Interesting you mention James Kynge. I've blogged about his "China Continental" thesis a few times (Most recently, in the footnote to this post, where I also linked to an FT editorial that had a more bearish take on China's economy). I hope Kynge is right that China is transitioning to an economy fueled by internal demand; that would be good for average Chinese and the rest of the world too.
I have a tough time envisioning China becoming a global military hegemon, for a couple of reasons. The first reason that comes to mind is that the post-war status quo of U.S. Naval hegemony in the Pacific has been pretty good for China and its more advanced neighbors, economically speaking. Why mess with a good thing?
The second reason is that it's a lot easier to project power globally when you are surrounded by oceans on two sides and friendly neighbors to the North and South. China is cursed by geography by comparison. Consider some of its neighbors: Japan, which mopped the floor with China in WWII; Vietnam, which fought China to a standstill, if memory serves, a few decades ago; Russia; Mongolia -- sparsely populated, but a country whose ancestors conquered China and most of the rest of the world; India, the world's most populous democracy (and a country China has fought a war or two with in the past, when India was weaker); Pakistan; Afghanistan. Add to that mix separatist Tibetans in China's southwest and separatist Muslims in China's northeast. I suspect the submarine-building (China still spends a pittance on military procurement, compared to us) is more about keeping the steel mills humming.
A more likely scenario -- and a more ominous one -- if current trends (i.e., certain self-destructive American policies) hold isn't China replacing the U.S. as a global superpower, but the world having no such superpower.
1One that had an Altman Z"-score in the distress zone, last time I checked. I mentioned this to JLM via e-mail, and he said he penned (keyed?) an in-depth response, but it was eaten up by the aether and I never received it.