"I heard that there's going to be a 14 percent increase in the Chinese defense budget. That's a lot," Rice said during a diplomatic visit to Australia, a country with broadening economic ties to China.
"China should undertake to be transparent about what that means," Rice said following a meeting with Australian Foreign Minister Alexander Downer.
China's parliament on Friday approved a 14.7 percent increase in its annual military budget to $35 billion. The Beijing government said the money would go toward salaries, new equipment, training and higher fuel costs.
Rice's visit to Australia will include three-way talks among the United States, Australia and Japan. China is the main topic for those discussions.
Australia's government and business leaders often take a less guarded view of China's rapid rise as a political, military and economic force in the Pacific and beyond. Downer, however, sought to downplay any differences.
"We've never had a concern that the United States is pursuing a policy of containment with China," Downer said.
Although she noted U.S.-Chinese cooperation on international problems such as the nuclear ambitions of North Korea and Iran, Rice ticked off a list of U.S. complaints about Chinese behavior.
"It's economy needs to continue to open, it needs to pay attention to intellectual property rights, it needs to pay attention to the effect of not having at this point a currency that is market based," Rice said, adding that much of the country's economy is still controlled by the state.
"There are reasons to be concerned about whether that really reflects an open trading policy," Rice said.
Rice also said the United States' landmark nuclear energy agreement with India strengthened global security.
The deal will open most of India's reactors to international inspections and provide the nation with U.S. nuclear technology. Subject to U.S. congressional approval, the United States will share its nuclear know-how and fuel with India to help power its fast-growing economy.
"Everyone understands a growing economy like India needs energy supply, and civil nuclear energy is clean, it protects the environment, it can be plentiful," Rice said.
The U.S. secretary declined to say whether she thinks Australia should supply uranium to India. Australia has welcomed the deal, but said it will not change its policy of blocking sales to countries that fail to sign the Nuclear Nonproliferation Treaty.
Later Thursday, Rice defended the U.S.-led invasion of Iraq and other Bush administration policies since the Sept. 11, 2001, terror attacks that are broadly unpopular in Australia and much of the rest of the world.
"We have no desire to be the world's jailer," she said in response to a university student's question about whether the U.S.-run Guantanamo Bay military prison in Cuba undermines U.S. moral authority around the world. "We would be more than pleased if we had some other way to deal with dangerous people, but I can guarantee you the day they're let out on the street and commit another crime the question will be quite different."
Rice was twice shouted down by anti-war protesters as she spoke to students from several Australian universities gathered at Sydney University's music school.
"Condoleezza Rice, you're a war criminal," a young man shouted minutes after Rice began her address. "Iraqi blood is on your hands and you can't wash that blood away," he repeated until guards led him away.
Rice drew applause with her response: "I'm glad to see that democracy is well and alive at the university," she said, adding that democracy is now also alive at universities in Kabul, Afghanistan and Baghdad, Iraq.
A second protester stood later and yelled that Rice is a murderer.
Rice's remarks echoed President Bush's defense of U.S. policy in Iraq this week, as the third anniversary of the U.S. invasion approaches.
A day before Rice arrived, Australia said it would keep troops in Iraq at least well into next year and announced a larger mission for about 450 troops now stationed in southern Iraq.