- Despite China's rejection of the ruling by the Permanent Court of Arbitration in the South China Sea dispute, Beijing is adopting a more conciliatory posture over its territorial claims, at least in the short term.
- The shifting status quo in the South China Sea may give claimant states, especially China, second thoughts about entering into joint development deals.
- Any meaningful joint arrangements will hinge on Beijing's strategic intentions, although domestic pressure in respective states will also play a key role.
South China Sea claimant states are adjusting to the new status quo in the region. The arbitration ruling the Philippines won over China in July gave it and other claimants rare leverage over Beijing, but China's rejection of the decision has diminished the possibility of legal intervention over maritime disputes in which it is embroiled. Beijing must also contend, however, with an increasingly complex set of circumstances in the waters — with greater potential for involvement by outside powers and potentially more hostile relations with nations on its periphery.
The ruling's potential to disrupt relations in the South China Sea may help to explain the generally lower-key rhetoric and conciliatory gestures by actors on all sides in the region over the past two months. China and other claimant states all appear willing to seize the opportunity to move some stagnant agendas forward, at least for now. Their gestures include an agreement between China and the Association of Southeast Asian Nations (ASEAN) to finalize a framework for the Code of Conduct in the South China Sea before mid-2017 and a host of accommodating trilateral arrangements among China and new leaders in the Philippines and Vietnam.
[sidebar title="Fish: The Overlooked Destabilizer in the South China Sea" imgurl="https://www.stratfor.com/sites/default/files/styles/stratfor_large__s_/public/main/images/indonesia_1.jpg?itok=L4d41Ee_"] Despite the region's focus on minerals and oil, fish are a more important factor in the maritime disputes surrounding a rising China. Read more… [/sidebar]
Some regional joint development proposals, moreover, have re-emerged. Shortly after the court ruling, the Chinese Foreign Ministry issued a high-profile white paper that, in addition to reiterating its positions and sovereignty claims in the South China Sea, said Beijing's openness to joint development in the waters had not changed. That position was reinforced shortly after when former Philippine President Fidel Ramos, the special envoy for current President Rodrigo Duterte, was invited to visit with Chinese policy experts, who raised the possibility of jointly developing fishing farms in the disputed waters, including around Scarborough Shoal. Separately, Chinese President Xi Jinping told Vietnamese Prime Minister Nguyen Xuan Phuc that both countries should actively push forward with joint exploration of waters beyond the Gulf of Tonkin — in other words, in the South China Sea — where both signed a comprehensive delimitation agreement in 2000. In addition, China and Japan appear ready to resume a long-stalled dialogue on natural gas exploration in the East China Sea.
Taken individually, these proposals are unremarkable. Joint development is a well-trodden path in East Asia. Mutually agreed joint-development mechanisms have a proven record of easing maritime tensions in the face of overlapping claims elsewhere. Therefore, it is seen by many, including the claimant governments of Southeast Asia, as a potential option to calm the waters in the South China Sea with its vast traditional fishing grounds and its rich oil and natural gas potential. But early attempts at joint development, notably an arrangement among China, Vietnam and the Philippines in 2005 for seismic surveys, failed largely because of domestic sentiment in the Philippines. And over the years, suspicions about Beijing's strategic intent, coupled with its unceasing territorial expansion and escalation of maritime tensions, thwarted any potential dialogue — let alone joint arrangement — in the South China Sea that involves China. In recent years, Beijing has put pursuing such joint arrangements on a back burner. Thus, the recent refashioning of these proposals from Beijing provides an opportunity both to understand the strategic intent behind these arrangements and to assess their application under the new paradigm in the South China Sea.
Pragmatic Policy or Stalling Strategy?
Setting aside disputes and pursuing joint development of natural resources have been central components of China's maritime policy since the late 1970s. The concept was promoted by Deng Xiaoping as he opened the country's economy and promoted domestic reform. Seeking to ease external pressures on the country, he embraced the practicality of joint economic development in the East and South China seas.
Most of those who lay claim to territory in the South China Sea have similarly endorsed joint development as a way to acquire undersea resources. (Notably, only a handful of oil and natural gas blocks in the disputed areas of the sea have proved commercially viable, and the financial risks and technological demands required for energy exploration in those areas have made it impossible for many claimants to do so without foreign partners.) But while Beijing has been pursuing joint development opportunities since the 1990s, in practice, other claimants generally believe those opportunities disproportionately benefit Beijing. Suspicions of its strategic objectives have repeatedly caused those arrangements to fail.
A major stumbling block to such agreements has been an insistence by the Chinese government that its claims of sovereignty over disputed territories in any deal would have to be recognized for it to go forward. In other words, a joint development deal with China would require the other party to recognize Chinese territorial claims in disputed areas, making the arrangements politically difficult to accept. Disagreement over sovereignty recognition resulted in repeated disruptions of initial joint exploration arrangements, including the one made in 2011 between the Philippines and China's state-owned China National Offshore Oil Corp. around Reed Bank, near the Spratly Islands. Suspicion of Beijing's intent has remained a central concern for Vietnam and the Philippines even though they would profit from such deals.
Offers by China for joint development often come in areas within the exclusive economic zones of other claimant states. Those offers can be interpreted as a ploy by China to expand its territory into areas that it otherwise would have no legitimate claim to under international law. For example, Vietnam has objected to a decision by China to open up nine areas for joint development to foreign partners near the Vietnamese-controlled Vanguard Bank (about 160 nautical miles from the Vietnamese coast) in a disputed part of the Spratly Islands. Vietnam views that offer as essentially a Chinese claim of: "What is mine is mine, what is yours is mine, and we are willing to share." Part of the reason for the murky boundary status stems from the ambiguity of Chinese sovereignty claims in the South China Sea under the nine-dash line, which has resulted in a largely undefined boundary between areas with overlapping claims. Any joint development deals struck before agreements over the disputed areas are ironed out could amount to legitimizing China's nine-dash line claims. In 2011, Manila proposed a mechanism to separate disputed and non-disputed areas in the South China Sea and promote joint cooperation in the disputed zone. Beijing, however, viewed that proposal as a serious challenge to its sovereignty claims, and its opposition kept the proposal from generating momentum within ASEAN.
China's Tactical Advantages
Intentionally or not, the stalled progress on joint development deals — along with its ambiguous maritime claims — has given Beijing a much-desired result: time. Beijing's strategy of not asserting its claims too strongly before the 1990s allowed it to reduce potential conflicts that would result from overlapping claims, allowing its economy and military to develop. As China grew more powerful, its naval and maritime enforcement, along with its technological capabilities for island building and deep-sea exploration, dramatically shifted the status quo in the South China Sea. And these evolutions have naturally shaped Beijing's approach to any joint development mechanism.
China's technological and military abilities give it a tactical advantage when pushing its claims in the South China Sea. That means China can take unilateral measures to pressure other claimants, leaving Vietnam and the Philippines, the most vocal opponents of Chinese claims, with limited options for unilateral development. Because they have little capability to develop the sea's resources independently, they have to seek foreign assistance. In addition, however, to the uncertain prospects of oil and natural gas exploration in the South China Sea, military and economic pressure from China has also deterred foreign companies from entering agreements with those nations in the disputed areas. Meanwhile, as demonstrated in the case of Scarborough Shoal, Beijing's advanced coast guard vessels and armed fishing fleets have effectively stopped Philippine fishermen from plying their trade in their traditional grounds since 2012. In short, Beijing is forcing other claimants to accommodate or at least tolerate China's maritime boundary assertions before it will consider any meaningful arrangements — if that ever happens.
Resolving Conflicting Imperatives
Many policymakers in Beijing believe the policy has had mixed results for its foreign policy agenda. Claimant states — most notably Vietnam and the Philippines, and to a lesser extent Indonesia and Malaysia — have responded to Beijing's maritime aggression by expanding their naval and security capabilities and by seeking cooperation from external powers, such as the United States, Japan and India, for defense, energy and political support. This has resulted in a much broader international intervention and has justified moves by those powers to counter China. Beijing has meanwhile come to understand that constant conflict with its neighbors works against its desire to maintain good relations with them — a particularly important aspect of its emerging global policy.
At this point, Beijing probably understands the risks and repercussions of claiming the entire South China Sea — or pressing its claims based on the nine-dash line. In fact, there appears to be at least partial agreement among decision-makers that Beijing's "strategic ambiguity" over its maritime claim — combined with its ungrounded nine-dash line, lack of a clearly defined sovereignty claim and defiance of international law — has reached a limit. Over the past two years, official rhetoric from Beijing has repeatedly repudiated that the nine-dash line is the basis for the country's sovereignty claim. At the same time, its policymakers are in the process of reinterpreting its sovereignty claim and attempting to more closely adhere to international law.
It is unlikely that Beijing will ever ease its assertive behavior in the South China Sea. Rather, the new maritime status quo — coupled with the court ruling — may allow Beijing to rethink what strategies best fit its interests, even if those strategies take years to develop and result in even greater maritime disruption. But at the very least, its imperatives to avoid outright military confrontations, circumvent further "interference" from international players and to refrain from antagonizing all of its ASEAN neighbors at once makes its current course of behavior counterproductive.
Joint Development: a Possible Way Out?
To many claimant countries, developing maritime resources in disputed areas of the South China Sea has become more of a crucial economic imperative than ever. With its near-shore oil and natural gas blocks long past their peak productivity, Vietnam needs new energy sources to satisfy its domestic economy and provide export revenue to pay for its growing demand for imported refined oil products. The Philippines has some natural gas production but imports virtually all of its crude oil. The oil and natural gas potential in the South China Sea, particularly around Reed Bank and its commercially viable proven reserves of natural gas, is too high to ignore. Though China has similar needs — it depends heavily on oil and faces a growing need for natural gas — developing the sea's resources meets Beijing's strategic interests far more than its economic ones. In addition, the regional reliance on the sea's fish stocks — and the fluidity of fishing — makes exclusive development of that resource impossible. As more claimants desire to develop the sea's resources and as Beijing rethinks its strategies, both might give joint development ventures more attention.
Even though there has not been a joint arrangement in the South China Sea involving China, it will remain an option. Beijing has repeatedly expressed the hope that its relatively successful joint development and delimitation package with Vietnam in the Gulf of Tonkin can serve as a model for future arrangements in the South China Sea. According to the International Crisis Group, Beijing and Hanoi have carried out several rounds of consultations on possible cooperation in the South China Sea based on the Tonkin model, though no progress has been made. Meanwhile, Beijing has shown greater flexibility with claimants that it sees as cooperative as they pursue their own joint development deals. For example, it made little response to the joint oil and natural gas exploration agreement between Malaysia and Brunei in 2015, despite the fact that the development falls in an area that China also claims. The difference in China's reaction likely reflects the fact that Malaysia and Brunei tend not to trumpet their differences with China, but it could also point to how much flexibility Beijing has in its sovereignty claims.
In theory, joint development arrangements could allow Beijing to justify its dominance of the South China Sea and expand outreach in areas in which it has no legal claim in a more cooperative manner, all while allowing claimants to acquire the resources they want. But before any meaningful arrangements can be made, there are several obstacles to overcome.
Chief among them is the question of whether Beijing is willing to dampen its sovereignty claims now that it has established its tactical advantages in the South China Sea. But such a move may run afoul of domestic nationalist sentiment, which would see any joint arrangement as a surrender of sovereignty, thereby challenging the core of the government's legitimacy. Similar obstacles can be found in Vietnam and the Philippines, where years of assertive behavior by China have hardened the public's attitudes against accepting any arrangement with Beijing. In fact, in the Philippines, such sentiment, combined with a public perception of government misbehavior and corruption, was a key reason that Manila pulled out from the 2005 trilateral arrangement on seismic surveys. Meanwhile, the Philippine Constitution dictates that Philippine entities must retain 60 percent capital and ownership when it comes to joint exploration with foreign companies — a condition that Beijing can hardly accept unless both sides are willing to caveat their stances.