Defense officials said China was emphasizing a "surprise, deception and shock" doctrine in its campaign against Taiwan, which Beijing considers a renegade province.
"Preparing for a potential conflict in the Taiwan Strait is the primary driver for China's military modernization," the Pentagon said in its annual evaluation of China's military.
While focusing on Taiwan, China is developing weapons systems that would impede U.S. intervention on behalf of the island in any future conflict, the report found.
"Beijing apparently believes that the United States poses a significant long-term challenge. China's leaders have asserted that the United States seeks to maintain a dominant geostrategic position by containing the growth of Chinese power, ultimately 'dividing' and 'Westernizing' China," the report said.
The Chinese Foreign Ministry in Beijing had no immediate comment on the report.
China has about 450 short-range ballistic missiles but is expected to increase its inventory by more than 75 missiles each year, defense officials reported. Last year, the Pentagon estimated that China's military had acquired 350 ballistic missiles and was adding at a rate of 50 a year.
The annual report is required by Congress to help keep lawmakers apprised of Beijing's military strategy.
According to this year's report, China has amassed missiles more sophisticated and accurate than before, with its army developing longer-range models of the CSS-6 missile capable of reaching as far as Okinawa, Japan, where U.S. Marines are based.
China also is spending far more on its defense budget than it has acknowledged.
U.S. officials estimate the military budget that Beijing announced as $20 billion early last year actually falls between $45 billion and $65 billion, and the report noted a potential for annual spending to increase three or four times by 2020.
Taiwan split from the mainland in 1949 after Nationalist Chinese leaders fled there following the communist victory in China. Beijing has expressed a desire for a peaceful resolution of the reunification dispute but also has threatened to retake the island by force if necessary. U.S. policy is to help Taiwan maintain a defense capability, but Washington does not favor Taiwanese independence.
Derek Mitchell, a former Pentagon official and now a Southeast Asia expert at the Center for Strategic and International Studies in Washington, said there was nothing surprising about this year's report.
"The overall concern registered about an increasing threat to Taiwan and of the increasing tension of the Chinese to realistic scenarios that include the United States are simply more of the same of what we have been concerned about for several years, including in the Clinton administration when these reports first started," he said.
The Pentagon report also highlights China's acquisition of Russian-made submarines that could be used to cut off sea access to Taiwan and threaten American forces that might respond. China bought $2 billion worth of weapons from Russia, at least double its annual procurement from Moscow over the previous decade, according to the report.
"China's force modernization program is heavily reliant upon assistance from Russia and other states of the former Soviet Union," the report said. "China hopes to fill short-term gaps in capabilities by significantly expanding its procurement of Russian weapon systems and technical assistance over the next several years."
The report also found that Beijing may have acquired high-energy laser equipment that could be used to develop anti-satellite weapons, or devices to jam satellite-guided munitions.