She questioned why the Far East country was stockpiling ballistic missiles, submarines and 'new-age, ultramodern aircraft' seemed unjustified when it did not face an outside threat.
'What's with the military buildup?' She said. 'China's military growth can't just be for defensive purposes.'
Speaking to an audience of business leaders and socialites on a rare foreign trip to India, she added she has not ruled out a Presidential run in 2012 and stressed the importance of shared free-market values.
In her New Delhi appearance she warned: 'We're going to need each other, especially as these other regions rise' in an apparent reference to China.
The trip has been seen by some as a way for Palin to improve her foreign affairs credentials - something she was criticised on during the 2008 Presidential elections.
As John McCain's running mate in that election, she was ridiculed after she said 'you can actually see Russia from Alaska' when she asked about her insights into Russian politics.
In today's speech entitled 'My Vision of America' she also said: 'Free people in a free country don't wage war on another country. I want peace on Earth.'
The mother-of-five, who was travelling with husband Todd, told a well-heeled audience of Indian business leaders, professionals and socialites that U.S.-Indian relations were 'key to the future of our world.'
Palin was coy about whether she planned to run for the White House, but did not rule out a possible campaign.
She said: 'I don't think there needs to be a rush to get out there as a declared candidate. It's a life-changing decision.'
She took a swipe at President Barack Obama and what she described as his 'dithering' response to the political upheaval in the Middle East, saying he 'should have done more for Arab protesters.'
Obama visited India in November during a wider Asian tour, affirming the country's growing importance on the global scene.
Palin said the Republican Party's apparatus was at times frustrating to deal with, but said presidents Ronald Reagan and Abraham Lincoln were role models and reasons for why she joined the party.
On her party she said: 'Too often Republicans have the fighting instinct of sheep - they just sit back and take it.
'I'm pretty independent and some players in the Republican hierarchy don't like that.
'I'm so busy I don't have the time to play some of the games these guys want to play.'
Palin is due to travel to Israel next, to meet with right-wing Prime Minister Benjamin Netanyahu.
...would be the stupidest idea yet, right up there with starting a war on terror and starting a war on drugs.