By Simon Webb and Paul Mooney
NAYPYITAW (Reuters) - China's Prime Minister Li Keqiang proposed a friendship treaty with Southeast Asian countries and offered $20 billion in loans on Thursday but held firm on the line that Beijing will only settle South China Sea disputes directly with other claimants.
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.
"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 and Li said China was willing to make pacts with more countries on good-neighborliness and friendship.
Li also offered ASEAN countries $20 billion in preferential and special loans to develop infrastructure, an attractive proposition for a region struggling to fund the roads, ports and railways needed for growth.
Still, he reiterated China's resolve to safeguard its sovereignty and its position that maritime disputes 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.
Philippine diplomatic sources were cool to China's treaty offer, saying it lacked substance and was similar to a 2012 Philippine proposal that China ignored.
ASEAN leaders hoped to persuade their giant neighbor to take a less bellicose approach to the overlapping claims when they met Li behind closed doors on Thursday.
But despite the backroom talk, ASEAN as a group has been reluctant to antagonize China.
"We remain concerned over the situation in the South China Sea," the group said its Chairman's Statement 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)