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China, U.S. to boost security ties, but no breakthroughs

By Lesley Wroughton and Michael Martina

BEIJING (Reuters) - China and the United States agreed on Thursday to boost military ties and counter-terrorism cooperation during high-level annual talks in Beijing, but there was little immediate sign of progress on thorny cyber-security or maritime issues.

The two-day talks, led by Secretary of State John Kerry and Treasury Secretary Jack Lew for the United States and Vice Premier Wang Yang and top diplomat Yang Jiechi for China, were never expected to achieve great breakthroughs.

The Strategic and Economic Dialogue, now in its fifth year, is more about managing an increasingly complex and at times testy relationship.

After discussions on topics ranging from the value of China's currency to North Korea, Yang said the two sides agreed to strengthen cooperation in counter-terrorism, law enforcement and military-to-military relations.

He gave few details.

On two of the most sensitive issues - maritime disputes and cyber-spying - Yang largely restated Beijing's position on both.

"The Chinese side will continue to steadfastly protect its territorial and maritime rights" in the South and East China Seas, Yang told reporters as the talks wrapped up.

"China urged the U.S. side to adopt an objective and impartial stance and abide by its promise to not take sides and play a constructive role in safeguarding regional peace and stability."

Washington insists it has not taken sides but has criticized China's behavior in the potentially energy-rich South China Sea, where the Philippines, Vietnam, Malaysia, Brunei and Taiwan have overlapping territorial claims with China.

Beijing, however, views the United States as encouraging Vietnam and the Philippines to be more assertive in the dispute, and of backing its security ally Japan in the separate spat over uninhabited islands in the East China Sea.

China's Foreign Ministry criticized the Philippines on Thursday for extending by one year a drilling permit for London-listed Forum Energy Plc for a natural gas project in the disputed Reed Bank area of the South China Sea.

"Any foreign companies carrying out development of oil or gas in China's territorial waters without obtaining permission from China are breaking the law," ministry spokesman Hong Lei told a daily briefing.

CYBER TALKS FRANK

On Internet security, Kerry told reporters that discussions were frank, and both sides agreed it was important to keep talking.

It was unclear if any progress was made in resuming the activities of a cyber working group that Beijing suspended in May after the United States charged five Chinese military officers with hacking.

"The loss of intellectual property through cyber has a chilling effect on innovation and investment. Incidents of cyber theft have harmed our businesses and threatened our nation's competitiveness," Kerry said.

Chinese hackers broke into the computer networks of the United States government agency that keeps the personal information of all federal employees in March, the New York Times reported this week, citing senior U.S. officials.

Yang said China wanted cooperation on cyber issues on the basis of mutual respect and trust.

"China believes cyber-space should not become a tool to harm other countries' interests. China hopes the U.S. side can create the conditions to carry out U.S.-China dialogue and cooperation on the Internet," he said.

China sees the United States as being hypocritical on the subject following revelations about Washington's own spying by former U.S. intelligence contractor Edward Snowden.

Kerry also repeated his earlier message that Washington wanted a strong, prosperous and stable China.

"And we mean what we say when we emphasize that there's no U.S. strategy to try to push back against or be in conflict with China," he told Chinese President Xi Jinping in Beijing's Great Hall of the People.

(This story has been refiled to fix typo in paragraph 15)

(Writing by Ben Blanchard; Editing by Dean Yates)

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