2010 was a chilly year for Chinese foreign and defense policy makers. At the beginning of the year China was still coping with the fallouts of US arms sales to Taiwan in November 2009. The suspension of bilateral military ties worsened SinoUS relations that underlined the visible changes in Asian security landscape in the following year. In 2010 two armed clashes in Korea: the Cheonan Incident and the DPRK’s artillery shelling of Yeonpgyeong Island, brought the Peninsula to the brink of war. China was caught in the crossfire, and was forced to take sides to prop up crisis-ridden Pyongyang, all the time under huge pressure from the US, Japan and South Korea. In July Secretary Clinton announced the US position on the disputes in the South China Sea (SCS) in ARF forums. Beijing saw it as an unfriendly act to internationalize the problem against it. Then, the fishing boat event in the Daoyu/ Sankaku Islands in September triggered a free fall in Sino-Japanese relations with long-lasting implications. When the year ended, Beijing found itself an odd state in Northeast Asia. Although Beijing immediately launched a winter diplomatic offensive to reorient the unfolding course, it may take years for it to heal the mood of mistrust as a result of the above events.

This paper argues that security consequences of the events in 2010 will be far more profound than the immediate action-reaction tussle of the players involved. To Beijing these simply confirmed its new threat perception in the process of rise. Generally speaking, among other things, the following three challenges are probably the most serious ones for Beijing to handle in the short to medium term: 1) an emerging trend of coalition building by the US and its allies and friends in the region to hedge against China’s rise; 2) prospects of being dragged into simultaneous twofront armed conflicts; and 3) the worsening confrontation in the Korean Peninsula. These multiple external threats have squeezed the PRC’s freedom of action. In response one can anticipate Beijing to re-energize “smiling diplomacy”, especially to non-US allies, to combat the perceived trend of “encirclement-making”. It may resume double-digit growth in defense spending sooner, accelerate military transformation through war preparations, and use economic leverage for diplomacy more vigorously.