Obama said state actors needed to agree rules of the road in order to stop cyber crises from escalating.
"There comes a point at which we consider this a core national security threat and will treat it as such," he said.
Ahead of Xi's state visit, Obama said "we have been very clear to the Chinese that there are certain practices that they are engaging in, that we know are emanating from China and are not acceptable."
In a notably tough and confrontational tone, Obama said states could "chose to make this an area of competition."
But, he warned, if that path was chosen it would be a competition that "I guarantee you we will win if we have to."
"Alternatively we can come to an agreement in which we say this isn't helping anybody, lets instead have some basic rules of the road."
Following a spate of hack on US companies and government agencies that have been widely blamed on China, administration officials have pointedly let it be known that Chinese firms and individuals could face sanctions.
The move appears to be triggered in particularly by a recent breach of US federal government personnel files that left millions of officials - including some at the very top levels - exposed.
A year ago, US prosecutors unsealed indictments leveling spying charges against five Chinese military personnel they believe hacked into US networks to profit Chinese firms.
But beyond indictments Washington has struggled to build an effective deterrent against a wave of increasingly damaging cyber attacks.
Calibrating which attacks warrant diplomatic protests, and which require a more forceful response , has proven fraught.
Any broad move by the world's biggest economy to punish the second largest could have global political and economic consequences and would likely trigger retribution.
US intelligence has also been accused of mounting cyber attacks to scoop up Chinese data, accusations seemingly supported by documents leaked by fugitive contractor Edward Snowden.