The United States has said it would defend Taiwan if it were attacked by China, and China has said it would invade if the country officially declared its independence.
The 2006 report says that by late 2005, China had deployed some 710-790 mobile short-range ballistic missiles to garrisons opposite Taiwan, and deployment continues to expand at an average rate of about 100 missiles per year.
China has deployed 400,000 ground-force personnel to the three military regions opposite Taiwan, an increase of 25,000 from last year, according to the report.
It has been upgrading these units with tanks, armored personnel carriers, and a substantial increase in the amount of artillery pieces, the report states.
The country has also increased and upgraded its air forces with planes that can fly faster and farther, totaling about 700 aircraft in range of Taiwan, it says.
China's move to increase its influence over Taiwan and the region has been costly. It publicly says its defense budget for 2006 is up 15 percent from last year, spending about $35 billion.