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China, Vietnam hold talks over controversial oil rig -

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MARK COLVIN: In Hanoi, Chinese and Vietnamese officials have held talks for the first time since relations plummeted to their worst level since a brief but bloody war in 1979.

The two communist regimes are at loggerheads over a billion dollar Chinese oil rig which Beijing placed in the South China Sea in May.

The large rig, sitting 30 kilometres south of the Paracel Islands, stands as a symbol of Chinese power. Both nations claim those islands and the oceans around them as their own so a bitter standoff is underway.

South East Asia correspondent Samantha Hawley was given the rare opportunity to travel with the Vietnamese Coastguard for five days and she filed this report.

SAMANTHA HAWLEY: The port city of Da Nang is the Vietnamese frontline for a dispute that's unfolding at sea. Here, so many livelihoods have a maritime link.

Dang Vang Nan (phonetic) is the captain of a wooden fishing boat, but for now his income's been taken away as his boat sits on land awaiting repair.

(Dang Vang Nan speaking)

"It was damaged last month," he tells me, after a Chinese boat chased and then rammed into the boat's side, causing it to capsize and forcing those on board to swim for their lives.

"The Chinese boat is very big," he says. "It's six to seven times bigger than my boat" and its cover is metal.

But the Chinese reject the allegation.

In Hanoi, an official meeting between China and Vietnam is held for the first time since China placed a billion dollar oil rig in the seas near the disputed Paracel Islands.

Beijing argues the oil rig is completely legal because it lays claim to the islands and the ocean around them, and it accuses Vietnam of hyping up the row unfolding on the South China Sea.

(Sound of crew yelling over loud speaker)

These are the sounds from the Vietnamese Coastguard ship 8003. Stationed near the oil rig, it spends its days taunting Beijing and ordering its ships to leave what it says is Vietnamese waters.

I was embedded with the Vietnamese Coastguard for five days to see firsthand the tensions at sea.

It's the job of ship 8003 to move closer to the oil rig up to twice a day and blare its message out in three languages: Vietnamese, Chinese and English.

VIETNAM COASTGUARD MESSAGE: This is Vietnam Sea Patrol Force. This maritime area belongs to Vietnam's special economic zone. Your activities in this maritime area violates international law.

SAMANTHA HAWLEY: Powerful Chinese ships guard the rig and they literally chase the Vietnamese away in a dangerous game of cat and mouse that has so far only seen boats damaged. But they could very easily spill over into something far more serious.

The Vietnamese are on a PR (public relations) offensive. Along with just a handful of foreign reporters, there are about 30 Vietnamese journalists aboard coastguard boats. They're there to relay a propaganda message on the nightly news back home.

Tran Owish (phonetic) is one of them.

"I feel glad to join this trip," he tells me, "because we have a chance to go to the real site where the Chinese oil rig is illegally violating the Vietnamese exclusive economic zone. The sea belongs to Vietnam," he says, "and the Paracel and Spratley Islands also belong to us. The previous generations sacrificed their own blood and bones," he tells me, "to safeguard those two islands."

Back in Da Nang, Dang Vang Nan, the captain of the wooden fishing boat that capsized and sunk, says workers like him are struggling.

(Dang Vang Nan speaking)

"We wish all countries in the world to request China to withdraw their oil rig," he says, "so we can have our normal business. This is the area for our living."

But, in the dispute at sea, the most powerful nation is winning, and there's no way Beijing will back down.

This is Samantha Hawley on the South China Sea reporting for PM.