China wants to elbow U.S. oil giant Exxon Mobil (XOM.N) out of a $15 billion liquefied natural gas (LNG) project in Papua New Guinea, U.S. Secretary of State Hillary Clinton said on Wednesday in an example of the new competition Beijing presents to U.S. interests.

Clinton told the Senate Foreign Relations Committee that Republican proposals to cut the U.S. foreign affairs budget would hit U.S. efforts to compete with China's rising power on the global stage.

We are in a competition with China, Clinton said, citing the Papua New Guinea energy find as an example.

Exxon Mobil is producing it. China is in there every day, in every way, trying to figure out how its going to come in behind us, come in under us, she said.

Exxon Mobil is the majority stakeholder in the Papua New Guinea project, which is due to come on stream in 2014 and is expected to produce 6.6 million tonnes of LNG per year -- a potential windfall for the poor island nation.

Clinton said China was also boosting ties with other states across the Asia-Pacific, including what she called the dictatorial regime in Fiji and other island nations that have long been reliable if little noticed U.S. allies.

Clinton said funding cuts that would require a U.S. pullback on everything from support for global health programs to protection of women's rights could have a serious long-term impact on U.S. influence around the world.

If anybody thinks that our retreating on these issues is somehow going to be irrelevant to the maintenance of our leadership in a world where we are competing with China, where we are competing with Iran, that is a mistaken notion, she said.

Republicans have proposed a 16 percent cut to U.S. spending on diplomacy and foreign assistance, among other things, saying it is imperative to fight the ballooning federal deficit.

Clinton said the U.S. retreat was opening new doors to competitors, noting new media challengers such as Al Jazeera and Russian and Chinese English-language broadcasters were winning the information war.

Let's put aside the moral, humanitarian do-good side of what we believe in and let's just talk straight realpolitik, Clinton said of the various U.S. programs that could be hit by the budget cuts.

I also look at this from a strategic perspective, and it is essential.