The nature of what constitute a FON is not difficult to comprehend nor the objectives behind it. However if you read every post analysis of the USS Larssen transit in question by every commentator surrounding this event is essentially "what just happened?". Senator McCain had to write a letter to the Secretary of Defence asking exactly the same. The bucket stops with the CIC - period.
The bucket stops with President Obama to be sure, and we don't disagree. However, you said he was "incompetent," and I'd like to know if you say that because Obama ordered the Pentagon not to provoke China, or was he incompetent because Pentagon leaders failed to follow his orders?
The ASEAN nations want to have the cake and eat it except the cake is melting and they have to decide as events are catching up on them.
ASEAN countries have been very clear they don't want conflicts between US and China. They're not interested in choosing between the two, and that's very reasonable behavior. So far, when pushed to choose between fellow ASEAN countries (Philippines, Vietnam), they've chosen not to support them, so it's not a matter of having cake and eat it too. Their actions in not supporting fellow ASEAN countries against China are louder than words.
China is committed to creating a strategic space for itself. FON, International tribunals, et al are just obstacles in its path and it is responding with a repertoire of instruments using lawfare to ambiguity, sprinkled with bellicose statements. I don't think China has any interest in being convinced.
I agree with you on China's goal to impose its own version of Monroe Doctrine in the SCS. I've been saying that for a while. What's more, smaller regional states know that too, and that's why they are the ones forcing the issue, and not China (if you back things to around 2009-2010, you could see its the smaller states that pushed for resolution of SCS claims). Going forward, China will only get stronger, relative to others in the region, so unless regional powers want to deal with stronger China in the future, then they better get the best deal they can now.
Can China be convinced to give and take? I don't know, but Beijing did settle 12 of 14 land borders, and one maritime boundary with Vietnam in the Golf of Tonkin.