Continue upstairs.

From Create Your Own Story

As you near the Mayor's office on the second floor, you hear a firefight break out in the streets below. The marines sprung their attack early and ambushed the Chinese reconnaisance team. The ensuing fire fight is turning out well for the Americans but it is then that you see a Chinese sniper taking aim in the very room in which you were going to camp. His Dragunov sniper rifle lets out shot after shot and you even hear one of your comrades go down with a shotu of agony.

You'd like to take that spot for yourself...

Use stealth to approach the Chinese Sniper and execute him

Spare one of your two frag grenades to clear out the sniper

Risk being caught by shooting the sniper from your current position