His three-day visit comes amid escalating tensions over territorial disputes involving China and Japan, and questions about whether the U.S. is backing its Japanese allies in those disagreements.
This is Panetta's first trip to China as defense chief, and it is expected to include several historic visits, including a meeting Wednesday with the country's leader-in-waiting, Xi Jinping, just days after the ruler reappeared in public after a two-week absence.
Panetta's stay in China was extended in recent days so he could visit Qingdao, a key naval base where he will see a Chinese submarine and frigate.
According to U.S. defense officials, Panetta plans to press China to seek ways to peacefully resolve the territorial disputes. Chinese leaders, however, are wary of America's move to increase its military presence in the Asia-Pacific and they will question whether the new radar system is aimed at them.
The defense officials, who spoke on condition of anonymity to disclose sensitive travel details about the China visit, said they expect Panetta to take this opportunity to explain the Pentagon's plans to increase its focus and presence in the Pacific region. And he will explain that the new radar in Japan is aimed at better protecting the region and the U.S. from the North Korean missile threat, and is not aimed at China.
Speaking at a press conference in Japan on Monday, Panetta said he is concerned about the angry protests across China over uninhabited East China Sea islands, called Senkaku in Japan and Diaoyu in China. Although Japan has controlled the islands for decades, the Chinese were angry that the Japanese government purchased them from their private owners.
"Although we understand the differences here with regards to jurisdiction, it is extremely important that diplomatic means on both side be used to try to constructively resolve these issue," Panetta said. "It's in everybody's interest for Japan and China to maintain good relations and to find a way to avoid further escalation."
U.S. relations with China have been rocky, especially over America's support and arms sales to Taiwan, the self-governing island that Beijing claims as its own.
The U.S. also has been critical of China for its lack of transparency regarding its massive military buildup.
Trade issues threated to further complicate Panetta's visit.
White House officials said the Obama administration would announce on Monday a new trade enforcement case against Beijing targeting Chinese subsidies for exports of automobiles and automobile parts. For its part, China said it had filed a case with the World Trade Organization challenging U.S. anti-dumping measures against a wide range of Chinese goods including kitchen appliances, magnets and paper.
Panetta's meeting with Xi is particularly notable because he had not been seen since Sept. 1, and had canceled sessions with a number of other foreign dignitaries since then, including U.S. Secretary of State Hillary Rodham Clinton. The Chinese government has yet to explain Xi's public absence, but there had been rumors that he had been ill.