I don't know how much China cares about how the world see it, other than as a world leader, but I think it would be beneficial for China to work a compromise with the other countries involved. It would be great if the islands could be set up as a safe, sort of communal tourist destination. China comes across as very autocratic and demanding, and working on this sort of group project with the others involved could help soften that image, and build a sense of goodwill which could work in their favor in other areas.