The development comes at a moment when tensions between China and the U.S. are already high, underscored by crucial trade talks that were scheduled to move to Washington on Wednesday.
Railguns use electromagnetic energy instead of gunpowder to propel rounds, and China's is capable of striking a target 124 miles away at speeds of up to 1.6 miles per second, according to the people who have knowledge of the intelligence report. For perspective, a shot fired from Washington could reach Philadelphia in under 90 seconds.
Railguns have long appeared on Russian, Iranian and U.S. military wish lists as cost-effective weapons that give navies the might of a cannon with the range of a precision-guided missile.
The rounds used in China's railgun cost $25,000 to $50,000 each, according to the intelligence assessment. Though not an exact comparison since the weapons have different technologies, the U.S. Navy's Tomahawk cruise missile has an estimated price tag of $1.4 million each.
The U.S. Navy's railgun, which is years away from being operational, remains a classified system still in development under the Office of Naval Research.
China's sprint to develop a weapon of this magnitude, coupled with coastal defense systems, represents a significant addition to Beijing's military arsenal in one of the most contested regions of the world: the South China Sea.
In May, CNBC learned that China quietly installed anti-ship cruise missiles and surface-to-air missile systems on three of its fortified outposts west of the Philippines in the sea, a move that allows Beijing to further project its power in the hotly disputed waters.
Home to more than 200 specks of land, the South China Sea serves as a gateway to global shipping routes where $3.4 trillion of trade passes annually.
The numerous overlapping sovereign claims to islands, reefs and rocks — many of which disappear under high tide — have turned the waters into an armed camp. Beijing holds the lion's share of these features with about 27 outposts.
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