At the very least, the world's most populous country should spend in proportion to the U.S., or roughly 3 percent of GDP for defense expenditures, he said at the World Economic Forum's "Summer Davos" meeting in Dalian, China.
That could bump China's total military spending could approach $500 billion, according to some estimates. There isn't an internationally recognized standard for reporting defense spending, so China's official figures sometimes differ from outside estimates. Last year, Beijing said its budget was roughly $147 billion, whereas the Stockholm International Peace Research Institute estimated China spent $226 billion.
Whatever the figure may be, China's defense spending is closely watched — it's one way to glean some insight into the country's strategic intentions, especially as tensions have flared over regional territorial disputes and neighboring North Korea has makes headlines as a nuclear hot potato.
"Military provides security for your country — that's why you need to spend the money," Yan said, noting that China shouldn't shy away from foreign defense contracts as getting the right technology is key. Plus, he pointed out that China's overall spending is still a fraction of the $600 billion the U.S. spent last year, according to SIPRI, which maintains a military spending database.
Although China's defense spending has risen more slowly in the last few years, some experts say it's frivolous given the challenges in its domestic economy.
Su Ge, president of the China Institute of International Studies, pointed out that national security also includes economic security, saying it's necessary "to build up a country's economy [and] raise people's living standards."
It shouldn't necessarily be at the expense of physical security, but some experts, like Su, interpret the idea of shoring up the country more broadly.
He also said that while the U.S. and China appear to have different ideas on how to handle the rising nuclear threat with North Korea, the two sides shared an important interest in denuclearization. "Both want stability, peace in the region," Su said.
And to achieve that, one of the obvious solutions is to confer early — to have early talks to prevent conflicts from occurring in the first place, Yan said.
See more of CNBC's World Economic Forum "Summer Davos" coverage here.