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Zhang said China's military budget for 2007 increased by 17.8 percent. Almost half of the US$44.9 billion budget will be used to raise soldiers' salaries and pensions, he said.

He said some of the extra money will be used to buy new uniforms, and the rest to set up more military schools.

Gates later said Zhang's speech was "very matter of fact," and dealt "fairly directly with the issues before us."

"There has clearly been greater transparency on the part of the Chinese," Gates said.

He said the hot line would provide a "direct linkage so if there were an incident or if something were to happen there could be direct contact and people could understand exactly what was going on.

"So I see it as another step forward in the further development of the relationship," he said.

In his speech, Gates also urged Asian nations to do more to defeat global terrorism.

"We have not made enough progress on trying to address some of the root causes of terrorism," Gates said. "The danger remains very great."

On the Iranian nuclear issue, Gates said American intelligence believes Tehran can develop a nuclear device at the latest by 2015, although some think it can happen as early as next year.

But because of Iran's secretive program, "we really don't know" when they will have a bomb, he said. In light of the uncertainty, "it puts a higher premium on the international community coming together in terms of strengthening sanctions," he said.

"Having to take care of this problem militarily is in no one's interest," he said.

In another speech, South Korean Defense Minister Kim Jang-soo counseled patience in stalled talks on the North's nuclear activities, but said its humanitarian aid to the North would depend on Pyongyang's progress toward shutting down its atomic programs.

"The process of denuclearizing the Korean peninsula will only succeed when all parties to the talks adopt a patient and mutually cooperative posture," he said.  

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