With the rise of China, the East Asian regional order, so long dominated by the U.S. presence and by Japan, is undergoing major power shifts. Increasingly, China is becoming aggressive over its maritime territorial claims in the East China and South China seas. China- Japan relations are antagonistic and tensions are on the rise. As a result, Japan, along with South Korea and Vietnam, is not only seeking increased security guarantees from the U.S., but also seeking to establish defence partnerships with India to maintain the balance vis-à-vis Chinese assertiveness. This article offers an explanation of these power shifts in East Asia in particular and Asia in general by interpreting empirical data from the perspectives of two contending international relations theories: realism and liberal institutionalism. From a purely realist perspective, China will become even more aggressive in East Asia. Consequently, it is critical to form a countervailing alliance against its rising power. Meanwhile, liberal institutionalism argues that the international order is flexible and that international institutions and major powers will accommodate the rise of China. Thereby, China would prioritize cooperation rather than conflict, as the least costly option in order to maintain its current state of development. In conclusion, the author argues that there cannot be a single way of managing major power relations. Instead, engagement and balancing go hand in hand and are necessary policy tools for states to deal with the power shifts in East Asia.