China's territorial claims in the South China Sea are destabilising the region, and its failure to resolve disputes with other nations threatens East Asia's long-term progress, Hagel said.
For the second year in a row, Hagel used the podium at the Shangri-La conference to call out China for cyberspying against the US While this has been a persistent complaint by the US, his remark came less than two weeks after the US charged five Chinese military officers with hacking into American companies to steal trade secrets.
Noting the suspension, Hagel in his speech said the US will continue to raise cyber issues with the Chinese, "because dialogue is essential for reducing the risk of miscalculation and escalation in cyberspace."
In a string of remarks aimed directly at China, Hagel said the US opposes any nation's use of intimidation or threat of force to assert territorial claims.
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"All nations of the region, including China, have a choice: to unite, and recommit to a stable regional order, or, to walk away from that commitment and risk the peace and security that has benefited millions of people throughout the Asia-Pacific, and billions of people around the world," he said.
The US has declined to take sides on the sovereignty issue but has made clear it has a treaty obligation to support Japan. And the US has also refused to recognise China's declaration of an air defense zone over a large swath of the East China Sea, including the disputed islands.
His remarks drew an immediate challenge from Maj Gen Yao Yunzhu of China's People's Liberation Army, who questioned if the US and its allies followed international law and consulted with others whey they set up air defense zones.