China policy battles boost South China Sea strains: ICG BEIJING (Reuters) - Jockeying by Chinese agencies over policy fiefdoms and budgets threatens to intensify tensions with China's neighbors over the disputed South China Sea, a respected think tank said on Monday, with China's military also warning of regional confrontation. Weak coordination among the various Chinese government bodies responsible for South China Sea policy has also complicated China's attempt at a peaceful rise, the International Crisis Group (ICG) said in a report. China has territorial disputes with the Philippines, Vietnam, Brunei, Malaysia and Taiwan across the South China Sea. Its neighbors worry over what some see as growing Chinese assertiveness in staking claims over the seas and its various islands, reefs and shoals. The report said at least 11 ministry-level government agencies, and five law enforcement agencies under them, play a part in China's South China Sea management. China's navy, it said, uses territorial disputes to validate modernization. "While some agencies act aggressively to compete with one another for greater portions of the budget pie, others attempt to expand their economic activities in disputed areas due to their single-minded focus on economic growth," the report said. "The biggest problem in coordinating the actors - apart from their number - is that most of these agencies were originally established to implement domestic policies but now play a foreign policy role," it said. Adding to the confusion, provincial governments in coastal regions that border the South China Sea have increased tensions with their profit-driven behavior, such as promoting tourism in the disputed waters, the report said. China has pushed forward on tourism plans in the South China Sea, completing a trial voyage by a cruise ship earlier this month to the Paracel Islands, called the Xisha islands in Chinese but also claimed by Vietnam. China's military, in a commentary in the official Liberation Army Daily on Saturday, warned the United States that U.S.-Philippine military exercises have raised the risk of armed confrontation in the South China Sea. U.S. and Philippine troops launched two weeks of annual naval drills in mid-April. In recent weeks, Philippine and Chinese ships have faced off near the Scarborough Shoal in waters, claimed by Manila and Beijing, that are believed to be rich in oil and gas. "The escalating tensions since 2009 have dealt a severe blow to Beijing's relationships with its Southeast Asian neighbors and gravely tarnished its image both regionally and internationally," the ICG report said. "While some efforts have been made to patch up diplomatic ties since mid-2011, the longer-term situation in the South China Sea will remain volatile in light of China's internal coordination problems," it said. Reporting by Michael Martina; Editing by Paul Tait