By Jared Ferrie and Simon Webb
NAYPYITAW Myanmar (Reuters) - World leaders will descend on the surreal capital of Myanmar this week, an unthinkable event when it was run by a brutal military junta for almost half a century.
Shortly after winning a one-sided election four years ago, the army veterans stunned the world, ushering in a wave of liberal change that convinced the United States and other Western powers that Myanmar was no longer the pariah it was.
But this week's coming out party for the purpose-built city of Naypyitaw, secretly raised from the rice paddies by the junta, comes amid mounting concern that the reforms that opened Myanmar to international engagement have gone into reverse.
The military still holds substantial political power, a peace process to end conflict with ethnic minorities is stalled, and the persecuted Muslim Rohingya minority faces a humanitarian crisis in western Rakhine state.
President Barack Obama is expected to tackle those issues in a meeting with Myanmar President Thein Sein during the summits of the Association of Southeast Asian Nations (ASEAN) and the East Asia Forum on Nov. 12 and 13.
"We have real concerns, and we have expressed them repeatedly about circumstances in Rakhine state, and the transition to democracy, which is a challenging one," Obama's national security adviser Susan Rice said on Friday.
"And we will raise those concerns very directly."
China's Prime Minister Li Keqiang and Japanese Prime Minister Shinzo Abe will also visit the eerily quiet city where Myanmar's leaders and powerful retired generals have isolated themselves from the largest city and former capital, Yangon.
Competing territorial claims between China and four ASEAN nations will form an undercurrent of tension at the meetings.
Maritime spats peaked this year in May, when China sent a giant oil drilling rig to waters claimed by Vietnam. The move sparked deadly anti-Chinese riots in Vietnam, which along with the Philippines has sought closer U.S. ties to counter what they see as China's aggression.
Philippines President Benigno Aquino will address that this week, a member of his delegation told Reuters, describing it as the "most pressing security issue facing our region today".
For all the blunt backroom talk, the ASEAN group is reluctant to antagonize China and a draft of the chairman's concluding statement, obtained by Reuters, shows little change since foreign ministers met in August.
"We expressed our concerns over recent developments in the South China Sea which have increased tensions," the draft said, urging all parties to "exercise self-restraint, refrain from the use or threat of force, and avoid actions which could undermine peace and stability."
The South China Sea row is so divisive that a summit in Cambodia in 2012 failed to issue a final communique. Despite being a relative novice to the international stage, Myanmar has so far managed to avoid such an embarrassing breakdown.
(Additional reporting by Paul Mooney in Yangon and Manuel Mogato in MANILA; Editing by Martin Petty and Raju Gopalakrishnan)