, so this is a watershed development."

The carrier will add to regional concerns about China's military modernization and arms build-up. Defense spending is rising fast and Beijing continues to test new high-tech equipment, including a stealth fighter.

"China's next moves have to be watched carefully, or there eventually could be a negative impact on maritime safety in Asia," said Yoshihiko Yamada, a professor at Japan's Tokai University.

Xinhua news agency said it was the first time the government had confirmed it was pursuing a carrier program.


The old Soviet carrier's refitting has been one of China's worst-kept military secrets. Pictures of it sitting in Dalian harbor have circulated on Chinese websites for months, and it has been widely discussed in state media.

China would be the third Asian country to have a carrier after India and Thailand but it will take time before it can go to sea in Asian waters that have largely been the domain of the U.S. Navy since World War Two.

"It will be a long while before China develops a fully-fledged carrier capability, it will take a long time to train the necessary crews... it may be up to decade until China has carrier capability," said Tim Huxley, director for defense and military analysis at the International Institute for Strategic Studies in Singapore.

For Beijing, the rationale of an aircraft carrier is more than just about modernizing a navy whose most notable engagements of the past few years have been skirmishes in the South China Sea with some of the other claimant nations.

Sending naval vessels further afield, to the waters off Somalia to fight pirates, and through the southern Japanese islands, has also partly been about ensuring trade routes are protected.

China frets about the powerful U.S. military presence close to its shores, in particular U.S. bases in Japan and South Korea, and Washington's close but unofficial ties with Taiwan, the self-ruled island Beijing claims as its own.

"Aircraft carriers are essential for China primarily to defend its territory and territorial waters and bring a semblance of parity among the world's big powers," Wang Baokun, a defense studies professor at Beijing's Renmin University, wrote in the China Daily earlier this month.