By Simon Webb and Paul Mooney
NAYPYITAW (Reuters) - China's Prime Minister Li Keqiang proposed a friendship treaty with Southeast Asian countries on Thursday but reiterated that territorial disputes in the South China Sea should be settled directly between countries involved.
China, Taiwan and four members of the Association of Southeast Asian Nations (ASEAN) have competing claims in the sea where concern is growing of an escalation in disputes even as the claimants work to establish agreements to resolve them.
"China ... stands ready to become the first dialogue partner to sign with ASEAN a treaty of friendship and cooperation," Li told leaders at an East Asian summit in Myanmar.
The treaty is seen as an attempt by China to dispel any notion it is a threat.
Li said China was willing to sign legal documents with more countries on good-neighborliness and friendship.
Still, he reiterated China's resolve to safeguard its sovereignty and its position that disputes over the South China Sea should be settled bilaterally rather than collectively or through arbitration.
The Philippines, one of the ASEAN claimants, has irked China by seeking international arbitration over China's claims to about 90 percent of the South China Sea.
Diplomatic sources from the Philippines reacted coolly to China's treaty proposal, saying it lacked substance and was similar to a 2012 proposal made by Manila and ignored by Beijing.
ASEAN leaders hoped to persuade their giant neighbor to take a less bellicose approach to the overlapping claims when they met the Chinese leader behind closed doors on Thursday.
But despite the backroom talk, ASEAN as a group has been reluctant to antagonize China. Its Chairman's Statement on Thursday showed little change since foreign ministers met in August.
"We remain concerned over the situation in the South China Sea," the group said without mentioning China.
The Philippines and Vietnam have sought closer U.S. ties to counter what they see as China's aggression.
In May, China sent an oil drilling rig to waters claimed by Vietnam, sparking deadly anti-Chinese riots in Vietnam.
U.S. President Barack Obama, also in Naypyitaw for the East Asian summit, held his first formal meeting with Vietnamese Prime Minister Nguyen Tan Dong on Thursday.
"We very much share the belief that it is important for all countries in the region, large and small, to abide by rules based norms in resolving disputes," Obama said.
On Oct. 2, the United States decided to start easing a nearly four-decade lethal arms embargo on Vietnam.
(Additional reporting by Manuel Mogato in MANILA, Matt Spetalnick in NAYPYITAW and Ben Blanchard in BEIJING; Editing by Jeremy Laurence and Robert Birsel)