China's territorial claims in the South China Sea are destabilizing the region, and its failure to resolve disputes with other nations threatens East Asia's long-term progress, Hagel said.
Later, a top Chinese general took issue with Hagel's comments during a brief meeting with the Pentagon chief.
Lt. Gen. Wang Guanzhong, deputy chief of the General Staff, told Hagel, "You were very candid this morning and, to be frank, more than our expectation." He added, "although I do think that those criticisms are groundless, I do appreciate your candor."
Reporters had to leave the room before Hagel responded. But Pentagon press secretary Rear Adm. John Kirby said Hagel told Wang that all regional disputes should be solved through diplomacy, and he encouraged China to foster dialogue with neighboring nations.
For the second year in a row, Hagel used the podium at the Shangri-La conference to call out China for cyberspying against the U.S. While this has been a persistent complaint by the U.S., his remarks come less than two weeks after the U.S. charged five Chinese military officers with hacking into American companies to steal trade secrets.
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U.S. Defense Secretary Chuck Hagel, left, meets with …
U.S. Defense Secretary Chuck Hagel, left, meets with Lt. Gen. Wang Guanzhong, right, China's dep …
The Chinese, in response, suspended participation in a U.S.-China Cyber Working Group, and released a report that said the U.S. is conducting unscrupulous cyber espionage and that China is a major target.
Noting the suspension, Hagel in his speech said the U.S. 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 U.S. opposes any nation's use of intimidation or threat of force to assert territorial claims.
"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.
China and Japan have been at odds over uninhabited islands in the East China Sea that are controlled by Japan but claimed by both.
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U.S. Defense Secretary Chuck Hagel, left, meets with …
U.S. Defense Secretary Chuck Hagel, left, meets with Malaysian Defense Minister Hishammuddin Hussein …
The U.S. has declined to take sides on the sovereignty issue but has made clear it has a treaty obligation to support Japan. And the U.S. has also refused to recognize 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 U.S. and its allies followed international law and consulted with others whey they set up air defense zones.
Yao, director of the Center for China-America Defense Relations at the PLA's Academy of Military Science, also challenged how the U.S. can say it is not taking a position on the island sovereignty issue, while still saying it is committed to its treaty obligation to support Japan.
Hagel said the U.S. and allies consulted with its neighbors and, unlike China, did not unilaterally set up air defense zones.
U.S. officials also have raised concerns about Beijing's decision to plant an oil rig in part of the South China Sea also claimed by Vietnam. The move has led to a series of clashes between the two nations in the waters around the rig, including the recent sinking of a Vietnamese fishing boat.
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U.S. Defense Secretary Chuck Hagel, left, listens to …
U.S. Defense Secretary Chuck Hagel, left, listens to Lt. Gen. Wang Guanzhong, right, China's dep …
Chinese leaders, however, has been equally strong in defending their territorial actions, and have blamed the Obama administration's new focus on Asia for emboldening some of the disputes.
But some Asian leaders have expressed worries that the U.S. is doing little more than paying lip service to the complaints, fueling doubts about America's commitment to the region.
In an effort to tamp down those concerns, Hagel also used his speech to reassure Asia-Pacific nations that despite persistent budget woes and increasing demands for military aid across Africa and Europe, the U.S. remains strongly committed to Asia.
Allies in the Asia Pacific have questioned how serious the U.S. is about its so-called pivot to Asia, particularly as the recent unrest in Ukraine and terror threats in north Africa have garnered more attention. And President Barack Obama's national security speech earlier this week made no mention of the Asia Pacific.
"The rebalance is not a goal, not a promise or a vision - it is a reality," Hagel said, laying out a long list of moves the U.S. has made to increase troops, ships and military assets in the region, provide missile defense systems to Japan, sell sophisticated drones and other aircraft to Korea, and expand defense cooperation with Australia, New Zealand and India.
Still, the question was raised to Hagel after the speech, noting that the U.S. is busy backing NATO allies in Europe. Hagel said the U.S. has the ability to meet its obligations around the world, but is also working to build the capabilities of those partners so they can better take responsibility for their own security.
Hagel said the U.S. is also continuing to reach out to China. Despite persistent differences, Washington and Beijing have been trying to improve their military relations, expand communications between their forces and conduct joint exercises.
"Continued progress throughout the Asia-Pacific is achievable, but hardly inevitable," Hagel told the crowded room at the Shangri-La Dialogue. "The security and prosperity we have enjoyed for decades cannot be assured unless all nations, all our nations have the wisdom, vision, and will to work together to address these challenges."
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