Since Xi Jinping took over as China’s president last year, his administration has struggled to resolve an inherent contradiction between the country’s “peaceful rise” and its growing military capabilities. Xi has continued to sound themes of peaceful development. But Chinese foreign policy has also entered an era of greater assertiveness on territorial issues.

Early signs of these new approaches have been unfolding in the waters around China to the east and the south. The Philippines and Vietnam have grown more and more resentful of China’s increased capabilities in the South China Sea. Last month, the Philippine armed forces claimed that Chinese Coast Guard ships used water cannons to drive Philippine fishing vessels away from the Scarborough Shoal in the South China Sea. China has laid claim to a large portion of this body of water, but so have a number of other countries—including the Philippines, Vietnam, and Malaysia. Even though these cannons are hardly proof of the Chinese Navy’s full potential, they still indicate its willingness to back up its territorial claims with force. A more recent clash between China and Vietnam over an oilrig in the South China Sea has only ratcheted up tensions in the region.

Until recently, China’s weak navy and inability to project power over long distances has been its Achilles’ heel. According to Prime Minister Le Keqiang, the People’s Liberation Army (PLA) is working to obtain high-technology weapons to improve its coastal and air defense systems. These include anti-satellite missiles, cyber warfare capabilities, anti-ship ballistic missiles, upgraded strategic nuclear forces, and other high-tech arms designed to deny the United States access to regions that China considers part of its sphere of influence.

China’s emphasis on modernizing its naval armaments in order to redefine maritime sovereignty in the South China Sea is part of a larger effort to transform the country’s entire military posture. While its budget remains significantly lower than Washington’s, China has vigorously ramped up spending on its military—from $139.2 to $188 billion in one year’s time. Even though the PLA’s budget is only 2 percent of China’s GDP—versus the current U.S. figure of 4.4 percent—the sudden rise has caused considerable tensions across the region.

Reasons for the Upgrade

China’s military upgrade serves several purposes. It safeguards its national security. It reinforces the country’s reputation as an emerging economic power. And it spurs on Chinese nationalism, dispelling any lingering sense of weakness. The Chinese government is acutely aware that the country has left behind the “century of humiliation” when Western powers dictated the country’s course. “Ours will no longer be a nation subject to insult and humiliation,” Mao Zedong famously said. “We have stood up.” Participating in the international order, China has emphasized its non-interventionist foreign policy even as it continues to defend its territorial integrity.

China’s increased levels of military spending, however, have helped to spur a regional arms race, as other East Asian nations try to balance China’s military potential. For the first time in modern history, Asia’s military spending is poised to overtake Europe’s. East Asia’s military spending in 2013 alone equaled $282 billion, surpassing the Middle East ($150 billion), South America ($67 billion), and Africa ($45 billion). A large portion of the East Asian total is made up of Chinese spending. However, many analysts have been skeptical about these numbers, arguing that Chinese spending in 2013 was much higher than reported, putting it well over $200 billion. Although the United States has publicly disclosed many of its expenditures and provided breakdowns of its ostensible military goals in documents such as the Quadrennial Defense Review, the Chinese have opted to remain opaque in this aspect.

The PRC’s indirectness is both a “weapon of the weak” and a means to maintain harmony. “Hide one’s light and bide one’s time” Deng Xiaoping famously said of the Chinese code of conduct. But the country’s secretive and fast-paced modernization has alarmed the international community and jeopardized military-to-military relations, creating distrust and unnecessary tensions. With the Pentagon looking at budget cuts in the near future, some officials from the Department of Defense are worried about the narrowing spending gap between these two giants.

Many Western analysts assume that China’s military modernization anticipates a more aggressive stance. “China will necessarily instigate a period of power transition,” writes John Mearsheimer. “Anyone looking to determine China’s future intentions by observing its military is likely to conclude that Beijing is bent on aggression.”

But others believe that China is increasing its spending for cultural as well as historical reasons—including a desire not to be subjugated by outside powers, a belief in the importance of accumulating both wealth and power, and a Confucian preference for harmony. From this point of view, China wants to boost its international prestige with a greater military presence in the Asia-Pacific not for aggressive purposes but as a defense against bullying and intervention, which it experienced frequently during the 19th and 20th centuries.

Nonetheless, the Chinese rise has also created unintended consequences that could further elevate hostilities in the region. “How can you keep it clean when you have always been a victim?” wonders Orville Schell. Minor confrontations with the Philippines and Vietnam could turn into something more serious. These security concerns have driven the United States and the smaller countries of Southeast Asia much closer together.

Trouble with Taiwan

Even though Taiwan and the PRC are negotiating a wide range of new cross-strait agreements, the tensions can be felt there as well. The Department of Defense believes that China has more than 1,600 high-precision Dong Feng-12 (DF-12) short-range ballistic missiles pointed at Taiwan. Ongoing tensions have provoked the Taiwanese military to simulate counterattack drills against potential incursions from the mainland. The United States has responded by providing military support and armaments such as the AH-64E Apache attack helicopter and the P-3C anti-submarine aircraft. Meanwhile, the PLA has ramped up its tactical drills in order to maintain a good posture.

China has the largest standing army and the highest military spending in Asia. But a rising military budget does not always reflect a country’s true power projection capabilities. The PLA notoriously prefers quantity over quality, and the Chinese military as a whole remains technologically antiquated in comparison to other regional armed forces. Although Japanese military spending barely reaches the $48 billion mark, for example, it still has a much more advanced navy than anything China currently fields.

Nonetheless, for its claims of a “peaceful rise” to remain plausible, China must do more to make its military budget more transparent. It must also resort to diplomacy, rather than confrontation, in its territorial disputes with neighbors. The ambiguity of China’s ultimate intentions has stimulated an arms race in the region and strengthened U.S. resolve to contain the rising hegemon. With relations around the South China Sea anything but harmonious, China can still reverse course before all the parties concerned find themselves backed against the wall.

Piero Sarmiento is a contributor to Foreign Policy In Focus.