HANOI, June 18 (Reuters) - China's top diplomat began a round of meetings with Vietnamese officials in Hanoi on Wednesday as the two countries try to repair a rupture in ties over China's positioning of an oil rig in disputed waters early last month.
But many obstacles remain to resolving one of the worst breakdowns in Sino-Vietnamese relations since the neighbours fought a brief border war in 1979.
Among the challenges likely to come up in talks: The continued presence of the rig in South China Sea waters claimed by both countries as well as Beijing's demand for compensation in the wake of anti-Chinese riots that erupted in Vietnam in the days after the drilling platform was deployed.
Chinese State Councilor Yang Jiechi, who outranks the foreign minister, first met Vietnamese Deputy Prime Minister and Foreign Minister Pham Binh Minh.
The two officials shook hands in front of reporters without smiling and said little before the media was ushered out of the room at a government guesthouse. Outside the building, neither country's national flag was flying, as is customary when senior foreign visitors attend meetings in Hanoi.
Yang will later hold talks with Prime Minister Nguyen Tan Dung as well as the head of Vietnam's ruling communist party before attending a dinner hosted by Minh.
No news conferences are planned.
Yang's visit is the highest-level direct contact between the two sides since the rig was parked 240 km (150 miles) off the coast of Vietnam on May 2.
Vietnam says the platform is in its 200-nautical mile exclusive economic zone and on its continental shelf. China has said the rig is operating completely within its waters.
Sino-Vietnamese ties have been largely frozen since early May, with both sides accusing the other of inflaming the situation. Dozens of Vietnamese and Chinese coastguard and fishing vessels have repeatedly squared off around the rig, resulting in a number of rammings and collisions.
Vietnam's official Tuoi Tre (Youth) newspaper said Chinese ships did little to try to impede Vietnamese boats in the area on Tuesday. It quoted a senior Vietnamese naval official as saying the Chinese ships had been less aggressive, suggesting an effort to dial down tensions on the water ahead of Yang's visit.
NOT ALWAYS NEIGHBOURLY
While communist parties rule both countries and trade has taken off in recent years, Vietnam has long been suspicious of its giant neighbour, especially over China's claims to almost the entire South China Sea. Ordinary Vietnamese are also quickly angered by any perceived bullying from China.
The Philippines, Malaysia, Brunei and Taiwan also have claims to parts of the potentially energy-rich waters.
The Haiyang Shiyou 981 rig is drilling between the Paracel Islands, which are occupied by China, and the Vietnamese coast.
Its deployment triggered anti-Chinese riots in Vietnam in which four people were killed during a rampage of destruction and looting of factories believed to be owned by Chinese companies. Many of the factories were Taiwanese-owned.
Vietnam detained several hundred people in the aftermath of the violence. Around a dozen people have been tried and given jail terms of up to three years.
Prime Minister Dung last month said his government was considering taking legal action against China. That drew an angry response from Beijing.
China has said the rig will explore until mid-August. It has a good chance of finding enough gas to put the area into production, Chinese industry experts have said. (Additional reporting by Nguyen Ha Minh; Writing by Dean Yates; Editing by Nick Macfie)