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China May Offer Aid, Investment, in Talks on South China Sea

  • Ralph Jennings

A fishing boat used to fish in the disputed Scarborough Shoal, in South China Sea is pictured in Masinloc, Zambales in the Philippines April 22, 2015.

Countries in Southeast Asia are talking one-on-one with China about shared rights to fish and fossil fuels in the contested South China Sea, but nationalism or lack of political trust may snarl any agreements and shift focus to informal economic deals.

Senior leaders from China and Vietnam met last month to talk about maritime cooperation that could include a joint search for undersea oil or gas. It was China’s latest effort to talk privately with a maritime rival since a world arbitration tribunal in The Hague ruled in July that the basis for Beijing’s claims to about 95 percent of the sea lack legal merit.

China has spoken as well with Malaysia and the Philippines about the 3.5 million-square-kilometer sea that’s prized for fish, fuel reserves and marine shipping lanes.

Everyone wins

Agreements with China would reduce tension in Asia’s widest-reaching sovereignty dispute by giving everyone something it wants without any loss of any country’s effective control of islets in the sea. China rejected the arbitration ruling but has sought since to improve relations with the other countries on its own.

Chinese President Xi Jinping last year lauded the pursuit of bilateral agreements.

Talks on the South China Sea are being held largely in private, but experts forecast eventual deals on fishing rights or fishery management. China, Vietnam and the Philippines are particularly keen on fishing rights with their vessels spanning much of the sea.

“First thing that they want to do is to identify the fishing rights. And I think that’s important because you have to come up with some kind of discipline or some kind of practice in terms of division of labor or the areas of fishing activities,” said Andrew Yang, secretary-general of the Chinese Council of Advanced Policy Studies think tank in Taiwan.

In a sign of how a fishery deal might work, since 2006 Vietnam and China have jointly patrolled fisheries in the shared Gulf of Tonkin. Last year, the two sides extended the patrol route.

After Philippine President Rodrigo Duterte met his Chinese counterpart in Beijing in October, China stopped turning away Philippine fishing boats from contested waters around Scarborough Shoal west of Luzon Island, news reports said.

But economic deals not formally tied to the maritime dispute can come under fire if relations worsen.

This week, Philippine Foreign Minister Perfecto Yasay, acting as chairman of an ASEAN foreign minister meeting, said he had “grave concern” about China’s moves to militarize artificial islands in the disputed sea.

Chinese foreign ministry spokesman Geng Shuang said he found the comment “baffling and regrettable.” Deals reached during Duterte’s Beijing visit are being put into action, he said, and China has promised to quit construction in the sea.

Oil exploration tricky

Since at least 2013, China and Vietnam have talked about joint oil exploration, and a Sino-Philippine oil discussion began in October.

The U.S. Energy Information Agency estimates there are 11 billion barrels of oil and 190 trillion cubic feet of natural gas under the sea. Brunei, China, Malaysia and Vietnam now do their own prospecting, and the Philippines has taken exploration bids from private companies.

But joint fossil fuel searches lack appeal because the sharing of any discoveries would imply giving up sovereignty of the tract where it was found, said Carl Baker, director of programs at the think tank Pacific Forum CSIS in Honolulu.

Resource-sharing deals work legally if signatories lay aside the sovereignty questions, but populations at home may still suspect their governments are giving in, said Douglas Guilfoyle, associate international law professor at Monash University in Australia.

“They’re harder to pull off in practice than in theory,” Guilfoyle said. “There are practical negotiating issues, but then the other issues of politics, trust and whether your citizens will ultimately support such a thing.”

Changes in a country’s leadership could hurt deal-making, he said, and some countries lack a history of political trust to start. Duterte’s predecessor, for example, became angry enough with China to file suit in the world court of arbitration. Duterte moved to make up with Beijing after taking office in June.

Two-way deals may include how to avoid mishaps at sea, heading off the likes of deadly clashes between Vietnam and China in 1974 and 1988. Separately, China is set to pursue a code of conduct framework this year with the 10-member Association of Southeast Asian Nations (ASEAN) after years of resisting it.

The association code should be consistent with any bilateral ones, said Herman Kraft, political scientist at University of the Philippines Diliman.

Chinese foreign investment

Without specific deals on how to use the sea, China may instead use its nominal GDP of more than $11 billion, the world’s second largest, to increase trade, investments or development aid to the Southeast Asian maritime claimants, which are eager to grow their own economies.

Beijing’s “21st Century Maritime Silk Road” initiative is set up to allocate money from a $40 billion fund and $100 billion in Asian Infrastructure Investment Bank (AIIB) equity for infrastructure construction in Southeast Asia, a boon to Chinese companies that find the home market too competitive.

In tentative signs of economic largess deals, Vietnam started to see a surge in Chinese tourists last year, while the Philippines expects $24 billion in development aid as well as investments from China following the presidential dialogue in October.

In November, Malaysia and China signed 14 memoranda of understanding on business cooperation. China was set to sell Malaysia four ships for national defense and make 55 billion ringgit ($12.4 billion) in soft loans for a railway line. Malaysia already counted China as its top trading partner and source of direct investment.

It seldom criticizes China openly over its maritime activity, even though both sides claim the same parts of the sea’s Spratly Island chain.

Beijing may ask other countries to remain quiet about China’s land reclamation at sea, increased military presence on some of the islets or coast guard journeys through waters frequented by other parties, analysts say.

“(The Chinese) are investing heavily in providing aid and support and infrastructure,” said Alexander Huang, strategic studies professor at Tamkang University in Taiwan. “They are trying to show on one hand China’s strength in doing so or on the second to dissuade other countries from disputing China over South China Sea.”

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