By Yeganeh Torbati KUALA LUMPUR (Reuters) - As the United States and Japan tussled with China over the wording of a concluding statement at an Asian security meeting in Kuala Lumpur this week, caught in the middle was host Malaysia. Plans for a joint statement were eventually dropped by the Malaysian government because of disagreements over the disputed South China Sea. U.S. and Japanese officials wanted to address Beijing's island-building. Chinese officials resisted. The episode illustrates the thin line Malaysia and other smaller Southeast Asian states must walk in balancing ties with China and the United States, especially since a U.S. warship challenged the territorial limits around one of China's man-made islands in the Spratly archipelago last week. China is Malaysia's biggest trading partner, according to Malaysian government statistics, and in contrast to other countries with competing claims to the South China Sea such as the Philippines and Vietnam, has typically played down concerns over China's expanding military reach. Nevertheless, U.S. defense officials say Malaysia, along with other states in the region, has sought a greater U.S. military presence to counter China's assertiveness in the South China Sea. "We see the increased demand ... really across the board in the region," said a senior U.S. defense official. "Malaysia's a good example." On Thursday, U.S. Secretary of Defense Ash Carter will visit Malaysian naval forces as he wraps up a three-day stay in Kuala Lumpur. During his planned visit on Thursday to a U.S. aircraft carrier, Carter will be accompanied by Malaysian defense minister Hishammuddin Hussein. U.S. Marines and their Malaysian counterparts will also hold a joint amphibious training exercise next week in eastern Malaysia. "There have also been invitations to do more training in some training ranges that Malaysia has," the senior official said. "There has been a lot more activity going on." Malaysia has a long-standing arrangement to service and supply U.S. military ships and aircraft as they pass through the region, making U.S. ships and planes frequent visitors to Malaysia's ports. The number of U.S. ship visits to Malaysia has steadily risen, from a handful per year in the early 2000s to more than 30 visits in 2011, according to the Congressional Research Service. A senior Malaysian official said this week that Malaysia cannot be seen to be leaning towards either China or the United States too heavily. "Malaysia has to balance it out," the official said, on condition of anonymity. Hishammuddin this week highlighted the quandary for smaller states, saying he hoped countries outside the region would not raise tensions. "We will continue to engage China. We will continue to engage the U.S.," he said. "The fact that we are able to engage them and actually look at the reality ... that is a clear message to the major powers out there." CHINESE PATROLS U.S. and Western diplomats say they have been keen for several years for Malaysia to pay closer attention to mounting security challenges in the region, particularly from China. Chinese warships have staged regular patrols off James Shoal off the Malaysian state of Sarawak on the island of Borneo. Diplomats and analysts who have viewed satellite images say Chinese coastguard ships now also maintain a semi-permanent presence at South Luconia Shoals, to the north of James Shoal. "Malaysia's role and importance in broader security issues, particularly the South China Sea, is only going to grow more strategic," one Western diplomat said. "It is a matter of pushing and nudging them into doing the right thing, rather than expecting them to take a lead and confront China." But Malaysia has sought not to alienate China. In September, it carried out training exercises with the Chinese navy in the Strait of Malacca. Traditionally, Malaysia cooperated more with the United States on military matters while ties with China were focused on economic links, said Oh Ei Sun, a senior fellow at the S. Rajaratnam School of International Studies in Singapore. But the September military exercise with China and the conclusion of a Pacific trade deal with the United States underscored how Malaysia's ties with both countries were deepening, Sun said. "It's a much more challenging task because in both spheres now you need to perform the balancing act," Sun said. (Additional reporting by Greg Torode in Hong Kong; Editing by Dean Yates)
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