China, Asean Downplay Sea Disputes as Economic Concerns Grow

Southeast Asian leaders sought to ease tensions with China over maritime disputes before a regional summit tomorrow involving U.S. President Barack Obama as concerns persist over weaker demand in the global economy.

The Association of Southeast Asian Nations will confine discussions on a set of rules for operating in the South China Sea to the bloc’s meetings with China, according to Kao Kim Hourn, a Cambodian foreign ministry official. The decision comes as China and Japan spar over islands further to the north, risking damage to trade ties between Asia’s biggest economies.

“Asean leaders decided that they would not internationalize the South China Sea from now on, that they will focus this entirely within the current existing Asean-China mechanisms,” Kao Kim Hourn said in Phnom Penh, Cambodia yesterday. “They do not want to complicate the matter.”

The bloc is moving to improve ties with its biggest trade partner as Europe’s sovereign debt crisis and concerns over the U.S. fiscal cliff threaten to reduce demand for the region’s electronics, garments and automobiles. China urged Southeast Asian nations to make the global economy the “key concern” at the East Asia Summit tomorrow, foreign ministry spokesmanQin Gang told reporters in Phnom Penh.

“This is not the key issue and this should not be a stumbling block between China-Asean relations,” he said, referring to the South China Sea disputes, in a briefing after Chinese Premier Wen Jiabao met with counterparts from Indonesia and Malaysia. “We should not make it an obstacle for the success” of the summit.

‘Premier’ Arena

Obama arrives in Phnom Penh later today to join the Asean- organized meetings, which also include leaders from Japan, South Korea, India, Russia, Australia and New Zealand. Obama last year called the East Asia Summit the “premier” arena to discuss maritime security concerns, a subject China has lobbied to keep out of international gatherings because it touches on territorial disputes.

Cambodia’s statement is unlikely to prevent Vietnam and the Philippines, which reject China’s claims, from raising the issue at other international forums, said Li Mingjiang, an associate professor at the Singapore-based S. Rajaratnam School of International Studies. Cambodia, which holds Asean’s rotating chairmanship, hung banners outside the meeting venue welcoming Wen and hailing Cambodia-China relations.

“Other Asean countries may not follow what Cambodia prefers,” Li said. “At the same time, it’s very likely that external powers, other countries like the U.S., Japan, India, Australia, will discuss the South China Sea issue at the East Asia Summit. This is something that Cambodia just cannot prevent from taking place.”

China’s Resistance

China has resisted talks with Asean on a legally binding code of conduct in the South China Sea, where it has deployed maritime surveillance ships to assert its territorial claims. The Philippines and Vietnam, which have awarded exploration contracts to Exxon Mobil Corp. (XOM), Talisman Energy Inc. (TLM) and Forum Energy Plc (FEP), reject China’s map of the sea as a basis for joint development of oil and gas.

Asean foreign ministers had failed to reach consensus on handling the South China Sea disputes at a July meeting, marking the first time in its history that it failed to release a communique. The Philippines led criticism of China at the time, with Foreign Secretary Albert del Rosario denouncing “pressure, duplicity, intimidation” from Beijing’s leaders and warning that tensions “could further escalate into physical hostilities that no one wants.”

Downplaying Tensions

Philippine President Benigno Aquino sought to downplay tensions yesterday while repeating a call for the disputes to be solved using international law. At a summit of Asian and European leaders earlier this month in Laos, Aquino urged non- claimants to become involved in South China Sea disputes, calling it “a priority issue not only for the Philippines and the region, but also for the wider international community.”

“We now count our community among the few bright spots in a world beset with uncertainty,” Aquino told fellow Asean leaders yesterday. “Among our challenges, then, is how to sustain, and perhaps even accelerate, the gains we have made. More than at any other time in the history of our organization, unity has become the bedrock of our shared progress.”

Asean leaders are set to start talks tomorrow on a regional trade agreement with China, Japan, India, South Korea, Australia and New Zealand, an area with more than 3 billion people representing a quarter of the world economy. China has been Asean’s largest trading partner since 2009.

Asean wants to prevent the territorial disputes from thwarting progress on the trade talks, Secretary-General Surin Pitsuwan told Bloomberg Television today.

‘Move Forward’

“We are trying our best to separate the two,” he said. “All leaders are aware of the fact that we need to move forward economically and any differences that we have will be managed effectively among us and between us here in the region.”

The bloc exported about $146 billion of goods to China last year, a 29 percent increase from 2010, while imports from China grew 13 percent to about $135 billion in the same period. A China-Asean trade agreement that took force in 2010 “has been working wonderfully,” Surin said yesterday.

Asean leaders “expressed concern about the situation in the euro zone, the situation in the Middle East now and the possible fiscal cliff that the U.S. is talking about could have further negative, dampening impact,” he said.

Southeast Asia is growing more reliant on trade with China, which is a gateway for shipments to advanced economies, according to the Organization for Economic Cooperation and Development. The euro-area economy succumbed to a recession for the second time in four years, as governments imposed tougher budget cuts and leaders struggled to contain the debt turmoil.

U.S. Efforts

The U.S. has also sought to build trade ties with Southeast Asian countries through the Trans-Pacific Partnership. Thailand will consider becoming the 12th country to join, Prime Minister Yingluck Shinawatra told reporters in Bangkok during an appearance with Obama, who arrived yesterday.

“We believe we can do even more,” Obama said. “To explore new ways that our companies and entrepreneurs can do business together, all of this will advance our visions of a region that is free and fair.”

To contact the reporters on this story: Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net; Shamim Adam in Singapore at sadam2@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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