A war is a series of battles, whether or not you win each battle does not matter, it is the last battle in a war that counts. Ultimately wars are decidied by economics, USA before WW2 actually have a very small military, but it was still a super power. Germany and Japan lost WW2, mainly because of economics, the allies had a higher production ability and could outproduce Germany and Japan. As the USA showed prior to WW2, switching over to a full scale military economy, and building up your military can be done in two years.
China is playing it smart, spend 5% of what USA spends on their military, and let USA spend money on maintaining their military.