Now that the Senkakus issue has essentially died down, China's going back to the conflict it can handle. With both China and the Southeast Asian states about equal in terms of naval power, there's not much that either side can do other than to fortify their gains. The only time China has fought naval battles in the Sea was against only Vietnam; more modernization is needed if China can even dream of taking a two-prong attack.
I think I'm most convinced that this specific policy is propaganda. There's been a push to turn the islands occupied by China into
incorporated territory, and as such give domestic security nominal powers over them. But can they really exercise it?
I've always figured China's claims were so deep because they were basically China's "initial offer" in the inevitable negotiation. In the end, they'll gladly walk away with a reduced territory as long as it's internationally acknowledged and still gives them good access to the oil fields, which is far more than China would have reasonably gotten if they had stuck to existing international maritime law in the first place.
It ought to be in China's best interest to settle some claims just so excavation of the islands' natural resources can begin. There are definitely forces in the government who thinks that, but there are also people who think by the time China desperately needs the new energy the military would be modernized enough to take that on.
Your explanation is attractive, though I would say China is not energy starved enough to seriously consider an invasion yet. The military's obsession with the islands is also pathological, because it wants to prove to the world that China can secure its borders.
