Late last month in Shanghai, a top Chinese businessman gave me and three other visiting journalists as clear a distillation as any of Beijing’s attitude toward the United States. “The U.S. wants to dominate the world, China only wants to keep America from dominating its neighborhood,” said Eric Li, a prominent Stanford- and Berkeley-educated political scientist and venture capitalist.  
Li’s comment was offered less as an argument than a statement of fact, one we heard again and again, in various forms, from a wide variety of Chinese sources—ranging from senior military, foreign affairs and business officials down to provincial bosses and journalism students—during our 10-day visit. All of which would have been merely an interesting, if worrisome, collection of anecdotes to bring home had not both Beijing and Washington ratcheted up their bellicose statements in the past few days over who has rights to what in the South China Sea.
The most recent rhetorical artillery exchanges began in September when Admiral Harry Harris, head of the U.S. Pacific Command, told the Senate Armed Services Committee he favored sending U.S. warships and aircraft to the South China Sea in a challenge to Beijing’s territorial claims to artificial islands in the region. Then this week, anonymous “defense officials” doubled down on U.S. intentions, saying the Obama administration was considering “freedom of navigation operations,” which, according to Reuters, would “have American ships and aircraft venture within 12 nautical miles of at least some artificial islands built by Beijing.” And the Navy “will do so,“ said a spokesman, Commander William Marks, “at a time of our choosing.”
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Such swagger drew a heated rebuke from China, further raising the potential of a Sino-American military clash in the South China Sea, swatches of which are also claimed by the Philippines, Vietnam, Taiwan, Brunei and Malaysia. Beijing and Tokyo are also butting heads over competing territorial claims in the East China Sea. "We will never allow any country to violate China's territorial waters and airspace in the Spratly Islands, in the name of protecting freedom of navigation and overflight," Foreign Ministry spokeswoman Hua Chunying said in response to a question about possible U.S. patrols. "We urge the related parties not to take any provocative actions, and genuinely take a responsible stance on regional peace and stability.”
Such exchanges appear to be moving China and the U.S. toward a much feared, yet long expected, military confrontation. Just as unsettling, both sides seem confident they can prevail. The conversations we had in Beijing and Shanghai late last month suggested that China is confident, perhaps overly so, that it can triumph in a standoff with the world’s leading, nuclear-armed superpower, at least as long as it’s confined to its own neighborhood.
“There are 209 land features still unoccupied in the South China Sea and we could seize them all,” a senior Chinese military official said bluntly, on a not-for-attribution basis so that she could “speak frankly.” “And we could build on them in 18 months.”
To her and other Chinese officials, Washington’s deployment of F-22 stealth fighters and the nuclear supercarrier USS Ronald Reagan to Japan over the summer revealed aggressive American designs on the region—but nothing China couldn’t handle.
“America is punching above its weight,” offered Li, the venture capitalist, referring to the financial strains of maintaining and deploying U.S. forces around the globe while its national debt and domestic entitlements soar. “So for every $100 the U.S. spends, China may only need to spend $1 to make it even.
“China's ambitions are much more modest compared with its national strength,” he continued, “so China is punching below its weight”—and could punch higher given the right circumstances. “Although America is much more powerful than China, it costs much more to build aircraft carrier groups and operate them than [for us] to make deterrent [weapons] to keep them away.”
When Chinese officials look at the map, they smile. They see American forces deployed far beyond their own shores—a geopolitical weakness. “The South China Sea has been Chinese for 900 years, since ancient times,” a senior official at China’s oldest foreign policy think tank said during a background briefing in Shanghai. It’s a sentiment shared from the top of the government down to ordinary citizens, it seems, stoked relentlessly by President Xi Jinping and China’s state-controlled media.
For the past 175 years, China was weak and couldn’t do much about foreign invasions and encroachments. But now it can. Beijing’s new anti-ship missiles alone, boldly rolled out in last month’s Tiananmen Square military parade marking the 1945 defeat of Japan (for which the U.S. got but slight credit), are testament to that.
But in the Chinese view, Beijing has already practically won the battle for the South China Sea without firing a shot. Its swift moves to swallow up islands and reefs over the past year looked like an exercise right out of Sun Tzu’s The Art of War, which has been closely studied by Chinese emperors and communist leaders alike, for centuries. “Ultimate excellence lies not in winning every battle,”  the legendary strategist is credited with saying, “but in defeating the enemy without ever fighting.”  
Bill Bishop, a leading China expert and publisher of the influential Sinocism newsletter, who recently left Beijing after several years there, is deeply worried about China’s rising nationalism and muscle-flexing. "People shouldn't underestimate the risks," he said in a Newsweek interview. "It's not just the government making it up. The South China Sea is an intractable issue. It's not just the party line.” Another factor in Beijing’s military buildup is the immense profits being earned by China’s state-run arms industries, he says, most with incestuous connections to the Communist Party and People’s Liberation Army elite.
Fluent in Chinese and a former CEO of Red Mushroom Studios, a Beijing-based developer and operator of online games, Bishop predicts Xi Jinping “will keep pushing” in the South China Sea. “They think Obama is distracted and doesn't want another crisis," he said. If Obama does propel the Navy into harm’s way, as he seemed on the verge of doing this week, "It's going to be interesting."
Or hair-raising. Such was the case in 2010, when a Chinese fishing trawler intentionally rammed two Japan Coast Guard vessels in disputed territories in the East China Sea. On the brink of a wider conflict, both sides calmed down and negotiated protocols to avoid further clashes. Likewise, Xi and Obama worked out arrangements at their Washington summit to avoid clashes between U.S. and Chinese military aircraft over the South China Sea. But that may have just been a delaying tactic. Back in the East China Sea, China is worrying Japan again with the creation of a Coast Guard fleet, construction of big new surveillance ships and reported plans to build two bases close to the disputed Senkaku Islands.
"Nobody wants a conflict,” Bishop said, “but it doesn't seem like this is going to be a happy place for a long time.”
A rare note of caution on the Chinese side was sounded by the Shanghai think tank official, who is the author of several books on modern Sino-U.S. relations. "My advice to the Chinese government is not to make it worse,” he told the visiting reporters. “Wait for time for it to be solved.”
A short-term triumph over the United States (or Japan, or Vietnam or the Philippines), he suggested, could turn into a long-term setback for China.
"Some would say,” he said, leaning forward with a slight smile, “we picked up the seeds but lost the watermelon."