* Leaders get straight to business despite informal setting
* Obama says cyber security problem with China must end
* Xi says China also a victim of cyber spying (Adds Obama, Xi quotes)
By Steve Holland, Matt Spetalnick and John Ruwitch
RANCHO MIRAGE, Calif., June 7 (Reuters) - U.S. President Barack Obama and China’s President Xi Jinping agreed on Friday to work together to try to resolve disputes over cyber security, a major irritant between the world’s top two economic powers.
Hosting Xi at a two-day summit in a luxurious desert estate in southern California, Obama said the United States welcomes China’s “peaceful rise” but made clear that Beijing must play by the same rules of economic world order as other major nations.
The United States says Chinese hackers have accessed American military secrets, an accusation China denies, and the White House itself faces questions at home over its own surveillance of emails and phone records.
Obama did not shy away from the issue of cyber spying in the first day of closed-door meetings, but he took a cautious line at a news conference, stopping short of pointing the finger directly at China or threatening any consequences.
With Xi making his first U.S. visit since taking over the presidency in March, both sides appeared intent on giving the impression of a constructive tone at a summit billed as a get-to-know-you encounter at the sprawling Sunnylands compound near Palm Springs.
But honing in on the top U.S. concerns, Obama said Washington wants “an international economic order where nations are playing by the same rules, where trade is free and fair and where the United States and China work together to address issues like cyber security and protection of intellectual property”.
Xi agreed on the need to resolve the cyber-security issue in a “pragmatic way” but was also quick to deflect blame, saying China was also a victim of cyber attacks.
Ties between Beijing and Washington have been buffeted in the last few months by strains over trade disputes, North Korea, human rights and each country’s military intentions.
Obama said the two countries must strike a balance between competition and cooperation to overcome the challenges that divide them, and Xi pushed for a relationship that takes into account China’s ascendancy.
The first day of meetings yielded no major breakthroughs or even concrete announcements.
Obama welcomed Xi in withering heat, and the smiling leaders posed for a handshake photograph against a backdrop of manicured gardens with barren desert mountains in the distance. Both wore suits without neckties.
U.S. officials believe Obama and Xi will develop a personal rapport - something lacking between American presidents and Xi’s notoriously stiff predecessor, Hu Jintao - that could help ease tensions in one of the world’s most important bilateral relationships.
A willingness to forgo the traditional pomp and scripted discussions of a White House visit appears to signal a fresh approach by Xi, who as president-in-waiting met Obama in Washington in February 2012. He is a Communist Party “princeling”, the son of a revolutionary leader. But he is also fond of Hollywood movie war dramas.
Obama said it was important to forge “common rules of the road” to protect intellectual property - one of Washington’s biggest complaints against Beijing.
He wants Xi’s assurance, at least behind closed doors, that he takes seriously accusations of growing Chinese cyber spying, including snooping on advanced U.S. weapons designs, and will act to curb the problem.
But Xi may not be in a conciliatory mood.
He is expected to voice discomfort over Washington’s strategic pivot toward Asia, a military rebalancing of U.S. forces toward the Pacific that Beijing sees as an attempt to hamper its economic and political expansion.
And Obama’s protests about Chinese cyber spying might be blunted by news that the U.S. government has been quietly collecting the telephone records of millions of Americans as part of U.S. counter-terrorism efforts.
More questions were raised about the extent of U.S. government domestic spying when the Washington Post reported that the National Security Agency and the FBI are also tapping into the central servers of leading American Internet companies to examine emails and photos.
Obama, visiting California’s Silicon Valley earlier on Friday, staunchly defended the surveillance, calling it a “modest encroachment” on privacy that was necessary to protect the United States from terrorist attack.
He said at the summit that the revelations on U.S. government surveillance did not undermine his effort to improve cooperation with China on cybersecurity.
Beijing insists it is more a victim than a perpetrator of cyber espionage. China’s top Internet security official said this week that he has “mountains of data” pointing to U.S. hacking aimed at China.
But the U.S. Congress is losing patience, particularly after a report that Chinese hackers had gained access to design plans for U.S. weapons systems such as the F-35 Joint Strike Fighter. China denied that, saying it needed no outside help for its military development.
The two leaders may try to deflect pressure at the summit for immediate progress on cyber disputes by promising more in-depth deliberations by a U.S.-China “working group” already set to convene in July for the first time.
Obama is to hold more than five hours of talks with Xi over the weekend at Sunnylands, a 200-acre (81-hectare) estate that has hosted presidents including Ronald Reagan and Bill Clinton.
He will be looking to build on growing Chinese impatience with North Korea over its nuclear and missile programs, a shift that could bring Beijing - the closest thing Pyongyang has to an ally - closer to Washington’s position. (Editing by Louise Ireland)