By Ben Blanchard

BEIJING, Jan 20 (Reuters) - China fears it is being contained abroad and threatened by separatist groups at home, a defence white paper said on Tuesday, justifying a continuing drive to increase military spending to upgrade the country's armed forces.

Describing China's general security as "improving", the document wasted little time denouncing those seeking independence for Taiwan, Tibet and the energy-rich western region of Xinjiang, which "pose threats to China's unity and security".

China's rising spending on arms and military modernisation has been criticised by countries including the United States and Japan for its opaqueness. Beijing says its defence budget is purely for defensive purposes and is quite open.

"China is faced with the superiority of developed countries economically, scientifically and technologically, as well as militarily," the 95-page white paper said.

"It also faces strategic manoeuvres and containment from the outside while having to face disruption and sabotage by separatist and hostile forces from the inside.

"The U.S. has increased its strategic attention to and input in the Asia-Pacific region, further consolidating its military alliances, adjusting its military deployments and enhancing its military capabilities."

While it said relations with Taiwan had "taken a significantly positive turn", the paper denounced U.S. arms sales to the island as "causing serious harm to Sino-U.S. relations as well as peace and stability across the Taiwan Strait".

China and Taiwan have faced off since 1949 when Nationalist forces fled to the island after losing the Chinese civil war to the Communists, although ties have improved considerably since Ma Ying-jeou became Taiwan president last year.

Media on the island said on Monday the military was considering cutting its troop strength by as much as a third as ties improve. Taiwan's Ministry of National Defence said on Tuesday the "whole (military adjustment) case is still being studied".

China said its military modernisation would focus on upgrading technology to maintain a "lean and effective deterrent force", a programme it saw being more or less finished by the middle of the century.

The report again defended China's rising military spending, pointing out that it spends less per capita than the United States, Britain, France or Russia and saying it was committed to peaceful development.

Beijing's planned allocation for the People's Liberation Army in 2008 was 417.769 billion yuan ($61.09 billion), up 17.6 percent on 2007. But international experts estimate true defence spending could be as much as triple the stated figure.

The white paper did not give any forward-looking defence budget estimates.

"Although the share of China's defence expenditure in its GDP has increased, its share of state fiscal expenditure has continued to drop on the whole," it said. (Additional reporting by Ralph Jennings in Taipei; Editing by Nick Macfie and Dean Yates)

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