Peston:　 Joining me now is the Chinese Ambassador to the UK, Liu Xiaoming. Ambassador, I think of China as this fast modernizing country, enriching country. But we've seen this extraordinary military display today, which takes some of us back to the era of Mao. Is this China again sending a sort of message to the world that, you know, you are fierce and dangerous?

Ambassador Liu:  I think the impression you had is not correct. In fact, the message is loud and clear, that is peace. Peace was hard won and peace should be cherished and maintained. And China will make its due contribution to maintaining world peace and regional stability. You know, in his ten minutes of speech, President Xi Jinping used the word "peace" for 18 times. So, that's the message.

Peston:　 So these gunboats that sailed off the coast of Alaska when President Obama was there today, was that just a sort of accident?
Ambassador Liu:  I think we are talking about this commemoration first, then I'll come back to this naval fleet. When I say peace was hard won, not many people, especially in the West realize how much sacrifice China has made for the war against Japanese aggression. In fact the war, the Second World War, started in China, started earliest, lasted longest, and China suffered the largest casualties. We pay the price of 35 million casualties, and that is the most among all the sufferings of the world in Second World War. It's about one third of the casualties of the world. And so Chinese people see this 70th anniversary as a big occasion for us to celebrate the victory, to honor the fallen soldiers who, you know, sacrificed for their motherland.

Peston:　 But this peace require defend spending to go up this extraordinary way, 12% last year, 10% this year? Enormous money you're spending.
Ambassador Liu:  You have to remember that China is a large country. China, you know, in term of territory, it's about 40 times of UK. In terms of population, it's about 20 times. Yet in terms of per capita military expenditure, China is only 1/22 of the United States, and 1/9 of Britain. And also in terms of proportion of expenditure with regard to GDP, the growth is decreasing. This year, in fact, is the lowest of the past 5 years. And you know China is, I said, is a large country to defend, the Chinese military has a lot of commitments.

Peston:　 I think it's the share of the GDP that's actually gone up a bit, given the rapid growth of the economy. But you talk about obviously your desire of stability. What do you think when you hear the leading Republican Presidential Candidate Donald Tramp talking about how he thinks that Chinese want Americans to starve?
Ambassador Liu:  I don't think it represents the majority view in United States. You know, you always have some voice, but I don't think….
Peston:　 But if he became president, how serious would that be?
Ambassador Liu:  I think it's a very hypothetic question. I do not know how you would answer that. But I certainly will not answer this hypothetic question. But I can assure you that we want to have good relations with United States. And you mention in your film before this interview, that China wants to challenge the dominance of the United States, and even want to challenge the US leadership. That is not our position, not our intention at all. I think in China, we have a lot of challenges to deal with in our domestic development, and we have no intention to challenge US dominance. And we believe that the US and China should be good partners in the Asia-Pacific region.

Peston:　 Now is this display of military strength a distraction from the slowdown in the Chinese economy which many economists think is quite serious?
Ambassador Liu:  I think China's economic difficulties have been exaggerated by Western observers. I think we have some difficulty, challenges, that's for sure. But they are the natural outcome…
Peston:　 Five trillion dollars lost of the Chinese stock market. Is that trivial?
Ambassador Liu:  No. I think stock market has its own rule of game. You know goes up and downs, like in the United States, in stock market. We have to focus on the big picture of China. I think the basics and fundamentals of the Chinese economy still good and sound. We achieved 7% increase for the first half of this year. That 7% increase is about the same size of the total GDP of this 20th largest economy of Switzerland.

Peston:　 And very briefly, your president has said he wants modernized economy and see markets liberalized. A really important part of free markets is that people should be free to say whatever they like about those markets. Now journalists, hedge firm manager have been arrested for allegedly scaremongering about the stock market. To us in the west, that is very shocking.

Ambassador Liu:  I think Chinese people enjoy, you know, freedom of speech. The cases you have mentioned are those who involve in violation of law. You know, China is a country ruled by law. And…
Peston:　 But I said much scarier thing about British markets than they said about Chinese market. Do you think the British Government should arrest me?
Ambassador Liu:  No. It's not only about the mad comment about the market. It's also about, you know, making…sending the rumors, causing disturbances in the market. And you know, China and Britain are run by different rules of game. And maybe in some of the cases in Britain, it's not a violation of criminal law. But in China, you know, it constitutes a wrong-doings. So they have to be held accountable for their wrong-doings.

Peston:　 Ambassador, many thanks!
Ambassador Liu:  Thank you for having me.
Peston:　 Pleasure.

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Newsnight is a popular BBC 2 current affairs programme which specialises in indepth analysis and robust cross-examination of senior politicians.