* Japan, Vietnam agree to tighten ties amid China concerns
* Japan, Vietnam reach deal on military goods exports
* Leaders agree on need for peace in South China Sea
(Adds joint military drill by U.S., Japan, Australia)
By Khanh Vu and Kiyoshi Takenaka
HANOI, Oct 19 (Reuters) - Japan hailed an agreement in
principle to supply Vietnam with military gear and technology,
as the two governments pledged on Monday to strengthen security
and economic ties amid mounting concerns about China's
assertiveness in the region.
"It is a big step in the field of security for both
countries," Japanese Prime Minister Yoshihide Suga told
reporters after meeting his Vietnamese counterpart, Nguyen Xuan
Phuc, in Hanoi.
The two leaders also agreed on the importance of maintaining
peace, security, freedom of navigation and overflight in the
South China Sea, and the peaceful settlement of disputes, Phuc
said in a joint media appearance.
Suga, who took office last month after Shinzo Abe quit
because of poor health, is making his overseas diplomatic debut
this week, visiting Vietnam, the current chair of the
Association of Southeast Asian Nations (ASEAN), and Indonesia,
the group's largest nation.
"Vietnam welcomes Japan, a global power, to continue to
actively contribute to regional and global peace, stability and
prosperity," Phuc said.
In a speech later Monday, Suga said Japan opposed any steps
to heighten tensions in the South China Sea, where Vietnam and
other ASEAN members have territorial disputes with China.
"Regarding the South China Sea issue, it is important for
all countries concerned not to rely on force or threat but to
work toward peaceful resolution based on international law,"
Suga said, avoiding harsh anti-China rhetoric.
Back in Tokyo, Japanese Defence Minister Nobuo Kishi told
reporters that Japan's Maritime Self-Defence Force will conduct
a joint drill with U.S. and Australian navies around the South
China Sea on Monday, Kyodo news agency reported.
Kishi also agreed with visiting Australian Defence Minister
Linda Reynolds to start talks to make it possible for Japan's
Self Defence Forces to protect Australian military assets such
as warships and aircraft, Kyodo said. Japan already has similar
arrangements with the United States.
SUPPLY CHAIN DIVERSITY
Japan must balance its deep economic ties to China with
security concerns, including Beijing's claims over disputed
isles in the East China Sea.
ASEAN members remain wary of losing access to China's
economy, and are reluctant to become entrapped in an intense
confrontation between Washington and Beijing.
Japan, which ended a decades-old ban on overseas arms sales
in 2014 to help strengthen the nation's military and lower the
cost of home-built military equipment, has been in talks with
Vietnam, Indonesia and Thailand on deals to allow such exports.
"We have to make sure the equipment and technologies
transferred to Vietnam (are) to be used in a peaceful manner and
contribute to regional peace," Japanese foreign ministry
spokesman Tomoyuki Yoshida told a separate news briefing.
Suga's visit also coincides with Japan's efforts to
diversify its supply chains and reduce reliance on China by
bringing production home or moving it to Southeast Asia.
Vietnam is a popular choice for Japanese companies. Half of
the 30 Japanese firms that used a 23.5 billion yen government
programme to diversify supply chains in Southeast Asia targeted
Vietnam, which has aggressively courted such investment.
Suga and Phuc witnessed the signing of a memorandum of
understanding for Japan's Marubeni Corp 8002.T to invest $1.3
billion in a power plant in Vietnam's Can Tho province and
another for Tokyo Gas Co Ltd 9531.T and PetroVietnam Power
Corp POW.HM to jointly develop a $1.9 billion gas-fired plant
in Vietnam.
Suga said the two countries would bolster cooperation to
mitigate the impact of the pandemic, and announced a resumption
of air travel links.
"We agreed on restarting 'business track' travel as well as
passenger flights between the two countries today," Suga told
the joint media event.