GIS Dossier: The South China Sea

A map of the territorial claims in the South China Sea
China has territorial disputes in the South China Sea with five other countries. Each must balance their own claims with economic and security interests (source: macpixxel for GIS)

GIS Dossiers aim to give our subscribers a quick overview of key topics, regions or conflicts based on a selection of our experts’ reports since 2011. This survey is devoted to one of the world’s most important waterways and the region at the crux of U.S.-Chinese competition: the South China Sea.

The rise of China is arguably the most important geopolitical development of the 21st century – at least so far. The country’s rapid economic growth has given it the ability to influence global events to a degree it has not enjoyed in centuries. This newfound clout has allowed China to project its power farther than ever before, and it has begun to do so with surprising determination and effectiveness.

Nowhere has this been more evident than in the South China Sea, one of the world’s most important arenas for maritime trade. It is the second-busiest sea lane in the world, carrying an estimated one-third of global shipping – much of it Chinese commerce with other countries. According to some estimates, almost 40 percent of China’s foreign trade in 2016 transited through the South China Sea. This crowded body of water could also contain a wealth of oil and gas, though no one is sure precisely how much.

China seeks to develop a long-term strategy while other countries look for short-term advantages

Back in 2011, GIS expert Dr. Uwe Nerlich pointed out how a key part of Beijing’s strategy to become a full-fledged global power was its effort “to expand control throughout the South China Sea and the West Pacific,” aiming to “reduce U.S. strategic leverage” and put Washington in a position where it is less able to defend allies like Japan, Taiwan, the Philippines and even India. Beijing is in it for the long haul, he wrote. “China seeks to develop a long-term strategy while other countries look for short-term and, possibly, short-lived advantages.” The country has slowly but steadily built up its position throughout the sea, causing friction with neighbors and other powers – but always increasing its strategic advantage.

Core interest

At the heart of Beijing’s strategy in the South China Sea is its so-called “nine-dash line,” a demarcation that ostensibly grants China sovereignty over nearly 90 percent of the entire sea. Though China has claimed this territory since at least 1947, it had done little to press the issue until 2009, when it wrote a letter to the Secretary-General of the United Nations declaring “indisputable sovereignty over the islands in the South China Sea and the adjacent waters.” In 2010, it called the South China Sea a “core interest” – phrasing it had until then used only to refer to Xinjiang, Tibet and Taiwan. The state-controlled Global Times newspaper wrote that this designation meant China had the right to use military means to defend its claims.

In recent years, China has begun flexing its muscles in the sea, building military bases on many of the reefs and other features, even within areas that other countries claim sovereignty over. According to Dr. Nerlich, the key here was for China to assert its dominance and test the reliability of U.S. support for other countries in the region.

It is blocking access to U.S. carriers by its land-based DF-21 anti-ship missiles and conventional, low-noise submarines, and through an increasingly integrated land, sea, air, space and cyber capability. This is backed up by nuclear submarine-launched ballistic missiles. Finally, there is the so-called tunnel-based ‘Second Artillery’ which is said to have built a 5,000km-long underground tunnel to store China’s nuclear arsenal of ballistic missiles for long-range strikes. This will ensure regional dominance and tend to keep U.S. capabilities out of the South China Sea. It will also influence neighboring countries and weaken their reliance on U.S. protection.

He concluded that Washington was unlikely to step up its strategic involvement in the region soon, but pointed out that American leaders have declared the U.S. has a “national interest” in the freedom of navigation.

Rising danger of conflict

Tensions escalated when China began beefing up its military might throughout some of the archipelagos within the sea – including those claimed by other countries. For example, it built an airstrip in the Spratly Islands (claimed by Vietnam and the Philippines) and deployed surface-to-air missiles on the Paracel Islands (also claimed by Vietnam). GIS Founder and Chairman Prince Michael of Liechtenstein noted in July 2015 that China was sending a message to its neighbors in Southeast Asia that it wants to be recognized as a regional hegemonic power. “This is where China’s interests clash with those of the U.S.,” he said, and warned: “The largest danger facing the world today is China-U.S. relations in the Pacific.”

A map showing the arc of U.S. allies and areas of potential conflict in the Western Pacific and Indian Ocean
China feels hemmed in by a ring of U.S. allies in the Western Pacific. The South China Sea forms just one volatile point of potential conflict along that arc (source: macpixxel for GIS)

In August 2015, GIS guest expert Dr. Nicola Casarini wrote that Beijing’s actions were leading to a regional arms race, with Vietnam, the Philippines, Malaysia and Indonesia all acquiring new ships and weapons to strengthen their naval forces. He noted that “major South East Asian naval powers have increased their defense spending by more than one and a half times since 2003, while China’s spending has grown more than fivefold in the same period.” As GIS guest expert Joseph Dobbs wrote in November 2016, much of China’s defense spending has gone to modernizing its air power, also part of its strategy to protect its interests in the South China Sea.

Exacerbating the potential for conflict would be any slowdown in China’s economy, wrote GIS guest expert Cameron Frecklington in July 2015. The government could escalate tensions in the South China Sea to fan nationalistic sentiment as a distraction.

In March of 2017, Prince Michael pointed to the South China Sea as one of the most vital points in a 6,000-mile arc around China’s perimeter where conflicts were brewing. “Treated in isolation, none of them is particularly threatening. But taken together, they multiply the possibility of a violent outbreak that could lead to diplomatic and military escalation.”

U.S. position

The United States Navy is the biggest obstacle standing in the way of Chinese dominance of the South China Sea. “Washington’s goal,” wrote Prince Michael in May 2016, “is mainly to keep shipping lanes free, as well as to maintain a political and military balance.” But this has irked China, since it feels encircled by the U.S.’s chain of allies from Japan and South Korea in the north, to Singapore in the south, limiting its free access to the seas. In its effort to break this containment, China has been aligning its interests with Russia, with potentially volatile results.

In March 2016, GIS expert Walter Lohman explained that the U.S. was key to managing the arms buildup in the Western Pacific. Chinese naval power far outstrips that of any other country in the region. Moreover, “the Chinese have an advantage over the United States in deployable numbers of ships, [and] are narrowing the technological gap. When combined with the geographic advantage China has in the region, its navy is approaching a level of capability sufficient to challenge the U.S. on its immediate periphery,” he wrote.

The most likely scenario, he said, was that “shortfalls in the U.S. defense budget and shipbuilding are addressed, but at levels that are less than optimal. As a result, the U.S. buys time to balance China by cooperating with allies in the region.”

Economic initiatives

Fear of being hemmed in and potentially having its economic lifeline cut in the South China Sea has also driven China’s turn to economic projects to its West, as GIS guest expert Brendan O’Reilly pointed out in several reports. Its Belt and Road Initiative – a huge infrastructure project linking China to the rest of the Eurasian landmass through road, rail and sea links – not only offers an opportunity to gain influence in the economies where it is investing, but will also help China bypass maritime choke points in the Indian Ocean and South China Sea.

In the same vein, China has invested heavily in the Gwadar port in Pakistan, which will be linked to the Karakoram highway, running all the way to China’s far northwest.

Chinese investment comes with strings attached, such as support for its territorial claims in the South China Sea

Moreover, China has used its formidable economic heft to influence policy in other parts of the world, such as Africa and Latin America, where investment comes with strings attached, such as support for its territorial claims in the South China Sea. “Beijing has collected public endorsements on the … issue from most African states, including Algeria, Angola, Egypt, Kenya, South Africa and Sudan,” he wrote.

ASEAN

China’s assertiveness in the South China Sea has taken its toll on regional alliances, especially the Association of Southeast Asian Nations (ASEAN), which has effectively been split in half over the issue. Five of the countries in the association – Brunei, Indonesia, Malaysia, the Philippines and Vietnam – have territorial disputes with Beijing over its nine-dash line demarcation. The other five members – Cambodia, Myanmar, Laos, Singapore and Thailand – are less willing to take a stand against China, and worry that risking doing so could cost them huge amounts of Chinese trade and investment. “Any escalation of tensions in the South China Sea could undermine the strong economic cooperation between the ASEAN countries and China,” wrote Mr. Frecklington in October 2015.

Since then, the alliance has still not come up with a unified stance on the South China Sea issue, leaving each country on its own to deal with Beijing. In June 2016, GIS expert Yang Razali Kassim pointed out that Indonesia and its President Joko Widodo were taking a tougher stance, and potentially edging toward conflict with Beijing over the disputed Natuna Islands. On the other hand, Malaysia seemed to be inching closer to China, wrote Mr. Dobbs in January 2017, after it bought military equipment from Beijing.

The two ASEAN countries with the most at stake in the South China Sea, however, are the Philippines and Vietnam.

Vietnam

Faced with the threat of Chinese military expansion into waters it considers its own, and with valuable fishing and mineral rights at stake, “Vietnam has begun – albeit discreetly – to align more closely with the U.S.,” wrote Prince Michael in November 2015. He noted that Vietnamese and U.S. officials were discussing defense cooperation, and that while Chinese President Xi Jinping was in Hanoi, “Vietnam’s defense minister was meeting his Japanese counterpart to arrange for a warship to visit Cam Rahn Bay. This call at the strategic naval base once used by the U.S. … is a tangible expression of friendship – and its timing sends a message Beijing cannot ignore,” he added.

At the time, Vietnam had also signed on to the U.S.-led Trans-Pacific Partnership (TPP) initiative, a trade deal many considered an American tool to lure Southeast Asian nations away from Beijing. Though U.S. President Donald Trump scuppered that deal, Vietnam and the other remaining TPP nations have agreed to form a new trade pact – without the U.S. or China.

The South China Sea issue is only one part of a much broader relationship between Hanoi and Beijing

But Hanoi must perform a delicate balancing act, wrote Mr. Lohman in September 2016. Since 1991, when the two countries normalized relations, the relationship has been good at an official level, and ties between the two nations’ communist parties are extensive. In the end, the South China Sea issue “is only one part of a much broader relationship,” he wrote.

Philippines

The Philippines’ stance on the South China Sea has evolved in some unexpected ways. For years, it was the most adamantly opposed to China’s moves there, and in 2013 it initiated a claim against Beijing with the Permanent Court of Arbitration (PCA) in The Hague. Armed vessels from the two countries met in several standoffs.

The dispute helped bring the Philippines closer to the U.S. In 2014, the countries signed an Enhanced Defense Cooperation Agreement, which expanded U.S. access to local bases and transit facilities. However, as Mr. O’Reilly noted in a November 2015 report, Manila had its own tricky balancing act to perform. “While its alliances with the U.S. and Japan help Manila offset Beijing’s regional dominance, they also increase the likelihood of Filipino involvement in any hostilities that break out between China and the U.S. or Japan,” though such an outcome still had to be considered unlikely, he wrote.

Then, in 2016, Rodrigo Duterte was elected president of the Philippines. Mr. Duterte initially made a big show of courting China and put South China Sea issues on the back burner, at the same time shunning the U.S. While some thought this stance was the result of the U.S. allowing China to seize Scarborough Shoal, “U.S. policy in the South China Sea probably plays little role in the Philippine president’s attitudes,” wrote Mr. Lohman in January 2017. “The headlines will continue to belie a strong behind-the-scenes relationship with the U.S., even if, as seems likely, Mr. Duterte is successful in building closer ties with Beijing,” he added. Instead, Mr. Duterte is probably playing a game in which he uses “his outreach in search of benefits from Beijing, which he could then use as leverage to extract more benefits from Washington.”

PCA ruling

In July 2016, the PCA ruled in favor of the Philippines, roundly rejecting Beijing’s claims and finding that the nine-dash line provided no legal basis for Chinese sovereignty on any part of the South China Sea. GIS examined the implications of this decision in a two-part series.

Mr. Dobbs wrote that while the ruling was unenforceable, it put Chinese leadership in a difficult position. “If it seeks to escalate the situation, Beijing risks alienating its neighbors and reducing confidence in China globally. If it tries to de-escalate, it risks international embarrassment and a potential backlash from an increasingly nationalistic public.” While it would be possible to find a solution that avoided both outcomes, the task is complicated by the involvement of so many countries with divergent political climates and international agendas. “Exceptionally deft negotiating skills from all sides would be required,” he added.

A map showing the land formations and some territorial demarcations in the South China Sea
The PCA ruled that China had no legal basis for its claims to the South China Sea, and that the land formations therein had to be classified by their natural condition – that is, before Chinese construction and reclamation was carried out (source: macpixxel for GIS)

From the perspective of the other countries involved in the dispute, the ruling offered legal clarity, but increased instability in the region, wrote Mr. Lohman. “How these states – particularly the Philippines, Vietnam and Taiwan – react will be critical to the peace and security in the South China Sea.” He rightly predicted that all the aforementioned countries would exercise restraint, declining to push the issue for fear of escalating the conflict with Beijing. “All parties to the dispute, as well as outsiders, including the U.S. and other ASEAN countries, have interests in containing this instability,” meaning they would move forward only cautiously, he wrote.

Energy dimension

The South China Sea plays an outsized role in global energy security in two key ways. First, much of China’s energy trade is conducted via the waterway. As GIS expert Dr. Frank Umbach wrote in a September 2014 report, China will replace the U.S. as the world’s largest oil consumer before 2030. It imports more than half of the oil it uses, and 80 percent of those imports come via the South China Sea. That constitutes a big vulnerability.

Besides staking out territorial claims in the sea and bolstering its military presence there, the Chinese government has responded by forging energy alliances with countries that can export energy overland, wrote Mr. O’Reilly in November 2016. China has built pipelines with countries such as Myanmar, Turkmenistan and Kazakhstan. He continued:

Beijing and Moscow are cooperating to build oil and gas pipelines directly from Russia’s far east to Chinese cities. China also hopes to build a gas pipeline through Pakistan, and possibly Iran, creating direct overland access between China’s far west and the Persian Gulf.

Second, the South China Sea holds potentially enormous energy riches. While estimates from the United States Energy Information Administration (EIA) put oil and gas deposits in the sea at only 0.3-1.3 percent of global oil reserves and 0.9-3.7 percent of global gas reserves, Chinese estimates are much higher. Only exploration projects can determine how much of those resources can be exploited for commercial profit.

U.S. and Chinese estimated oil and gas reserves in the South China Sea
U.S. and Chinese estimates for the amounts of oil and gas in the South China Sea differ greatly. Only more exploration will give a more accurate picture (source: macpixxel for GIS)

However, with oil and gas prices so low, exploration has become far less profitable for Chinese companies going it alone. This could force China to adopt a more pragmatic approach, in favor of joint development with other countries, wrote Dr. Umbach in May 2017. “In principle, Beijing has expressed interest in such projects with its neighbors, but has often linked its support with a precondition that its partners recognize China’s sovereignty and territorial claims in the area.”

China hasn’t won yet

Despite its military buildup, its economic strong-arming and its claims to territorial sovereignty, China has not yet gained the upper hand in the South China Sea, wrote Mr. Lohman in June 2017. He set out Beijing’s three goals in the sea: sovereignty, strategic advantage and economic benefit:

Beijing is no closer to establishing sovereignty over areas within the nine-dash line, either land features or waterways. ... The Chinese military is establishing a sea presence capable of intimidating other claimants, but it is not yet strong enough to achieve its strategic aims unless the U.S. pulls back. In terms of economic goals, China has failed to obtain new energy resources, succeeding in gaining access to fishing grounds, and may be making progress toward its long-term goal of independently protecting the sea lanes important to its economy.

“Have the Chinese won in the South China Sea?” he concluded, “It depends on one’s perspective.”

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