Xi, as chairman of the Central Military Commission, has just finished building an extraordinary archipelago of artificial islands, which will enable him to defend audacious territorial claims and project military power deep into the South China Sea. US defence leaders have replied with promises of "fly throughs" and "sail throughs" to puncture China's implicit territorial claims, while warning against militarisation of those islands. In July, Chinese intelligence agencies were blamed for the largest publicly acknowledged data heist in cyber history, involving the theft of data from 21.5 million US government personnel files. Obama responded with cyber sanction threats. A fortnight ago Xi sent his security chief to Washington on a secret mission to placate the Americans with an offer of cyber reassurance, just in time to save their summit. Before doing so, however, Xi sent five PLA Navy ships through the Aleutian Islands, within the 12 nautical mile US territorial zone, just off the coast of Alaska, where Obama happened to be making a visit. And just in case the subtleties were misinterpreted, last week a senior Chinese military leader made clear that he wasn't interested in only the narrow band of water around Chinese-controlled islands. He wanted the whole maritime expanse from China's southern coast to the tip of Indonesia. "The South China Sea, as the name indicated, is a sea area. It belongs to China," said the commander of China's North Sea Fleet.

Strategists often remind us that this is not the Cold War. They point to the extraordinary breadth of trans-Pacific engagement in terms of people, ideas and money. But such reassurance goes only so far. Strategic uncertainty is rapidly rising. Chinese President Xi Jinping and US President Barack Obama. Credit:Getty Images Susan Shirk, who ran the State Department's China desk in the Clinton administration, says Obama's cyber ultimatum shows he is prepared to wear a significant cost to his own interests – including the cancellation of the most important bilateral meeting anywhere in the world this year – to signal his resolve. And this, she notes, is a profound departure from how American presidents have traditionally played the "summitry" game. "Even in the Cold War the US and Soviet Union used summitry to highlight the possibility of avoiding war and co-operating with each other," says Shirk, chairwoman of the 21st Century China program at the University of California, San Diego. "This time, both sides are wanting to show they're willing to risk more tension in the relationship to achieve their objectives, especially in cyber and the South China Sea, and also with economics and human rights. Both sides are signalling firmness and determination, rather than co-operation. And that's really dangerous." A lot has been written about Australia's new Prime Minister, Malcolm Turnbull, coming into the job with a more "nuanced", "independent" or "soft" China policy, based mainly on old speeches. But not enough has been said about how China has changed in the intervening years.

Both sides are signalling firmness and determination, rather than co-operation. And that's really dangerous. Susan Shirk, University of California Turnbull took the opposition leader's reins late in 2008, in the depths of the global financial crisis, when much of the world was consumed by a mix of awe, fear and giddy admiration for China's seemingly inexorably rising economic power. He lost the leadership in 2009. Hillary Clinton's quip to prime minister Kevin Rudd that year – "How do you deal toughly with your banker?" – provides a sense of how the power relativities were being perceived at the time. Back then, many were convinced China would liberalise its rigid political controls to facilitate the leap to a consumer-driven, services-based modern economy. That model has gone out the window as analysts struggle to explain Xi's sabre-rattling abroad and deepening ideological controls at home. Says Shirk: "It's mind-boggling to see a personalistic dictatorship re-emerge in China." So far, in strategic terms, Xi's muscle-flexing has been counterproductive. He's energised Japan's staunchly nationalist Abe administration, set the rest of China's maritime neighbours on edge and reinforced a web of security relationships around China's great strategic rival, the United States. Philippine President Benigno Aquino has made comparisons with Nazi Germany. Vietnam has built bridges with its old foe, the United States. And India joined a regional chorus demanding "freedom of navigation", backed by ambitious naval exercises with Australia this week, while making the point that the surrounding maritime expanse does not belong to India just because it's called the Indian Ocean.

US President Barack Obama (left) and Chinese President Xi Jinping attend a press conference at the Great Hall of People in Beijing in 2014. Photo: Getty Images In Asia, at least, in this emerging game of strategic competition, China's losses are America's gains. "They've managed to take long-time complicated relationships for the US and make them into allies," the chairman of the US House intelligence committee, Devin Nunes told Fairfax Media in a recent visit. Over the span of the Obama administration, as the Chinese economy has doubled in size, the US has deepened its ties with every maritime nation in the Indo-Pacific at China's expense, with the exception of the two Koreas. Growing fears of China have fuelled a regional demand for US military engagement that is virtually insatiable. "If the entire US Navy was stationed in the East China Sea [and] South China Sea the question I would still get [is] 'when is the rebalance going to be real, what more can you send to the region?'" Admiral Scott Swift, commander of the US Pacific Fleet, says. Perhaps the greatest casualty of China's political muscle-flexing has been the story of an inexorably rising economy, which ultimately underpins all else. Xi's much-touted economic reforms have not eventuated. Ham-fisted efforts to inflate a sharemarket bubble and stop it from deflating have tainted China's policy-making record.

A confidential survey released by Consensus Economics found that economic forecasters believe the Chinese economy grew at 4.3 per cent last quarter, which is a little more than half of the official figure of 7 per cent. If that estimate is roughly right, then America's GDP growth rate might be catching up to China's for the first time in 40 years. "Has there ever been a better moment to come back to the question how to be tough with your banker?" says Sophie Richardson, China director at Human Rights Watch. But just because the balance of power is shifting in Obama's favour doesn't mean he's willing to use it. As Turnbull receives his military, security and diplomatic briefings over the coming days and weeks he will discover a Canberra bureaucracy that is exasperated with the Obama administration's failings in Asia. He'll find the paradigm of the US pulling Australia away from its long-term strategic interests makes no sense, because it's Canberra that has been doing the pulling. President Barack Obama and President Xi Jinping at the Annenberg Retreat at Sunnylands in Rancho Mirage, California, in 2013. Credit:CHRISTOPHER GREGORY

The mandarins in Canberra were horrified by Washington's incompetent response to China's Asia Infrastructure Investment Bank. They were shocked that Obama sent his trade representative to Hawaii to seal the Trans-Pacific Partnership without room from Congress to negotiate a palatable deal. They were dismayed that the administration could threaten to conduct "freedom of navigation" exercises but fail to follow through. Most recently, they suspect Obama will baulk – again – before enforcing his new cyber red lines. Canberra's frustrations stems from its desire for the US to be more effectively engaged, not less. "This is the worst civilian Asia team we've seen since before World War II," says one senior official. "Secretary of State [John] Kerry is simply not interested in Asia," says another. And a third: "If I'm held hostage somewhere I would hope to God that this [National Security Council] team is not responsible for rescuing me." This week the Republican candidates were out-toughing each other, promising to retaliate for Chinese cyber incursions and arguing whether or not to cancel next week's state dinner. Obama confirmed that sanctions were still on the table. He vowed that if cyberspace is going to be "weaponised", and the US is forced to switch from "defence" to "offence", then the US would be playing to win. Nevertheless, at least for the duration of this US presidential term, the Asia-Pacific strategic scorecard may well be decided by the home goals that are tallying up on both sides. And that's why it's hard to find anyone, in Washington or Beijing, who can muster much enthusiasm for next week's big event. "It's like finding yourself on a date with somebody you already know you really don't like," says Richardson, at Human Rights Watch, who has been trying to encourage the Obama administration to engage with China's lawyers, journalists and scholars, whose freedoms are under threat. "But you've got to make it through the evening somehow."