Philippine President Benigno Aquino urged all Filipinos on Monday to unite in sending a message to China over a territorial row, insisting his country would not give in to its more powerful neighbour.

In his annual "state of the nation" address to parliament, Aquino said his government had shown goodwill and forbearance in handling the months-long dispute over competing claims to parts of the South China Sea.

"I ask for solidarity from our people regarding this issue. Let us speak with one voice. Help me relay to the other side the logic of our stand," Aquino said.

"If someone entered your yard and told you he owned it, would you agree? Would it be right to give away that which is rightfully ours?"

Aquino recalled how the row began in April when Chinese government ships blocked Philippine boats from arresting Chinese fishermen in Scarborough Shoal, an outcropping claimed by both countries in the South China Sea.

He said the Philippines had since ignored the Chinese state-run media's "harangues" over the issue.

"I do not think it is excessive to ask that our rights be respected, just as we respect their rights as a fellow nation in a world that we share," Aquino said.

China claims sovereignty over nearly all of the sea, which is believed to hold vast amounts of oil and gas, is one of the region's most important fishing grounds and is home to shipping lanes that are vital to global trade.

The Philippines, as well as Vietnam, Malaysia, Brunei and Taiwan, also claim parts of the sea, making the area one of the region's potential military flashpoints.

The Philippines and Vietnam have complained over the past year that China has becoming increasingly aggressive in staking its claims to the area.

Aquino said the Philippines was looking to find a resolution that was "acceptable to all", and made no threats.

However, in a separate part of his 90-minute speech, he also stressed he was pushing through with the modernisation of the Philippine military, one of the most poorly equipped in Asia.

He said his government had allocated 28 billion pesos ($67 million) for military modernisation to acquire new hardware and repair old equipment, with new helicopters and a frigate due to arrive next year.

And he said the government was planning to spend 75 billion pesos on defence over the next five years.

A large part of Aquino's speech was devoted to the economic reforms he said had been achieved since his administration took over from his graft-tainted predecessor, Gloria Arroyo, in June, 2010.

Aquino cited as evidence economic growth of 6.4 percent for the Philippines in the first quarter of the year, one of the best in the region, as well as repeated credit ratings upgrades from international agencies.

He said his government had given millions of poor Filipinos greater access to health and education services, and that the unemployment rate had dropped from 8.0 percent in 2010 to 6.9 percent this year.

Aquino said the economic progress had been made possible because of efforts to tackle corruption that he alleged had infected all parts of government during the nearly 10 years that Arroyo was in power.

"Now, with a level playing field, and clear and consistent rules, confidence in our economy is growing," he said.

Aquino made repeated references to the plight of the nation under his predecessor, describing the Philippines then as a "rotten state", and vowing again to ensure those involved in corruption would be punished.

Arroyo has been one of his chief targets, and she is now in detention awaiting trial on vote fraud and corruption charges.