Come on, get real. No amount of upgrading of Philippine military hardware within Philippine financial capability will deter any Chinese intention of encroaching into Philippine waters. If the Chinese will not attack the Philippines, it is not because of our ability to retaliate, but because of what they might expose themselves to for picking on a pushover.
The Philippines , if it wants to preserve its territorial jurisdiction, will require cooperation with the United States, which also is re-focusing its interest in the Asia-Pacific Region. The Chinese have already proved it is not weary to test weaker countries, when she attacked and destroyed a Vietnamese battlegroup back in the mid 1970's to defend what China believes as Chinese Territory.
Here is a little link to that conflict:
Four warships of the Republic of Vietnam participated in the battle: three frigates, Trần Bình Trá»ng (HQ-5),Lý Thưá»ng Kiệt (HQ-16), and Trần Khánh Dư (HQ-4), , and one corvette, Nháºt Tảo (HQ-10). In addition, a platoon of South Vietnamese naval commandos, an underwater demolition team, and a regular ARVN platoon were stationed on the islands.
The People’s Republic of China had four warships for most parts of the battle, (PLAN corvettes # 271, #274, # 389 and # 396). This force was then reinforced by two more Kronstad-Class submarine chasers (# 281 and # 282) after the end of the battle. In addition, two PLA marine battalions and an unknown number of irregular militia landed on the islands.
Then in 1988 the Johnson South Reef Skirmish occurred between the Chinese Navy and the Vietnamese Navy:
On January 21, 1988, the Yibin arrived at the Spratly Islands and on January 31, People's Liberation Army Navy troops were detected at Johnson South Reef. Vietnamese forces were rushed into the area to prevent them.
On February 22 and on March 5, PLA-N frigates Nanchong, Xiangtan and Yingtan were dispatched as reinforcements to the area while the Vietnamese dispatched their own forces on March 11 from Ba Son naval yards in Ho Chi Minh City.
The result ended in the sinking of 2 Vietnamese warships, and the death of some 70 Vietnamese marines. China won the naval engagement and gained control of 6 other islands that Vietnam previously held.
In my opinion, one of the largest reasons why China has yet to engage the Philippine Navy is because of the Mutual Defense Alliance the Philippines has with the United States. China would rather solve this situation bilaterally to her favor and does not want the United States getting involved. However, her saber raddling has resulted in the United States and Philippines establishing greater military ties. With United States sending guided missile ships to Philippine Waters off the coast of Palawan and with the resurgence of American military cooperation with the Philippine Armed Forces, the Philippines is becoming more of a heavier nuisance to Chinese Foreign Policy in the region. China cannot directly attack Philippines if the United States is in the region, if she does, she risks losing international support and as what you said, would be dubbed a "bully nation". Additionally, China has yet to engage the full might of the United States Navy. It is not in the best interest of China to do so.
Reference:wikipedia
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