The strategic rivalry between the United States and China will form the backdrop to this week's Asian security dialogue in Indonesia, as tensions rise in the resource-rich South China Sea.

US Secretary of State Hillary Clinton will attend the ASEAN Regional Forum in Bali on Saturday along with foreign ministers and senior officials from around Southeast Asia, as well as China, Japan, the Koreas and Australia.

While issues such as North Korea, the Thai-Cambodia border dispute and Myanmar may also surface, most eyes will be on how delegates navigate the choppy diplomatic waters of the South China Sea.

Tensions have escalated in recent weeks, with the Philippines and Vietnam expressing alarm at what they say are increasingly forceful Chinese actions.

These include accusations of Chinese forces opening fire on Filipino fishermen, shadowing an oil exploration vessel employed by a Philippine firm, and putting up structures in areas claimed by the Philippines.

Vietnam voiced anger after a Chinese vessel cut the exploration cables of a Vietnamese survey ship in May, and Beijing condemned US-Vietnam naval exercises that began last week off Vietnam's coast.

China, the Philippines, Vietnam, Brunei, Malaysia and Taiwan all have overlapping claims to parts of the South China Sea, believed to be rich in oil and gas deposits and home to shipping lanes vital to global trade.

But looming over all the inter-Asian disputes is the larger rivalry between China, which is hoping to secure oil and gas reserves, and the United States, which regards the South China Sea as part of its national interest.

Who blinks first will be read, rightly or wrongly, as a sign of who has the upper hand in the balance of power in Asia generally, with both Beijing and Washington competing to extend or maintain their strategic reach.

"Differences exist and dialogue should not be stifled. But it is a conversation best guided by calm, context and norms," said Simon Tay, chairman of the Singapore Institute of International Affairs.

"If not, a shouting or potentially shooting contest may result."

Indonesian Foreign Minister Marty Natalegawa, speaking on behalf of the chair of the 10-member Association of Southeast Asian Nations (ASEAN), agreed that the South China Sea would be the elephant in the room in Bali.

"Essentially, when we see the South China Sea issue or the maritime issue generally, at this moment it is seen as a problem or a factor that can cause rifts among countries in the area," he told reporters.

"This mindset must change."

He said he expected progress on a long-discussed code of conduct for the sea, adding: "I'm not pessimistic that we can reach significant progress if there's good faith by all parties."

Pessimism has seemed more than justified by some of the signals emanating from China and the United States recently.

Chen Bingde, chief of the General Staff of the People's Liberation Army, confirmed for the first time last month that China is building an aircraft carrier, a weapon viewed by many military analysts as offensive.

Republican Senator John McCain said the United States should help ASEAN members develop coastal defences and "establish a more unified front" against China.

He said he welcomed a cooperative relationship with China but laid the blame squarely on China's "aggressive behaviour" and "unsubstantiated territorial claims" for recent tensions.

Zha Daojiong, a professor at the School of International Studies, Peking University, wrote in a recent paper that both sides realised that the "past years state of affairs over the South China Sea issue is not sustainable".

He said the holding of the first official US-China dialogue on the Asia Pacific in June was cause for optimism and he did not expect a "showdown" over the South China Sea issue in Bali.

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