I am familiar with this document as my primary understanding of the legal issues concerning this dispute is derived from this document. I would suggest anyone interested in this subject to read the document as it outlines all the legal issues associated with the dispute.
What you are quoting does not correspond to your conclusion. The selected quotes is just outlining the different manner in which disputes are assessed and dealt with. If you read the document in its entirety, should China wish to pursue it under LOS convention then it is obvious that it has a weak hand primarily the islands/rocks are outside the 200 nm zone.
Extracted below is a summary conclusion from the document which is more comprehensive and instructive.
"China has not clarified its maritime claims associated with the dashed-line maps in a manner consistent with international law. China’s laws, declarations, official acts, and official statements present conflicting evidence regarding the nature and scope of China’s claims. The available evidence suggests at least three different interpretations that China might intend, including that the dashes are (1) lines within which China claims sovereignty over the islands, along with the maritime zones those islands would generate under the LOS Convention; (2) national boundary lines; or (3) the limits of so-called historic maritime claims of varying types.
As to the first interpretation, if the dashes on Chinese maps are intended to indicate only the islands over which China claims sovereignty then, to be consistent with the law of the sea, China’s maritime claims within the dashed line would be those set forth in the LOS Convention, namely a territorial sea, contiguous zone, EEZ, and continental shelf, drawn in accordance with the LOS Convention from China’s mainland coast and land features that meet the definition of an “island” under Article 121 of the Convention. Because sovereignty over South China Sea islands is disputed, the maritime zones associated with these islands would also be disputed. In addition, even if China possessed sovereignty of the islands, any maritime zones generated by those islands in accordance with Article 121 would be subject to maritime boundary delimitation with neighbouring States.
As to the second interpretation, if the dashes on Chinese maps are intended to indicate national boundary lines, then those lines would not have a proper legal basis under the law of the sea. Under international law, maritime boundaries are created by agreement between neighboring States; one country may not unilaterally establish a maritime boundary with another country. Further, such a boundary would not be consistent with State practice and international jurisprudence, which have not accorded very small isolated islands like those in the South China Sea more weight in determining the position of a maritime boundary than opposing coastlines that are long and continuous. Moreover, dashes 2, 3, and 8 that appear on China’s 2009 map are not only relatively close to the mainland shores of other States, but all or part of them are also beyond 200 nm from any Chinese-claimed land feature.
Finally, if the dashes on Chinese maps are intended to indicate the area in which China claims so-called “historic waters” or “historic rights” to waters that are exclusive to China, such claims are not within the narrow category of historic claims recognized in Articles 10 and 15 of the LOS Convention. The South China Sea is a large semi-enclosed sea in which numerous coastal States have entitlements to EEZ and continental shelf, consistent with the LOS Convention; the law of the sea does not permit those entitlements to be overridden by another State’s maritime claims that are based on “history.” To the contrary, a major purpose and accomplishment of the Convention is to bring clarity and uniformity to the maritime zones to which coastal States are entitled. In addition, even if the legal test for historic waters were applicable, the dashed-line claim would fail each element of that test.
For these reasons, unless China clarifies that the dashed-line claim reflects only a claim to islands within that line and any maritime zones that are generated from those land features in accordance with the international law of the sea, as reflected in the LOS Convention, its dashed-line claim does not accord with the international law of the sea."