He said Washington will bolster its defences overseas to counter what the Pentagon sees as rapidly developing threats by Beijing, particularly in its aggressive stance toward Taiwan.
China has conducted numerous exercises to test what a blockade would look like of the self-governing island, which Beijing claims as its own and the US has pledged to defend.
China's army "is rehearsing for the real deal," Hegseth said on Saturday in a keynote speech at a security conference in Singapore.
"We are not going to sugarcoat it — the threat China poses is real. And it could be imminent."
Hegseth says China is training to invade Taiwan.
China has a stated goal of having its military have the capability to take Taiwan by force if necessary by 2027, a deadline that is seen by experts as more of an aspirational goal than a hard war deadline.
But China also has built sophisticated man-made islands in the South China Sea to support new military outposts and developed highly advanced hypersonic and space capabilities, which are driving the US to create its own space-based "Golden Dome" missile defences.
Speaking at the Shangri-La Dialogue, a global security conference hosted by the International Institute for Security Studies, Hegseth said China is no longer just building up its military forces to take Taiwan, it's "actively training for it, every day".
Hegseth also called out China for its ambitions in Latin America, particularly its efforts to increase its influence over the Panama Canal.
He urged countries in the region to increase defence spending to levels similar to the five per cent of their gross domestic product European nations are now pressed to contribute.
"We must all do our part," Hegseth said.
In the last few months the Trump administration has taken a Patriot missile defence battalion out of the Indo-Pacific in order to send it to the Middle East, a massive logistical operation that required 73 military cargo aircraft flights, and sent Coast Guard ships back to the US to help defend the US-Mexico border.
Hegseth was asked why the US pulled those resources if the Indo-Pacific is the priority theatre for the United States. He did not directly answer but said the shift of resources was necessary to defend against Houthi missile attacks launched from Yemen, and to bolster protections against illegal immigration into the US
At the same time, he stressed the need for American allies and partners to step up their own defence spending and preparations, saying the US was not interested in going it alone.
"Ultimately a strong, resolute and capable network of allies and partners is our key strategic advantage," he said.
"China envies what we have together, and it sees what we can collectively bring to bear on defence, but it's up to all of us to ensure that we live up to that potential by investing."
The Indo-Pacific nations caught in between have tried to balance relations with both the US and China over the years. Beijing is the primary trading partner for many, but is also feared as a regional bully, in part due to its increasingly aggressive claims on natural resources such as critical fisheries.
Hegseth said committing US support for Indo-Pacific nations would not require local governments to align with the West on cultural or climate issues.
It is not clear if the US can or wants to supplant China as the region's primary economic driver. But Hegseth's push follows Trump's visit to the Middle East, which resulted in billions of dollars in new defence agreements.
