By Stuart Grudgings and Terril Yue Jones
PHNOM PENH/BEIJING (Reuters) - When U.S. President Barack Obama and more than a dozen leaders arrived in Cambodia for a regional summit meeting this week, only one of them was feted with banners strung from the venue gates.
"Welcome Prime Minister Wen Jiabao!" one proclaimed. "Long live the People's Republic of China!" read another.
As the leaders left, the green-and-white banners were still festooned outside Phnom Penh's Peace Palace, a fitting reminder of China's powerful and growing clout as Beijing uses its influence - and money - to win friends and frustrate those uneasy about its sweeping territorial claims and rising military strength.
"Some states are easily swayed by money. If they see cash, they easily throw away their principles," said one Asian diplomat at the East Asia Summit, which included heads of state from 10 Southeast Asia countries and counterparts from the United States, China, Japan and other Asia-Pacific nations.
"China has been throwing its weight around and buying the loyalties of some Asian states."
A prime example is Cambodia, whose prime minister, Hun Sen, helped China to notch up a succession of diplomatic victories at the summit. China stalled debate on a resolution of maritime disputes in the South China Sea, rebutted attempts by Southeast Asian nations to start formal talks on the issue and avoided any rebuke from Obama over territorial ambitions. Commentators declared China a clear summit winner.
A closing statement by Hun Sen, this year's chair of the 10-member Association of Southeast Asian Nations (ASEAN), made no mention of the South China Sea, another victory for China's attempts to prevent multilateral talks on the dispute.
China has poured investments and loans into Cambodia in recent years, becoming its biggest trade partner and bilateral creditor. Cambodia's debt to China now totals at least $4.7 billion, about a third of its economy.
The price of that largesse has become clear this year, say analysts, as Cambodia has used its powers as ASEAN chair to restrict debate over the vexed issue of China's maritime claims, dividing the group and infuriating U.S. ally the Philippines.
The 45-year-old ASEAN group has been built on a foundation of unanimity and unity, but that has unraveled as it struggles to cope with its biggest security challenge. In July, a meeting of the region's foreign ministers broke down in unprecedented acrimony and failed to agree a communique for the first time.
This week's ASEAN meetings again deteriorated into bad-tempered sniping and came close to a breakdown when Hun Sen adopted a draft statement saying there was a consensus not to "internationalize" the South China Sea dispute beyond ASEAN and China.
The Philippines, which sees its alliance with the United States as a crucial check on China's claims at a time when Washington is shifting its military focus back to Asia, made a formal protest to Cambodia and succeeded in having that clause removed from the final statement.
China then poked fun at Manila's assertion that there had been no consensus. Eight out of 10 leaders had agreed not to internationalize the dispute, meaning there was a consensus, said Qin Gang, a Chinese foreign ministry spokesman.
"I suggest that people when attending the EAS (East Asia Summit) meetings have to be very good at mathematics," he said.
"That's 10 minus two, so which is bigger?"
Beijing claims a vast U-shaped line around the South China Sea that brushes up against the coasts of the Philippines, Vietnam, Brunei and Malaysia. The area is thought to hold vast, untapped reserves of oil and natural gas, and naval flashpoints between Chinese vessels and the Philippine and Vietnamese navy have become increasingly common.
Hopes for a diplomatic resolution within the ASEAN-China framework look bleak in the next two years as tiny Brunei and then Myanmar take up the chairmanship of the group.
Cambodia, like fellow "Mekong" countries Laos and Myanmar, has been rapidly pulled into China's economic orbit through rocketing trade and investment ties.
It has become customary for Chinese officials to arrive in Cambodia bearing "gifts", such as the $100 million investment that Wen announced on his arrival this week to build the emerging country's biggest cement plant. China has moved nimbly to set up free trade deals with Southeast Asia nations and has played a dominant role in financing and building big infrastructure projects in Laos, Cambodia, and Myanmar.
After the summit, Wen visited Thailand where he signed an understanding to buy rice, which should strongly lift Beijing's standing with a government that is a close ally of the United States. Bangkok has built up record stockpiles of 14 million tonnes of milled rice after a populist program to pay farmers more for their crops made exports unprofitable.
If diplomatic efforts stall, China's options to back its claims with force if needed are steadily growing with a military budget that outstrips the combined spending of Southeast Asia.
As China ushered in a new generation of leaders this month, outgoing President Hu Jintao made a pointed reference to strengthening China's naval forces, protecting maritime interests, and the need to "win local war."
"We should make active planning for the use of military forces in peacetime, expand and intensify military preparedness, and enhance the capability to accomplish a wide range of military tasks, the most important of which is to win local war in an information age," Hu said.
Besides the South China Sea, China is embroiled in a dispute with Japan, also a close U.S. ally, over islands in the East China Sea.
China's stance is that it is not trying to become an offensive naval power, but wants to secure its energy imports and boost development of maritime natural resources, which are expected to represent 10 percent of its economy by 2015.
But it is also wary of being encircled as the United States refocuses its military clout on Asia in what Obama has called a "pivot" back to the region as wars in the Middle East wind down.
"It is absolutely (a buildup)," said Ruan Zongze, deputy director of the China Institute of International Studies, the think-tank of the Chinese Foreign Ministry.
"No matter what kind of narrative you use, the reality is that America in the past three years has been putting greater emphasis or focus on the west Pacific. That raises a lot of questions for China."
China launched its first aircraft carrier in September, increasing its ability to project forces deeper into "blue-water" maritime territory. Bought from Ukraine ostensibly to use as a floating casino, the Chinese navy spent years refurbishing the carrier, which is undergoing sea trials. It also test-flew two types of stealth fighters this year, the second one last month - a smaller, more maneuverable model believed to be designed to be deployed on an aircraft carrier.
"China has ambitions to become the premier military power among its regional peers, and a serious threat to U.S. maritime primacy in the Asia Pacific," said Sam Roggeveen, an Asian defense analyst with the Lowy Institute in Sydney.
Roggeveen added that if China were to deploy more than one carrier and equip them with high-performance stealth fighters, "it would become the pre-eminent regional maritime power, with the ability to coerce neighbors in disputes in which the U.S. prefers not to get involved".
(Additional reporting by James Pomfret and Manuel Mogato in PHNOM PENH; Editing by Jason Szep and Raju Gopalakrishnan)
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