"If we make each other happy we shouldn't stop seeing each other."
"You make me happy, don't I make you happy?"
If I were you, trying to get to the bottom of this, know that questions in reply to questions are usually either defensive, or curious.
These questions seem both defensive & curious.
So you know there is more to his feelings there.
I do sense a hesitency of his to commit to you more, but also a curiosity & willingness to try to make you happy.
In reguards to how you should feel/think when posed with this question... when asked that, I feel that I should clarify HOW we make each other happy. What ways do we make each other happy? (Keep in mind his answer may be different than yours, which is okay in theory, and could be important) Perhaps you are right & friendship is the core ingredient... perhaps it is something else, and just knowing and understanding this will allow you to focus the relationship around that particular thing. It's all about identifying needs, desires/wants, and flexibility that helps make a situation work.
Best wishes to you