The pace and scope of China's military modernisation could create "misunderstanding and instability" in the Asia-Pacific region, Australia has warned in one of Canberra's toughest public statements yet on Beijing's growing strategic ambitions.

In a defence policy blueprint released yesterday by John Howard, the prime minister, Canberra highlights Australia's strengthening military ties with Japan and warns that the strategic competition be-tween the US and China needs to be carefully managed for the good of the Asia-Pacific region.