By: Ivan Chin Cheng Xin, Shauryaa Ladha, Bhavya Verma
Research Head: Shawn Tenh Editor: Praharsh Mehrotra
Illustration by Chen Hsuan Ju Abstract
The South China Sea dispute had lasted many years and its history stretches back into 1947 when China published the nine-dash line. In this article, we will analyze the economic value of the South China Sea to understand its importance and the incentives it brings, we will also take a look at Philippines’s position in this dispute against China in the long and short run ever since the tribunal ruled against China.
1. Background The South China Sea dispute involves both land and maritime claims from several countries and states in the region such as Brunei, China, Philippines, Taiwan, Indonesia, Malaysia and Vietnam. The dispute stems from China having sovereignty over the nine-dash line drawn around the South China Sea which they derived from historical basis. The South China Sea is a crucial maritime trade route with vast natural resources and accounts for US $5.3 Trillion worth of maritime goods that utilise this route. Currently, the Philippines entered an arbitration tribunal conducted by the United Nations against China’s claims and ruled in favor of the Philippines against China’s historical rights. 2. Economic Value of the region Firstly, to put things in perspective, it takes around 500 million barrels of oil to be considered as a major oil field and the South China Sea is home to valuable natural resources such as fishing, oil and gas which was estimated to fall between 11 to 125 billion barrels of oil and 190 to 500 trillion cubic feet of natural gas (Uptin, 2018). According to international law, every country can claim an exclusive economic zone extending up to 200 nautical miles for activities like drilling or fishing. By owning more territories extending into the South China Sea grants the state access to significant economic benefits and increases their resources. Secondly, the South China Sea route supports a large volume of economic activities which accounts for about 21% of world trade. Furthermore, the geographic features of this area catalyzed maritime trade by providing a shortcut to the region instead of the long way around Australia (China Power, 2019) (see figure) which can be potentially happen if there is a conflict that erupts from this dispute.
3. Short-term and long-term impact on trade in the Philippines Asia is a swiftly growing trading hub, with one of its main routes being through the South China Sea. About a third of the world’s maritime trade passes through the South China Sea annually, with eight of the world’s ten busiest container ports present in the Asia-Pacific region. In this, two-thirds of the world’s oil shipments transit through the Indian Ocean to the Pacific, much of it to an energy-dependent China
(Almond, R. G, 2018). It is also to be noted that Beijing’s South China Sea island-building campaign began aggressively during the same year China became the world’s largest trading nation, even above the US. This shows the importance and power of the South China Sea area in influencing trade. With tensions arising in the South China region, the question to consider is: can China manipulate its economic and trade ties with the surrounding regions to gain some leverage regarding this region? Overall, although recovering rapidly, the Philippines are facing several other economic and political problems, such as high unemployment and Islamic surgency, and therefore are more vulnerable to economic coercion by China (Ravindran, M. S, 2012). This situation is similar for Vietnam as well. Thus, there could be a potential trade war in the South Asia region if the dispute were to escalate. Both China and the other nations would gain a lot from a diplomatic and early resolution, preventing a trade and economic slowdown, and even an actual war, in this region. Furthermore, the US-China trade war is already having a huge impact in this region, with many countries like Vietnam and the Philippines gaining in the short-term, but long-term turmoil and harm. 4. Conclusion The South China sea dispute creates a lot of uncertainty in the global trade market as restriction of this route would lead to trade disruption and delays for all countries. While China with its grip over the region has access to the vast variety of natural resources, other countries like the Philippines tend to lose this access which they are guaranteed as per International Law of Seas. The major source of electricity generation for the Philippines is the Malampaya gas field which is expected to run dry by 2024 (South China Sea Expert Working Group, 2018). This necessitates the need for a new source which can be found in the regions currently occupied by China against the decision of the tribunal. Unless it finds a new source, the Philippines would have to import significant quantities of natural gas from other countries at higher prices which would act as a deterrent to economic growth in the economy. The Philippines has been benefiting from increased investment by China in the country as a way of peacemaking to make up for its non-adherence to the tribunal in 2016. However, one big risk faced by all countries is the growing proliferation of weapons in the South-China Sea. Countries in the region have been increasing their military readiness as China increases its military presence in the South China Sea. The Philippines has been boosting its relationship with its ally United
States with an increased presence of military in the region. All this compounds uncertainty in the South China Sea making it difficult to predict how the issue would play out in the future. However, one thing is clear that the South China Sea is an area of strategic importance and underutilized natural resources and will play a significant role in its contribution to world economy in the future.
1.Almond, R. G. (2018, September 4). Trade, War, and the South China Sea. Retrieved from https://thediplomat.com/2018/09/trade-war-and-the-south-china-sea/
2.China Power. (2019, October 10). How much trade transits the South China Sea? Retrieved from https://chinapower.csis.org/much-trade-transits-south-china-sea/
3.Ravindran, M. S. (2012). Chinas Potential for Economic Coercion in the South China Sea Disputes: A Comparative Study of the Philippines and Vietnam. Journal of Current Southeast Asian Affairs, 31(3), 105–132. doi: 10.1177/186810341203100305
4.South China Sea Expert Working Group. (2018, October 11). A Blueprint for Cooperation on Oil and Gas Production in the South China Sea [Web log post]. Retrieved from https://amti.csis.org/a- blueprint-for-cooperation-on-oil-and-gas-production-in-the-south-china-sea/
5.Uptin. (2018, February 7). Here's why the South China Sea is highly contested. Retrieved from https://www.cnbc.com/2018/02/07/heres-why-the-south-china-sea-is-highly-contested.html