By Elaine Lies
TOKYO (Reuters) - When leaders from Japan and Southeast Asia gather in Tokyo this week, the elephant in the room will be a nation that is not invited: China.
Beijing's rise as a military power as its economy has become second only to that of the United States has long sparked concern in Asia, and tensions spiked last month when China announced a new air defence zone straddling islands also claimed by Japan in the East China Sea.
China, despite being a major trade partner and investor in Southeast Asia, is also locked in territorial rows with several other Asian nations over wide stretches of the South China Sea and has said it might set up a similar air defence zone there.
Japan, which has in recent years stepped up private sector investment in the Association of Southeast Asian Nations (ASEAN) member countries as an alternative to an unpredictable and risky China, now wants to draw closer to the grouping on the security front as a counter-balance to Beijing.
"It is very important to show our big neighbour in Asia the mainstream is free markets, democracy, human rights," said a Japanese government official familiar with diplomatic strategy.
"This is the future. This is the message to be sent from the summit."
The meeting with the 10-member ASEAN will include expanded currency-swap deals and fresh aid offers, such as a post-typhoon loan to the Philippines of some 10 billion yen ($97 million).
ASEAN includes Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.
Japanese Prime Minister Shinzo Abe, elected a year ago next week, has visited the leaders of all 10 ASEAN countries but has yet to arrange a summit with China or South Korea - two countries with whom Japan has rancorous territorial disputes.
Japan typically meets ASEAN nations in conjunction with China and South Korea, but the Tokyo summit, starting Friday, is meant to commemorate Japan's 40-year ties with the group and does not include the usual "ASEAN+3" participants.
The intent is not to exclude China, Japan insists. But maritime disputes and China's air zone "would definitely be discussed," as Japan has put them on the agenda, said a senior Philippines diplomat.
China said in late November it would take "defensive emergency measures" against aircraft that flew through its unilaterally declared air defence zone without identifying Chinese authorities. China later said it would not harass commercial aircraft, and U.S. and Japanese military craft have overflown the area without incident.
But China's sudden move has put many Asian nations on edge.
"Beijing has set the agenda for the ASEAN-Japan summit: it's going to be about the collective anxieties that China has stirred about its regional ambitions," said Jeffrey Kingston, director of Asian Studies at Temple University's Tokyo campus.
Abe's "regional diplomacy has focused on trying to forge solidarity with Southeast Asia vis-a-vis what is seen as a threatening China, and China has done him a great favour by playing the part of the plausible bogeyman," Kingston added.
But a senior official at the Myanmar president's office shrugged off the idea.
"I don't think this summit is meant to counter China just because China is not involved in it," he said. "There are similar summits between the ASEAN and China, India or South Korea."
On the investment front, Tokyo has been shifting its focus from China to ASEAN as costs there rise. Its foreign direct investment in ASEAN last year stood at $14.4 billion, topping the country's $13.5 billion investment in China, according to data from the Japan External Trade Organization.
The pace has remained brisk this year as well, with $8.2 billion invested in ASEAN from January to May, nearly double the $4.2 billion in China.
At stake is a region of 600 million people and growing demand from an expanding middle class, officials say.
"Economically, it is time to hug tight the ASEAN nations," the Japanese government official said.
Inevitably, though, the Chinese defence zone looms large.
A draft statement for the leaders "stresses the importance of freedom of flight through airspace over the high seas, as recognised by international law," and pledges cooperation at the United Nations civil-aviation body where Japan has aired its concerns over China's air zone, Japan's Kyodo News reported last week.
Abe will also use the summit to bolster financial ties with ASEAN. Japan aims to expand or restart bilateral currency swap agreements with five of the Asean nations, government sources said this week.
In addition to Japan's dispute with China over the islands - called Senkaku by Tokyo and Diaoyu by Beijing - ASEAN members Malaysia, Brunei, the Philippines and Vietnam all have overlapping claims with China in the oil- and gas-rich South China Sea. Manila took Beijing to a United Nations court to challenge its historic claim to much of the strategic waterway.
China did not endear itself to its neighbours when it offered the Philippines $200,000 - later raised to $1.6 million - in aid from the country's recent typhoon devastation. In contrast, Japan quickly gave $10 million.
"China's previously deft diplomacy has become tone-deaf," Kingston said. This has "basically unified the region against it, because it does seem a threat to regional peace and stability." ($1 = 102.8850 Japanese yen)
(Additional reporting by Linda Sieg and Shinji Kitamura in TOKYO, and Rosemary Francisco in MANILA; Editing by William Mallard and Raju Gopalakrishnan)
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