Taiwan has cut its defense spending 6.7 percent, to $12.9 billion a year. This is apparently the result of a two year effort to improve relations with China. Two years ago, increasingly anxious about China's military buildup, Taiwan boosted its defense spending by about 15 percent last year (to $10.5 billion). At that point, China was spending over five times as much on defense, to support about two million troops. The Chinese defense spending continues to rise.
Taiwan has only 350,000 troops, and a population of 23 million, compared to 1.4 billion on the mainland. Taiwans's GPD is $650 billion, compared to nearly $3 trillion for China. Thus the per capita income of Taiwan is more than ten times that of the mainland. Taiwans' military is based on the American model, with an emphasis on quality. China based its military on the Soviet model (where quantity has a quality all its own), although for decades the emphasis was on mobilizing a huge force of guerillas. Now China is trying to develop a force that can fight on Western terms (high tech operated by well trained troops.)
While many Taiwanese still see the United States as the ultimate guarantor of Taiwanese independence, they see China as increasingly capable of grabbing the island before the U.S. can intervene. So while the Taiwanese don't have to be strong enough to defeat a Chinese invasion, they do have to be strong enough to hold the Chinese back until American reinforcements can show up. Many Taiwanese believe in a third option; building enough commercial and personal relationships with China that war will seem, well, impolite.