3.4 The South China Sea Conflict
1 February 2017
There are really two distinct areas of conflicts in the South China Sea (SCS). One is about the long-standing conflicting territorial claims between China and its maritime neighbours and the other is the growing geopolitical tussle for supremacy between China and the US manifested as latter’s demand for freedom of passage and its corresponding strategic pivot to Asia.
It is thus important to note that the disputes over territorial claims in the South China Sea is a separate issue from US’ pivot to Asia, despite US’ efforts to link the two to bolster the legitimacy of its actions in SCS.
While one issue is on track for a peaceful resolution through multilateral negotiations through ASEAN, and possibly also future bilateral negotiations between opposing claimant states, the other is an ongoing geopolitical tussle for supremacy that has led to increasingly militarization of the SCS.
This chapter focuses only on the territorial conflict in the SCS between China and its neighbours. The geopolitical tussles for supremacy between China and the US will be discussed in Chapter 301.
The Conflicting SCS Territorial Claims between China and its Maritime Neighbours
The South China Sea (SCS) is an area where the sea lanes carry some US$5 trillion (S$6.97 trillion) worth of trade annually. Every year, more than half of the world’s annual merchant fleet tonnage and a third of all maritime traffic worldwide passes from the Indian Ocean through the narrow and vulnerable Straits of Malacca into the South China Sea before moving on to East Asia.
Based on the historical records of its early maritime activities dating back centuries, China claims the entire 3.5 million square kilometres of the South China Sea as its sovereign territory. However, its claim overlaps with the claim of ownership of SCS islands by Vietnam, Malaysia, Brunei and Philippines in accordance to modern maritime laws.
The conflicting territorial claim is not only about sovereignty. There are significant economic benefits to be had. Countries who own the islands not only enjoy the fishing rights but also the natural resources lying in the ocean floor that fall within the exclusive economic zone (EEZs) stretching 200 nautical miles around each island. The US Energy Information Administration, for example, estimated that the region has proven and probable reserves of about 11 billion barrels of oil and 190 trillion cubic feet of natural gas. China CNOOC put the figures even higher at around 125 - 130 billion barrels of oil and 500 – 900 trillion cubic feet of natural gas.
Source: Extracted from Hans Binnendijk. (2016). “Friends, Foes, and Future Directions”. RAND Corporation. Pp 101.
Because of the rich endowment, South China Sea has been called “the second Persian Gulf” by some Chinese observers. Gaining ownership and control over the resources would give any country an immense economic boost for decades to come.
Of the four countries with conflicting territorial claims, only Vietnam and Philippines have taken actions in the past to stake their claims while Malaysia and Brunei chose not to directly confront China.
Vietnam and China, for example, were comrades-in-arms when Chinese leader Mao supported Ho Chi Minh’s fight for Vietnam’s independence. Yet, by 1979, relations had turned antagonistic because of Vietnam's invasion and occupation of Cambodia in 1978 and of Vietnam’s close relationship with the Soviet Union. Deng Xiaoping authorized a limited punitive war at the two countries border to teach Vietnam a lesson. Their navies also engaged each other in the Paracel Islands in 1974 and then in the Spratly Islands in 1988. China prevailed in both encounters. The exchange in 1974 ended with China establishing de facto control over the Paracels while the encounter in 1988 led to the Chinese occupation of six reefs and atolls in the Spratly Islands. More recently, China's parking of an oil rig off Vietnam's central coast in 2014 sparked confrontations at sea and deadly anti-China riots within the country.
As for Philippines, after renaming SCS as West Philippines Sea in September 2012, President Benigno Aquino submitted the territorial disputes in January 2013 for arbitration by the Hague-based Permanent Court of Arbitration (PCA) in accordance with the United Nations Convention on the Law of the Sea (UNCLOS). Specifically, Philippines is seeking a ruling that would invalidate China's nine-dash line; classify maritime features occupied by China as rocks, low tide elevations, or submerged banks, but not islands; and declare the Philippines' right to operate inside of its EEZ (exclusive economic zone) and continental shelf as outlined by UNCLOS without Chinese harassment."
In trying to prevent the outbreak of a military conflict arising from the SCS territorial claim dispute, ASEAN has all along advocated a peaceful multilateral diplomatic approach. The concept for a Code of Conduct (COC) first emerged in the 1990s, but disagreements over whether it should be a legally binding document appeared soon after. China, in particular, was strongly against any form of legally binding agreement, which would restrict its activities in the South China Sea. Moreover, while China accepts the management of the South China Sea issue to be pursued at the multilateral level, it has also advocated a bilateral approach for resolving territorial disputes with each claimant. This ‘dual-track’ approach, however, creates suspicions that China could exploit individual ASEAN claimant states from a position of strength.
In November 2002, ASEAN and China agreed on the non-binding Declaration of the Conduct (DoC) of Parties as a compromise and interim agreement. That document saw all eleven parties pledge their commitment to further promote peace and stability in the region while working towards the eventual attainment of the COC. But it was not until 2013, more than a decade after the signing of the DOC, that Beijing agreed to begin formal consultation on the code of conduct, in an apparent attempt to soothe concerns among the Southeast Asian neighbours over China’s increasing assertiveness. Due to rising tensions in the South China Sea, when the discussions started in early 2014 some ASEAN members repeatedly called for the talks to be expedited.
China’s Use of Economic Incentives to Bolster Bilateral Relations
Meanwhile, to smooth over tensions with its Southeast Asian neighbours, China has resorted to using economic and trade incentives to bolster bilateral relations. Under the aegis of the Maritime Silk Road, China has offered the region help in building up critical infrastructure needs, including providing funds via the new Asian Infrastructure Investment Bank. Countries in the region appear to be responding favourably to China’s overtures.
In July 2016, a five-judge tribunal at the PCA ruled that China’s capacious nine-dash line claim in the South China Sea had no validity under the United Nations Convention on the Law of the Sea (UNCLOS). The ruling was rejected by China on the ground that it had made a declaration in 2006 to exclude itself from the UNCLOS’s compulsory dispute-settlement proceedings. It also did not agree to the arbitration when Philippine made the submission unilaterally in 2013. Moreover the Chinese questioned the legitimacy of the PCA in conducting the proceedings, noting that the submissions are related to more complicated territorial sovereignty issues, over which the court has no jurisdiction.
By then, the Philippines new leader President Rodrigo Duterte has pursued a policy of rapprochement with Beijing since being sworn into office in June 2016. Duterte decided to set aside the ruling and prioritize strengthening economic ties with China while addressing the two countries’ overlapping maritime territorial and jurisdictional claims on a bilateral basis. In response, Beijing rewarded Duterte with trade deals amounting to $13.5 billion during his visit to China in October 2016. It also lifted its blockade of Scarborough Shoal in October 2016 which had prevented Filipino fishermen from fishing at the reef since May 2012.
Collectively, even though the PCA ruling provided the ground to make a stronger, more assertive and united stand against China, ASEAN chose to exercise restraint. The calm stand reflected concerns that any provocative actions would not only serve to empower the ‘hawks’ on all sides but also provide opportunity for interests from outside the region to exploit the situations.
The improvement of relations between China and Philippines triggered a domino effect across Southeast Asia. Following President Duterte‘s about-turn to bolster tie with China, Malaysian Prime Minster Najib Razak also headed to China for a 7-day visit in November 2016 and brought home $33.6 billion in deals, the highest on record. Malaysia’s China push comes amid strained U.S. ties after the U.S. Department of Justice filed lawsuits linked to a money-laundering investigation at 1MDB, the advisory board of which Najib chaired until recently. Ties between Malaysia and China reached a new peak in December when China came to Mr Najib's rescue with a US$2.3 billion deal to buy assets of scandal-hit state fund 1MDB, helping ease Mr Najib's concern over the firm's mounting debt.
To be sure, economic ties between China and Malaysia have been strengthening even before Najib’s visit. For the first three months of 2016, for example, Chinese investment in Malaysia’s manufacturing sector reached 1.5 billion Ringgit ($356 million), making it the largest foreign investor in its manufacturing. Besides manufacturing, Chinese companies are also active in construction industry. In 2015, they accounted for $1.2 billion in construction projects in Malaysia, nearly half the total value of projects clinched by foreign contractors.
One of main China’s motivations in investing in Malaysia is the strategic location of latter’s sea ports along China’s new Maritime Silk Road (MSR i.e. the sea-based portion of the OBOR initiative).
As part of its efforts to secure ports as well as trade routes across the Indian Ocean to its shores, China is pouring investment into the new S$14 billion 1,366-acre Melaka Gateway project launched in 2014. The investment involves the joint development by local and Chinese firms of a new deep-sea port on an island off the coast of Melaka by 2019. Apart from the port, the project also features a cruise terminal and a sprawling waterfront district. Malaysia is keen to position the project as the country’s commitment to China’s MSR. Malacca state, on the other hand, is also using the project to promote itself as China's gateway to South-east Asia. The state government is working towards getting a RM20 billion (US$5 billion) investment from China in the next five years.
The Melaka Gateway is not the only port project China is involved in. An upcoming S$17.8 billion East Coast Rail Link (ECRL) project aimed at creating a land bridge linking Port Klang on the west coast with a new deep-water port in Kuantan. From there, it will go north to Terengganu before ending in Kelantan near the Thai border. Along the route, the ECRL will connect key economic industrial areas such as the Malaysia-China Kuantan Industrial Park and Gambang Halal Park in Pahang, Kertih Biopolymer Park (Terengganu) and Tok Bali Integrated Fisheries Park (Kelantan) with the East Coast Economic Region (ECER). In total, the ECRL will have 12 passenger, 3 freight and 7 combined stations. The project is being built by transportation infrastructure group China Communications Construction. 85 percent of the project cost will be financed by a soft loan with 3.25 percent interest from the state-owned Exim Bank of China while the remaining 15 percent funding will be procured through a bond programme managed by local investment banks. The 668 km rail link is slated for completion in 2024. By 2030, the "alternative trade route" is projected to result in 53 million tonnes of cargo (making up around one-tenth of the Port of Singapore’s current traffic) to bypass Singapore annually. Currently, almost 80 percent of Chinese vessels pass through Malacca Strait. The ECRL thus give China an alternative to reduce China’s over-reliance on the narrow and busy channel.
As for trade, China has been Malaysia’s largest trading partner since 2009, displacing Singapore, with two-way trade in 2016 valued at $83.4 billion. China is Malaysia’s biggest export market. Looking ahead, China has committed to import goods worth $2 trillion from Malaysia over the next five years (a nearly eight-fold jump from 2016 imports over that period) as well as to invest up to $150 billion in the country.
Meanwhile, defence ties between the two countries are also warming up. To demonstrate its neutrality in the Sino-American geopolitical tussle in the SCS, the Malaysian navy struck an agreement with its People's Liberation Army (PLA) counterpart to allow the Chinese navy the use of the strategic port of Kota Kinabalu on north-east Borneo, close to the disputed Spratly Islands. The offer is similar to that extended to the US Navy.
In November 2016, agreement signed during PM Najib’s China visit to purchase four Chinese naval vessels also fuelled speculation of a geopolitical shift in Malaysia’s defence policy from Washington to Beijing. Given that Malaysia has traditionally purchased Western naval equipment.
The cosy relationship between China and Malaysia, however, took a turn in 2018 when the ruling party UMNO suffered a shocking defeat in the hands of Pakatan Harapan. Since coming to power, the new government led by the feisty nonagenarian Prime Minister Mahathir Mohamad acted swiftly to cancel or suspend what it saw as overpriced, unnecessary and unfair China-backed infrastructure mega-projects that Malaysia signed up to under the scandal-tainted former prime minister Najib Razak.
Among these projects were the 486-acre Bandar Malaysia integrated property development project that was previously linked to the controversial 1Malaysia Development Bhd (1MDB); the RM55 billion (US$13 billion) East Coast Rail Link project which was supposed to be a signature BRI project for China; and two pipeline projects, valued at $2.3 billion, one consisting of a 600km petroleum pipeline along the west coast of peninsular Malaysia and another a 662km gas pipeline in Sabah, the Malaysian state on Borneo island.
The cancellation of the projects came at a sensitive time when Western countries were accusing China of practising “debt-trap diplomacy” aimed at creating a network of pliant debtor states by dispensing cheap loans to developing countries as part its BRI. Sri Lanka, for example, had to cede control of its Hambantota port to China on a 99-year lease after falling behind on its debt obligations.
Rather than letting the ‘scaremongering’ cloud the government’s judgment, however, the still feisty Malaysian prime minister was determined to find ways for Malaysia to benefit from China’s rising economic might. After two visits to China (August 2018 and April 2019) and rounds of negotiations between officials of the two countries as well as singing praises about the BRI at the Belt and Road Forum in Beijing, bilateral ties were again beginning to warm up.
In April 2019, announced that the Bandar Malaysia project, which had an estimated cumulative gross development value of RM200billion, would be revived but with some changes that include 10,000 affordable housing units, a people’s park, bumiputra participation throughout the project, and priority for the use of local content and materials. Then in July 2019, the ECRL project was also brought back after a year-long suspension and following a rare agreement in April to reduce the cost of the project by more than 30% to RM44 billion (US$10.7 billion) from the original RM65.5 billion.
As to the high-stakes geopolitical rivalry and trade war between China and US, Mahathir left no doubt that, if forced to take sides, Malaysia would prefer the economic largesse of Beijing. Drawing from his assessment of history, he was quick to add that “we have had China as a neighbour for 2,000 years, we were never conquered by them. But the Europeans came in 1509, in two years, they conquered Malaysia.”
Brunei’s SCS claims originated in 1984 when it established an Exclusive Economic Zone (EEC) of 200 nautical miles over its continental shelf. Parts of the same region including the Bombay Castle, the Louisa Reef and the Owen Shoal, are also counterclaimed by Malaysia, China, Taiwan and Vietnam.
On a whole, while other nations asserted their claims in loud international gestures, Brunei takes a much quieter approach. It does not even maintain a military presence in the disputed territory and there have been almost no incidents of instability or contestation in the region. A spats with Malaysia in 2003 over oil and natural gas resources in Brunei’s EEZ led to a Letters of Exchange in 2009, outlining collaboration in the exploration and exploitation of hydrocarbon resources, the demarcation of land boundaries between the two countries, and Malaysia ceasing its operation of the light beacon on Louisa Reef.
In 2003, Brunei did protest over China’s research in its waters but chose not to shout and posture up. Brunei needs China far too much to risk angering them over territorial claims. Oil resources account for 60% of Brunei’s GDP and 95% of exports. Tumbling oil prices have left Brunei searching to diversify its economy. Over a decade ago, it launched the Wawasan Brunei 2035 (or Brunei Vision) which seeks to develop a dynamic and sustainable economy, to create a highly skilled workforce through education reforms, and to raise the standard of living across the country. Brunei needs China to help it achieve that vision.
China’s Guangxi Beibu Gulf International Port Group Co., for example, is helping with the development and management of Brunei’s port as well as the establishment of the Guangxi-Brunei Economic Corridor. The economic corridor has led to over US$500 million in joint investment projects to develop strategic industries between Brunei and China. Between 2003 and 2013, exports to China increased from US$34 million to US$1.7 billion. Moreover, Brunei already has oil reserves of 1.5 billion barrels and has an agreement with Malaysia to exploit the 15 trillion cubic feet of natural gas beneath the sea bed. The SCS is there far more valuable as a leverage to promote investment and trade with China. Meanwhile, China relies on Brunei’s oil. Chinese firm, Zhejiang Hengyi Group, has plans to construct a refinery in Brunei by 2019. The refinery will have the capacity to produce 148,000 barrels of oil a day when it is fully operational. Because of the mutual dependence, Beijing is unlikely to bring a military presence to Brunei’s waters.
As for Vietnam, during his recent state visit there, Xi offered his Vietnamese counterpart 12 cooperation pacts across wide ranging areas, including agreements on building a border trade cooperation zone and setting up a working group on e-commerce cooperation. This is in addition to the $1.94 billion worth of deals signed before Xi’s trip involving more than 30 Chinese companies in sectors including textiles and agricultural products. At the same meeting, both countries reached a consensus on peacefully handling their maritime disputes in the South China Sea.
Deflecting Criticism Through Talks on Code of Conduct (COC)
To deflect criticism away from its rejection of the Tribunal’s award and instead project the image of a cooperative partner, China also consented to accelerate the talks on the COC. More importantly, Beijing is eager to shift the focus away from maritime disputes and back to its plan for a Maritime Silk Road linking the China, the Southeast Asian states, and part beyond – as far away as Europe, if the plan reaches fruition.
In February 2017, ASEAN and China began work on a draft of the framework on COC. In August 2017, foreign ministers from ASEAN and China formally endorsed the document called Framework of the COC in the South China Sea during their meeting in Manila. Then three months later in November 2017, at the 31st ASEAN Summit Meetings in Manila, the leaders of ASEAN and China formally announced the start of negotiations on the fine print of the code of conduct in the SCS. The agreement comes just three months after the foreign ministers from both sides endorsed the framework on the COC earlier in August.
Critics, however, were quick to point out that it took 15 years for ASEAN and China to negotiate the one-page framework outline that basically just restated the exact same thing they're going to do with DOC. The framework is short on details and contains many of the same principles and provisions contained in the 2002 ASEAN-China Declaration on the Conduct of Parties in the South China Sea (DOC) which has yet to be even partially implemented. Notably, the phrase “legally binding” is absent, as are the geographical scope of the agreement and enforcement and arbitration mechanisms. ASEAN members who hope to see a legally binding, comprehensive and effective COC are likely to be frustrated. There are also concerns that the agreement will not come with any provisions for enforcement mechanisms in cases of violation hence compromising the effectiveness of the final COC.
Moreover, even if ASEAN stays united in negotiating its position vis-à-vis China, the final envisioned agreement is likely to be “a set of norms to guide the conduct of parties and promote maritime cooperation in the South China Sea” but “not an instrument to settle territorial disputes.” In the words of Singapore's Foreign Minister Vivian Balakrishnan, "Territorial claims are not resolved just because you have a COC."
Notwithstanding, the text does include a new reference to the prevention and management of incidents, as well as a seemingly stronger commitment to maritime security and freedom of navigation and is therefore an important step forward in the conflict management process for the SCS. The relatively fast pace of recent developments also appears encouraging especially in light of rising militarization of the SCS due to US’ pivot to Asia.
However, even though tension appears to have receded significantly since then, the relative calm masks underlying strains especially over the continuation of land reclamation by the Chinese even after talks began between the 10-member bloc and Beijing on the COC. Critics thus suspect that Beijing is simply buying time to consolidate its maritime power.
Meanwhile, in response to US “freedom of navigation” operations (FONOP) in December 2017 near the disputed Scarborough Shoal, Chinese for the first time deployed its advanced Russian-built fighter jets SU-35s for a “joint combat patrol” over the disputed South China Sea in January 2018.
US' Freedom of Navigation Operations
The US is the only country with an established Freedom of Navigation Program. Under the program, the US undertakes FONOP throughout the world to challenge excessive maritime claims or assert its noncompliance with restrictions other countries place on internationally guaranteed rights at sea.
For several years, the US has been undertaking FONOP in the SCS to challenge China's excessive maritime claims that threaten to undermine key legal principles underpinning the global maritime order. At the same time, the Americans have also quietly urged like-minded states to increase their presence in the SCS to demonstrate to the Chinese that the US is not the only country concerned about maintaining freedom of navigation. More countries are now responding to the American’s call, driven particularly by heightened fears over China’s militarization of its artificial islands in the Spratlys, especially after its deployment of surface-to-air and antiship cruise missiles on these islands.
In 2018, maritime forces from Australia, France and Britain have all sailed through the SCS without entering the 12 nautical-mile territorial waters around disputed features. In August 2018, British, American and Japanese forces even participated in a training exercise in the South China Sea. The following month, Japan sent a submarine to join three of its destroyers in an antisubmarine warfare drill in the South China Sea, making it the first time that Japan publicly acknowledged a submarine exercise in those waters.
So far, though, no formal coalition has been formed despite the stepup in activities.
PREVIOUS : 3.3 The East China Sea Conflict
NEXT : 4.1 Asian Countries' Strategies Against the Rise of Hegemonic China
 China CNOOC chairman estimated the South China Sea holds around 125 billion barrels of oil and 500 trillion cubic feet of natural gas. http://www.nextbigfuture.com/2016/09/china-is-planning-massive-sea-lab.html . See also Kaplan, Robert D. (2016). “The South China Sea will be the battleground of the future.” Business Insider. February 6, 2016.
 Economist. (2016). “Brunei takes a back seat in South China Sea dispute.” May 5, 2016.
 See Global Times. (2016). “What you need to know about The Hague arbitration, the China-Philippines sea dispute.” Global Times. July 11, 2016.
 See Ngeow Chow Bing, “Is consensus emerging on the South China Sea?” East Asia Forum. August 10, 2016
 See Ngeow Chow Bing, “Is consensus emerging on the South China Sea?” East Asia Forum. August 10, 2016; http://www.fmprc.gov.cn/mfa_eng/zxxx_662805/t1217147.shtml
 See Global Times. (2016).
 Praveen Menon. (2016). “Malaysia's Najib aims to take China ties to 'new highs' on visit.” Reuters. October 27, 2016.
 Bhavan Jaipragas. (2017). “Can China Really Deliver Malaysia’s Singapore Slayer?” SCMP. April 15, 2017.
 See Shannon Teoh. (2017). “East Coast Rail Link: Malaysia touts rail trade route as rival to Singapore.” Straits Times. August 10, 2017.
 See Railway Technology. (2017). “Construction starts on Malaysia’s $13bn East Coast Rail Link project.” August 13, 2017.
 Shannon Teoh. (2017). “East Coast Rail Link: Malaysia touts rail trade route as rival to Singapore.” Straits Times. August 10, 2017.
 See Malay Mail Online. (2016). “Report: ECRL to give Malaysia trade advantage over Singapore.” December 22, 2016.
 See Keith Zhai & Pooi Koon, Chong. (2017). “China Wants This Malaysian Port to Rival Singapore (And That’s Not All).” Bloomberg. August 1, 2017.
 Shannon Teoh. (2015). “Malaysia to allow PLA navy use of strategic port.” Straits Times. November 22, 2015.
 See Gary Sands. (2016).
 See Oliver Ward. (2016. “The silent claimant in the South China Sea.” ASEAN Today. July 16, 2016.
 See Gary Sands. (2016). “Brunei, Silent Claimant in the South China Sea.” Foreign Policy Association. April 28, 2016.
 See Oliver Ward. (2016). “Will Brunei’s big vision change the country for the better?” ASEAN Today. December 18, 2016.
 See Oliver Ward. (2016). “Will Brunei’s big vision change the country for the better?” ASEAN Today. December 18, 2016.
 Kristin Huang. (2017). “China, Vietnam sign cooperation pacts in bid to play down South China Sea tensions.” SCMP. November 14, 2017.
 Ian Storey. (2017). “Assessing the ASEAN-China Framework for the Code of Conduct for the South China Sea.” Perspective. Issue 2017. No. 62. August 8, 2017.
 Yinghui, Lee. (2017). “A South China Sea Code of Conduct: Is Real Progress Possible?” The Diplomat. November 18, 2017.
 Laura Zhou (2017). “What is the South China Sea code of conduct, and why does it matter?” SCMP. August 3, 2017.
 Jack Kim. (2018). "SE Asia ministers air concerns over Beijing's activities in South China Sea." Reuters. February 6, 2018.
 See Jesse Johnson. (2018). "In apparent first, Chinese air force deploys advanced fighter jets to South China Sea." Japan Times. February 8, 2018.