China Politics, Oil Needs Risk Conflict in S. China Sea

By Flavia Krause-Jackson and Daniel Ten Kate
Aug 13, 2012 

In asserting its claims to the tiny islands, rocks and reefs in the South China Sea, China points to records of its ancient mariners. Today, those waters are far more important to China than in the age of the sail.
That’s because the area may hold oil riches that rival Saudi Arabia’s, a prospect that is stoking tensions in one of the world’s busiest shipping lanes as China undertakes its once- in-a-decade leadership transition. 

China’s assertiveness over a vast stretch of sea has grown in lockstep with its economic clout as it overtook the U.S. to become the world’s largest energy user. It is encountering competition over the rights from others, notably Vietnam and the Philippines, which are also asserting their claims. 

“There is no advantage for China to back down or enter negotiations,” said Andrew Nathan, a scholar of Chinese politics and foreign policy at Columbia University in New York. “China won’t calm down, and the current posture reflects a long-established strategy to reassert its claims steadily over time without ceding an inch.”
At stake are unproven oil reserves of as much as 213 billion barrels, according to Chinese studies cited in 2008 by the U.S. Energy Information Administration. That compares with 265.4 billion barrels of proven reserves held by Saudi Arabia as of 2011, according to the BP Statistical Review of World Energy. 

In 2010, China became the world’s top energy consumer. Its demand for oil alone surged to 9.8 million barrels per day in 2011 from 216,000 barrels per day in 1965, BP data shows. That’s more than double its daily production of 4.1 million barrels.

Economic Case

A net oil importer since 1993, China’s own proven oil reserves would last only 10 years at the current production levels, while Vietnam’s production would last 37 years, according to BP Plc (BP/) estimates. The needs of the Philippines, because it imports nearly all of its oil, are greater than China’s, Philippine Foreign Minister Albert del Rosario said in an interview last year. 

The world’s second-largest economy claims “indisputable sovereignty” over most of a body of water that lies south of mainland China, including more than 100 small islands, atolls and reefs that form the Paracel and Spratly Islands. Those claims are contested by Vietnam, the Philippines, Malaysia, Brunei and Taiwan.

‘Nine-Dash Map’

China says explorer Zheng He, whose sea adventures predate Christopher Columbus, crossed the South China Sea during the Ming Dynasty and cites historical maps that long predate the founding of the People’s Republic in 1949. The Chinese Foreign Ministry website says the earliest discovery of the Spratlys, called Nansha in China and Troung Sa in Vietnam, can be traced back 2,000 years to the Han dynasty. 

These records form the basis of China’s “nine-dash” map of the sea, first published in 1947, that extends hundreds of miles south from China’s Hainan Island to the equatorial waters off the coast of Borneo. North Vietnam recognized Chinese sovereignty over the area from the 1950s to the 1970s, while the Philippine claim of some islands dates back to the 1950s. 

In the closing days of the Vietnam War, China seized the Paracel Islands in a 1974 naval battle with South Vietnam. In 1988, China sank several ships and killed more than 70 Vietnamese sailors in a skirmish over the Spratlys.

Military Force

Along with the growing strength of its navy, China has used its maritime surveillance ships to harass foreign fishing boats, cut survey ships’ cables, and plant markers on unoccupied reefs. At least eight incidents between China and the Philippines, a U.S. ally, in the last 18 months have highlighted conflicting territorial and resource claims, according to the Congressional Research Service. 

While all-out war is unlikely, “all of the trends are in the wrong direction,” the International Crisis Group, a policy research organization, said in a report last month. 

The competing nations have moved to assert administrative control over the islands through setting up local governments, building structures, passing laws and promoting tourism, often leading to tensions. After Vietnam passed a maritime law in June, China delineated oil blocks off areas that Hanoi’s leaders had already awarded and set up a military garrison in the Paracels. 

Adding to the mix is the U.S., which is shifting military assets to Asia and is advocating multilateral regional talks on the South China Sea. Secretary of State Hillary Clinton said in a July 18 editorial that China’s call for bilateral talks “is a recipe for confusion and even confrontation.”

U.S. Criticism

China’s actions in the Paracels run “counter to collaborative diplomatic efforts to resolve differences and risks further escalating tensions in the region,” State Department spokesman Patrick Ventrell said on Aug. 3. A day later, officials in Beijing said the U.S. was sending “a seriously wrong signal” to rivals for territorial rights in the South China Sea. 

“The Chinese tend to react in very visceral fashion, and that does not always go down well,” said Jonathan D. Pollack, an Asian and Pacific Studies specialist at the Brookings Institution in Washington, in a telephone interview. “Any time they see a U.S. role in anything, they will lash out.” 

The U.S., which says it doesn’t take sides on competing claims, has a declared national interest in a stretch of sea that carries an annual $5 trillion in ship-borne trade and frequently cites concerns of freedom of navigation. China denies ever threatening ships passing through its waters.

Long-Standing Policy

“The U.S. is unlikely to get involved directly, as that would alter a long-standing policy of maintaining neutrality in territorial disputes and complicate its broader relationship with China,” said Taylor Fravel, a professor at the Massachusetts Institute of Technology in Cambridge, Massachusetts. “However, the U.S. is likely to speak out when it believes that trends are challenging regional stability or the principle of freedom of navigation.” 

The new surge in hostilities can be traced to about 2007, when claimants moved to strengthen their positions and develop oil and gas fields within their 200-nautical-mile economic zones, according to analyst Ian Storey of the Institute of Southeast Asian Studies in Singapore. 

Government-owned China National Offshore Oil Corp., China’s largest off-shore oil producer and parent of Cnooc Ltd. (883), in May begin drilling using its first deep-water drilling rig north of the Paracels. The proposed acquisition of Nexen Inc. (NXY) of Canada by Cnooc, in a deal valued at $15.1 billion, would give China in-house deep-sea drilling expertise it had lacked, according to Dean Cheng, a researcher on Chinese political and security issues at the Heritage Foundation in Washington.

Race On

“It is certainly conceivable that if the Chinese are out there first, and the Chinese find oil and they can back their claims with military force that, in a sense, the region is going to be effectively ceded to the Chinese,” he said. 

Vietnam has bid out areas within China’s claims, with Exxon Mobil Corp. (XOM) and Gazprom OAO (GAZP) among companies that have signed deals to explore the area. The Philippines has also opened parts of the waters to international companies, though in a July auction it received bids only from smaller, local oil companies such as Makati City-based Helios Petroleum. 

The existing mechanisms for China and Southeast Asian nations to hammer out their differences are proving inadequate. China says its claims pre-date the 1982 United Nations Convention on the Law of the Sea, which sets out a framework for a solution, and won’t submit to international arbitration. 

A meeting in July of the Association of Southeast Asian Nations hosted by Cambodia failed to reach a consensus on handling disputes in the South China Sea. 

If after nine years Asean and China cannot agree on how to implement a set of confidence-building measures, “what hope is there for reaching an agreement on a binding code designed to limit the sovereignty-building activities of the more active claimants?” said Storey. “Little to none, I would say.” 

To contact the reporters on this story: Flavia Krause-Jackson in United Nations at fjackson@bloomberg.net; Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net