China has demonstrated in-orbit identification of ships with satellite in the Jilin-1 constellation many years ago. It was one of the sat around few hundred kilos, it was optical. The image recognition was done by the sat itself, only result was transferred to the ground to compare with marinetime tracking broadcast. Jilin-1 has equivlant radar sat in the same weight range. Jilin-1 and other constellations were evisioned to provide real-time coverage. Jilin-1 alone is planned to be 300 sats in space by 2nd phase and it is not the end. Essentially China already has a priliminary system similar to what Pantagon is planning.
What US announced recently is neither a new idea nor new capability that China does not have or working on already. It is not even new to US itself, US has similar constellation already except they have not demonstrated the capability of doing most of the capturing, recognition and tracking in orbit yet which China has done years ago. This new announcement that involves SpaceX is just one of the link (communication between sats) for the whole system to work. And even this isn't ahead of China who has demonstrated intra-sat laser communication.
All in all, this is a nothing burger as far as China is concerned. Think about it as another Artemis moon race with China, it is not about China but about US itself. And US is trying to catch up with China in some areas.