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China No Threat to Southeast Asia as Xi Seeks to Grow Trade

China’s economic development will bring opportunities rather than threats as it seeks to boost trade with Southeast Asia, Xi Jinping said on his first visit to the region as president.

China wants warmer ties with members of the Association of Southeast Asian Nations and expects trade with the group to reach $1 trillion by 2020, Xi said in a speech to Indonesia’s parliament in Jakarta today.

Those calls will be tested as China grows more assertive in the South China Sea, an area dotted with nations that would call for U.S. help if attacked, while the U.S. is seeking greater influence in the region. Southeast Asia is aiming for its own free trade bloc by 2015, with regional ties to be on display at an Asia-Pacific Economic Cooperation forum leaders meeting in Bali and an Asean summit in Brunei next week.

“We should abandon the cold war mentality, and cooperate to build security and jointly safeguard regional peace and stability,” Xi said in the speech.

Indonesia, Southeast Asia’s largest economy, does not have direct claims to waters in the South China Sea rich with fish, oil and gas that are disputed by countries such as China, the Philippines and Vietnam. Indonesia’s Foreign Minister Marty Natalegawa has tried to broker agreement on a joint stance by Southeast Asian nations, while China has agreed to work toward a code of conduct on the waters, which contain some of the world’s major shipping lanes.

‘Dose of Salt’

“Indonesians will take his comments on the South China Sea with a large dose of salt,” said Keith Loveard, head of risk analysis at Jakarta-based security company Concord Consulting. “Actions speak louder than words and China’s recent actions in the area make it clear it intends to brook no disagreement with its claims.”

The Philippines was monitoring as many as five Chinese law-enforcement ships at Scarborough Shoal, its army said on Sept. 20. China said last month its sovereignty over the Shoal is undisputed.

“As for the territorial disputes between China and some Southeast Asian countries over sovereignty and maritime rights, both sides should always adhere to peaceful means,” Xi said.

Next year Chinese ships will for the first time join a 22-nation Rim of the Pacific naval drill, which is led by U.S. forces. China’s participation reflects a changed attitude as the world’s two biggest militaries boost contacts despite competing for influence in the Asia-Pacific.

Trade Deficit

Xi met Indonesian President Susilo Bambang Yudhoyono in Jakarta yesterday and signed agreements to jointly develop industries including fisheries, tourism and aerospace, the presidential palace said.

Xi is on a two-day visit to Indonesia and will leave for Malaysia today before returning to Indonesia for the APEC meeting on Oct. 7-8.

China was due to close agreements to invest in 21 projects in Indonesia worth a total $28.2 billion, Indonesia Industry Minister M.S. Hidayat said. China proposes setting up an Asian infrastructure investment bank, Xi said.

“So much else is at stake in the relationship,” said Loveard, referring to the promise of investment, Indonesian hopes to get a favored trade status and Chinese demand for its coal. “Indonesia knows very well that it is dealing with the big boy on the block and will tread cautiously.”

APEC Summit

Indonesia has built a new airport and toll road in Bali to be ready for Xi and U.S. President Barack Obama’s visit to the APEC summit, while elsewhere infrastructure has struggled to keep pace with economic and trade growth. Its persistent trade deficit this year has led to a slump in the rupiah. Indonesia’s non-oil and gas exports to China in August were worth $1.48 billion, while imports totaled $2 billion, according to the country’s statistics bureau.

“By country, Indonesia’s trade shortfall with China remained by far the largest drag,” HSBC Holdings Plc said in a report today led by economists Frederic Neumann and Qu Hongbin.

To contact the reporters on this story: Neil Chatterjee in Jakarta at nchatterjee1@bloomberg.net; Janet Ong in Hong Kong at jong3@bloomberg.net

To contact the editor responsible for this story: Rosalind Mathieson at rmathieson3@bloomberg.net

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