Stalemate in the South China Sea

Implications for ASEAN and the Region

By
Moored
Stalemate in the South China Sea : Implications for ASEAN and the Region - Jagabanta Ningthoujam

Abstract

China’s rise is causing a major upheaval in international relations. The South China Sea is one of the major theatres where a rising China is confronting the existing status quo, threatening not just the Association of Southeast Asian Nations (ASEAN) countries’ maritime claims but also the influence of the US and Japan in the region. What is at stake is not just the territorial claims but also potential hydrocarbon resources, security of international maritime trade and local fishing economies. But despite rising tensions, common interests remains in ensuring that the sea trade remains unaffected. China is still ASEAN’s largest trading partner. The involvement of third parties, while complicating the situation, will help keep conflicting interests in check.

Introduction

As China rises and slowly starts exerting its political, economic and military influence, other countries in the region are increasingly feeling threatened. Territorial claims are constantly being challenged both at land and at sea. Using the ongoing tension over territorial claims in the South China Sea as a canvas, this analysis aims to understand the development, intrinsic motivations, and consequences of China’s rise on the ASEAN region and other associated actors.

Background

The backdrop to the tension in the South China Sea is the overlapping maritime territorial claims by China, Taiwan, Vietnam, the Philippines, Brunei, and Malaysia. The most contentious territories include the Spratly Islands, Paracel Islands, Pratas Island, Macclesfield Bank, and Scarborough Shoal. While no country is completely blameless in the escalation, China remains the largest aggressor with the most extensive territorial claim: its “9-dash line,” which covers all of the most contentious islands.

China has cited 2,000 years of history in laying its claim to the region. In 1947, China issued a map to illustrate its position and in late 2012, Beijing started producing new passports with these areas highlighted on the map, thereby drawing fresh criticism. Vietnam has countered the Chinese, saying that Beijing never claimed the Spratly and Paracel islands until the 1940s and that it had ruled over the islands since the 17th century. In 1988, 70 Vietnamese soldiers were killed in a naval battle with the Chinese near the Spratly Islands. The Philippines’ position is based on geographical proximity, and they have engaged in minor skirmishes in the past with Vietnam, Malaysia, and the Chinese. Both China and the Philippines lay claim to the Scarborough Shoal. Unlike the Chinese however, the rest of the claimants have cited exclusive economic zone (EEZ) rights according to the UN Convention on the Law of the Seas (UNCLOS) as the basis for their argument.

As a way to exert sovereignty, claimant countries have tried occupying various islets and rocks over the decades. Major claimants, including China, Vietnam, and the Philippines, have built military installations on some of the islands.[1] There has been a steady increase in the military budgets of the Philippines and Vietnam. China has been enhancing its military muscle in the region and in July 2012, the Chinese Central Military Commission approved the formal establishment of a military garrison in Sansha City in the Paracel Islands. Further, a new regulation was issued allowing Chinese maritime border patrol authorities the right to board and search foreign ships in some of the disputed waters.

Key Motivations – What is at Stake?

Beyond just maritime territorial grabs and power projection, three things are at stake.

First of all, the South China Sea is one of the busiest shipping routes linking the Pacific to the Middle East through Asia. It sees three times more tanker traffic than the Suez Canal and over fives times than that of the Panama Canal. Vital energy commodities, including oil and liquefied natural gas (LNG), pass through the region daily. As the major LNG consumers are located in East Asia, two-thirds of global LNG shipping passes through the South China Sea.  The volume of shipping trade is only expected to rise in the future, given projected economic growth and industrial development.

Secondly, and more importantly, the need for resources is the driving force behind much of the tension. The area is potentially home to large untapped oil and gas reserves. Hydrocarbon resource estimates have varied. While China National Offshore Oil Corporation (CNOOC) estimates reserves at 125 billion barrels (bbl) of oil, the US Energy Information Administration (EIA) estimates around 11 billion bbl.[2] Despite disagreements about estimates, most interested parties agree that reserves are extensively large to warrant their interest. Gas resources are estimated to be almost 266 trillion cubic feet (TCF) by the EIA, and CNOOC’s estimates going as high as 500 TCF. Both China and the ASEAN countries anticipate growing demand for energy, meaning the region’s potential to produce oil and gas provides a powerful incentive to control the region.

Fishing resources are also an important prize. An estimated 500 million people live within 100 miles of the South China Sea coast and depend on the sea for their livelihood. In the absence of frontal military conflicts, smaller-scale fishing incidents have instead become the hub of maritime confrontation as declining fish stocks have driven fishermen farther into disputed areas to search for supply.

For China, energy resources are of paramount importance, but it is not likely that China would endanger the sea trade route with an open conflict any time soon when it depends so heavily on that trade to power its burgeoning economy. China’s move to establish a fishing regulation under the jurisdiction of the government of Hainan, requiring all fishing vessels operating in its territorial claim area to secure approval from the relevant Chinese authorities, is seen as a move to exert sovereignty over the region and has drawn criticism from both ASEAN and international parties.[3] China’s position on conflict resolution has been to try and settle these issues through background bilateral negotiation as opposed to any multilateral regional forum.

For the other players, the hydrocarbon resources and access to sea-lanes remain extremely important. Beyond these factors, they are also wary of China flexing its muscles and dictating terms, and therefore wary of bilateral negotiations with China. The position of Vietnam and the Philippines is to solve this problem through a multilateral dialogue using an international forum. They have tried to use the ASEAN, so far unsuccessfully, as a collective face to challenge China’s position.

ASEAN and Conflicting Geopolitical Interests

The failure of ASEAN was evident in the 2012 summit in Phnom Penh, at which China used its influence over Cambodia to thwart an attempt to present a united ASEAN effort on the issue. Cambodia managed to block a final communiqué that would have called for a code of conduct in the South China Sea, a document intended to prevent or limit any military confrontation. 2012 marked the first time in ASEAN’s history that the body failed to issue a closing statement.[4]This led to some observers questioning the strength of ASEAN, its aim to transform into a EU-like regional bloc, and its ability to negotiate as a group.

Cambodia, and to a lesser extent, Laos, have served as China’s proxies in ASEAN. Increased investment and military cooperation have been provided to Phnom Penh to reward its cooperation with Beijing, and China remains Cambodia’s biggest foreign investor.

Beyond Cambodia, individual countries also have an economic interest in maintaining good relations with China. Most of the ASEAN countries still have a large Chinese diaspora engaging in business and trade who will not be in favor of any escalation. Nearly all ASEAN countries have close and important economic relationships with China, and would be wary of the effects of escalation on their domestic economies.[5]

In the absence of the ability to build a common consensus, the Philippines made a risky move in 2013, by raising the issue at UNCLOS to try and force a ruling on China. Such a ruling will be immaterial if it cannot be enforced on the ground. Additionally, it could also derail any hope of an ASEAN-negotiated code of conduct.[6]

External actors and their motivations

As China’s clout grows, the South China Sea issue is becoming less of a regional issue and more of an international one. This is further complicating the issue and making a successful resolution more challenging.

China’s military superiority has led Vietnam to explore cooperation with India. ONGC Videsh, the international arm of India’s national oil company ONGC, began oil and gas exploration in two offshore blocks in the disputed region in the summer of 2011. As expected, China objected to this move. India tried to withdraw from one block in May 2012 because it was seen as commercially unviable, but in a more strategic move, Vietnam provided OVL with more incentives to stay. India’s Naval Chief, Admiral DK Joshi, also stated in 2012 that the Navy is willing to provide protection to India’s economic assets in the South China Sea, signaling seriousness in India’s involvement in the region. For India, improving relations with ASEAN is seen as an important part of its “Look East” policy as it tries to extend its influence, expand trade, and balance China’s rising clout.[7]

Japanon the other hand, is skeptical of Beijing’s intentions in the region. With ongoing tensions from the Senkaku/Diaoyu Island dispute and a nationalist Prime Minister, Shinzo Abe, Japan is increasingly adopting a more aggressive posture against China. Mr. Abe’s first few foreign visits were to Indonesia, Thailand and Vietnam, while dispatching Deputy Minister Taro Aso to Myanmar and Foreign Minister Fumio Kishida to Australia, Brunei, the Philippines, and Singapore. Despite memories of the Japanese occupation during World War II, even the Philippines agreed to cooperate more closely with Japan on maritime security. Japan is also at the forefront of investment into Myanmar where it counters an existing Chinese presence.

In an article in Project Syndicate before his re-election, Shinzo Abe highlighted his views on the South China Sea: “…the South China Sea seems set to become a ‘Lake Beijing’…. a sea deep enough for the People’s Liberation Army’s navy to base their nuclear-powered attack submarines, capable of launching missiles with nuclear warheads.” To counter China’s growing clout, Japan has called on Asia’s Democratic Security Diamond - Australia, India, Japan, and the US.[8] Mr. Abe’s recent presence as the chief guest on India’s Republic Day celebration was seen by some as a sign of deepening relations between Japan and India. Japan’s interest in keeping the South China Sea out of Chinese control remain strong, as the sea plays an important role in the country’s trade and energy imports. 

As for the United States, the Obama Administration has recommitted itself to the region as part of its “pivot to Asia.” South East Asia is seen as an area where Chinese power and ambitions confront an established US. But while some South East Asian countries have been trying to get the United States to play a more forceful role in the region, other more important US-China bilateral issues will challenge any deeper engagement. It is unlikely that China will easily accept any US-led solution, but the US may be able to help strengthen the position of the smaller claimants while preventing the tension from escalating into a serious military confrontation.

Impact on Exploration & Production (E&P) activities

The increased tensions are bound to affect exploration and production of hydrocarbons in the region. Already, Vietnam and the Philippines are having problems drilling in the disputed territory without incurring Chinese opposition. Vietnam also recently launched a protest against Taiwan’s state-owned CPC Corporation’s plan to conduct oil and gas exploration in the Spratly Islands. Drilling of appraisal wells in the Philippines’ Sampaguita natural gas field on Reed Bank has been delayed. Further, in December, the Philippines temporarily suspended the process of awarding contracts to companies interested in conducting oil and gas exploration in the Northeast Palawan Basin. There is a possibility that China and the Philippines could cooperate for joint exportation, which could decrease some of the tension. But, with the recent decision by the Philippines to raise the issue at the UN, there is a potential challenge to such cooperation. Overall, E&P activities are likely to remain delayed in the South China Sea as exploration in contested areas comes with significant risk. These delays have led countries like the Philippines and Vietnam to reevaluate their energy planning, sparking consideration of importing LNG and coal, and diversifying the fuel mix away from gas.

Chance of military confrontation or resolution

Despite rising tensions, common interests, primarily in open sea-lanes, remain between the parties. ASEAN and China remain deeply entrenched in a trade and investment relationship and there is much to lose if tensions escalate. Both parties recognize this fact and their leaders will need to take caution so as to prevent nationalist sentiments from boiling over. Finally, the involvement of third parties, while complicating the resolution of the situation, helps to keep conflicting interests in check.

With the ASEAN nations’ unwillingness to negotiate bilaterally and with China refusing to cooperate with ASEAN, a definite solution is not likely to emerge any time soon. But, to quote Singapore’s Prime Minister Lee Hsien Long, “…though we cannot solve the problems, we can manage them and keep them under control.”[9]

Notes & References

  1. Jeff Himmelman, Jowel Lovell, “A game of sharks and minnows,” The New York Times Magazine, October 27, 2013, http://www.nytimes.com/newsgraphics/2013/10/27/south-china-sea/
  2. “South China Sea,” EIA, February, 2013,http://www.eia.gov/countries/analysisbriefs/South_China_Sea/south_china_sea.pdf.
  3. “Hai-handed,” The Economist, January 13, 2014. http://www.economist.com/blogs/banyan/2014/01/south-china-sea
  4. “South China Sea Dispute,” Wall Street Journal, http://stream.wsj.com/story/south-china-sea/SS-2-35607.
  5. Ben Cahil, “Geopolitics of the South China Sea,” Energy Intelligence, February 21, 2012,http://c299791.r91.cf1.rackcdn.com/bencahillv2.pdf.
  6. “Divided we stagger – Can Indonesia heal the deepening rifts in South-East Asia,” The Economist, August 18, 2012, www.economist.com/node/21560585?zid=306&ah=1b164dbd43b0cb27ba0d4c3b12a5e227
  7. Rosaling Reischer, “India's Look East Policy in the South China Sea,” The Diplomat August 31, 2012,http://thediplomat.com/2012/08/indias-look-east-policy-in-the-south-china-sea
  8. Shinzo Abe, “Asia’s Democratic Security Diamond,” Project Syndicate, December 12, 2012, www.project-syndicate.org/commentary/a-strategic-alliance-for-japan-and-india-by-shinzo-abe.
  9. Lee Hsien Loong, “Transcript of Prime Minister Lee Hsien Loong's remarks at the APEC CEO SUMMIT 2013 Panel Discussion,” Prime Minister’s Office Singapore, August 6, 2013,www.pmo.gov.sg/content/pmosite/mediacentre/speechesninterviews/primeminister/2013/October/transcript-of-prime-minister-lee-hsien-loong-s-remarks-at-the- pa.html#.UvpN10JdX5I.
Jagabanta Ningthoujam is an M.A. candidate concentrating in International Economics and International Development at the Johns Hopkins University School of Advanced International Studies. A native of India, Jagabanta previously worked as an energy consultant with IHS Cambridge Energy Research Associates (IHS CERA) in Singapore where he was the regional analyst for gas and power covering Asia.