The report points out that the People's Liberation Army has quickly expanded out its bombing areas over the ocean.
The Pentagon report said that despite a projected slowdown in economic growth, China's official defense budget would be more than $240 billion by 2028.
"The deployment and integration of nuclear capable bombers would, for the first time, provide China with a nuclear "triad" of delivery systems dispersed across land, sea, and air", the report said.
The report also points to China developing "increasingly advance military capabilities meant to coerce Taiwan" in an attempt to maintain its "one China" policy.
"Over the last three years, the [People's Liberation Army] has rapidly expanded its overwater bomber operating areas, gaining experience in critical maritime regions and likely training for strikes against USA and allied targets", the report says.
But earlier this year the Chinese air force landed bombers on islands and reefs there as part of training.
Pentagon's report says: "The goal of these reforms is to create a more mobile, modular, lethal ground force capable of being the core of joint operations".
In the meantime, President Donald Trump has ended joint military exercises between the United States and South Korea, a move that both China and Russian Federation have been demanding for years.
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Referring to imprisoned pastor Andrew Brunson , Trump said "they have a great Christian pastor there, he's a very innocent man". The crisis has been precipitated by investor alarm about President Tayyip Erdogan's influence over monetary policy.
The US is watching Chinese activities carefully as China's power grows in what the Pentagon argues is an era of renewed "great power competition".
China has not yet commented on the report.
"US military aircraft, this is China. leave immediately and keep out to avoid any misunderstanding", a representative of the PLA said.
Beijing's been spreading its influence for years in disputed areas of the South China Sea.
The increased military spending and focus on specialized airstrikes come as China and the US struggle to resolve diplomatic tensions over trade, reports CNBC.
This year's report reiterates that China will seek to establish new bases in such countries.
The US military regularly seeks to demonstrate freedom of navigation by flying over the South China Sea.
The document also shines a light on China's ongoing military preparations for a "contingency" in the Taiwan Strait. A report from the Pentagon now claims the country is "likely" training pilots for missions that would directly target the United States.
An article published by the Sina military channel yesterday said that the artillery deployed in the drills were PLL-09, a Chinese 122-millimeter self-propelled howitzer.