Bali, Indonesia (CNN) -- Defense Secretary Leon Panetta praised China on more than one occasion Sunday during a series of meetings with fellow defense ministers from southeast Asia, but hinted if relations between the United States and China worsen, it could be a threat to "the security of the world."
He said he appreciates China's muted response to the United States announcing a deal last month to sell more arms to Taiwan, and he lauded China for working with its neighbors with regards to the contentious issues involving the South China Sea.
"I would commend them for the way that they've handled the news of that sale to Taiwan, compared to the past," Panetta told reporters after a meeting with Indonesia's defense minister Sunday in Bali.
China regards Taiwan as a renegade province. Taiwan began as the remnant of the government that ruled over mainland China, until a Communist uprising proved victorious in 1949.
The $5.3 billion arms package, announced last month, includes upgrades to Taiwan's F-16 fighter fleet.
Last year, a similar deal prompted China to temporarily cut off military to military relations with Americans. This time, aside from some strong objections voiced by Beijing, Panetta said there has been no tangible action taken in response by China. "I've heard nothing that indicates that they're taking any steps in reaction to that," Panetta said.
Part of the reason might be the way the United States government handled the sales. "It was something that the United States had announced but we had given the Chinese a heads up as to what was going to take place," Panetta said. "I think in the end ... they handled it in a professional and diplomatic way and we appreciate that. "
The South China Sea, a body of water east of Vietnam, north of Malaysia and west of the Philippines, has been a source of regional tensions for decades. But because of recent discoveries of massive oil reserves as well as its importance to regional maritime and aviation navigation, tensions have increased recently. Many countries lay claims to the same parts of the sea.
After his meeting with the Indonesian defense minister, Panetta met with defense ministers from all eight member nations of ASEAN, the Association of Southeast Asian Nations, which includes all the nations that border the South China Sea, except China.
In remarks prepared for the start of the meeting, Panetta said, "I applaud the July accord between ASEAN and China on implementing guidelines to the 2002 declaration on the conduct of parties in the South China Sea. I would encourage you to maintain this momentum, and continue working towards a binding code of conduct."
But Panetta said there are still some concerns regarding China's military that bear watching.
"Obviously there are some concerns about some of the things they are doing on modernization, there are concerns about some of the things they are doing with some of the more sophisticated weapons that have been developed."
He said China being open and letting the world know what its military is doing is key. "As long as they are transparent, as long as we can discuss these issues on a frank and direct basis then I think we can develop a strong working relationship."
He ended his discussion of China with the reporters on an ominous note about positive relations. "I think it would be in the interest, not only in the interest of both nations, but also in the interest of the security of the world."