China-Philippines joint energy plans may soon go ahead

Subject The possibility of joint China-Philippines exploitation of hydrocarbons in disputed waters in the South China Sea. Significance Recent months have seen a succession of signs of a possible breakthrough in China-Philippines offshore energy cooperation. The Philippine foreign secretary has suggested the two countries may shortly reach an agreement to exploit hydrocarbon resources in a disputed area of the South China Sea. The deal would involve a 60:40 revenue-sharing arrangement in favour of the Philippines. Impacts Many Philippine politicians will support the deal because the country needs a replacement for the rapidly depleting Malampaya gas field. Even a carefully drafted arrangement may still face constitutional challenges within the Philippines. Both countries would benefit from greater energy security.

Significance However, China's navy already has an operational sea-based nuclear deterrent based on Hainan Island. The deployment of nuclear-armed submarines, and their need to reach the mid-Pacific to threaten the continental United States, makes the South China Sea an arena not just of maritime disputes but of US-China military rivalry. Impacts The strategic importance of the Philippines, Taiwan and Singapore to the United States will increase. A new defence agreement with the Philippines will, as of last month, support US military activities in the area. Washington will encourage greater Japanese involvement in the South China Sea; as long as Shinzo Abe is prime minister, Japan will oblige.


Subject The South China Sea dispute. Significance China and the United States increased their military activities in the South China Sea in January and February, with US ‘freedom of navigation operations’ (FONOPs) pushing back on Chinese maritime jurisdictional claims in the area. The Philippines before June 2016 contested China’s expansive claims. Increased rivalry between Beijing and Washington in South-east Asia raises the risk of a dangerous naval confrontation. Impacts The Philippines will continue to solicit investment from China. China is unlikely to undertake actions in the South China Sea that would seriously irk the Philippines. South-east Asian countries will emphasise the importance of the region not becoming a theatre for China-US rivalry.


Significance A sweeping victory for the Philippines has dismantled any legal basis for expansive Chinese claims across much of the South China Sea. Impacts How the Philippines administration responds will shape how all affected countries interpret Philippine foreign and strategic policy to 2022. Manila may make its military more externally facing, reflected in equipment priorities; internal security capacity could suffer. More US 'freedom of navigation' exercises in the South China Sea are likely. Malaysia, Brunei and Vietnam will assess implications for their maritime disagreements with China. The ruling will exacerbate rifts in ASEAN over relations with China.


Subject Manila's case against Beijing at the UNCLOS arbitral tribunal. Significance An international tribunal is expected this month or next to rule on a landmark case brought by the Philippines against China over the South China Sea issue. The decision will have far-reaching reverberations for the South China Sea, the Law of the Sea, and international law and politics in East Asia. US officials have expressed concern that it will exacerbate tensions in the region as China responds assertively to an adverse finding. Impacts The case may provide the long-awaited legal definition of an 'island' under the UNCLOS. The arbitration could 'legalise' China's nine-dash line. The tribunal is most likely to uphold Philippine claims in waters around Scarborough Shoal. It will probably reject Chinese assertions of 'historic rights', but some key findings will favour China.


Subject ASEAN-US defence and security ties outlook. Significance The 'Shangri-La Dialogue' held in Singapore between May 29 and 31 evidenced the growing China-US divide over the South China Sea, particularly over China's island-building activities. The frictions will be revisited at the ASEAN Regional Forum, in Malaysia on June 10. Burgeoning tensions in the South China Sea increase pressure on South-east Asian countries, and ASEAN, to maintain equilibrium in relations with China and the United States as individual ASEAN countries pursue their own maritime interests. Impacts The Philippines will seek further US defence support, and develop security ties with Vietnam and Japan. Singapore will push for a South China Sea code of conduct, but China is unlikely to consent to a binding code. US Pacific Command leadership will provide some US strategy continuity in the Asia-Pacific region.


Significance Foreign ministers of the ten ASEAN countries and China have endorsed a single draft negotiating text (SDNT) regarding a Code of Conduct (CoC) for the South China Sea. The South China Sea dispute involves maritime territorial and jurisdictional disagreements. Impacts The Philippines and China will proceed with discussions on the joint development of resources in disputed areas of the South China Sea. Vietnam will prioritise offshore development with Russia, believing it will dissuade Chinese pushback. Washington will continue to undertake freedom of navigation operations around China’s artificial islands, irking Beijing.


Significance Duterte’s initial decision to scrap the pact was in line with his personal antipathy towards the United States, and his wish for better ties with Washington’s rival, Beijing, despite Philippine-Chinese tensions regarding the South China Sea. Separately, the Philippines and Japan held their first-ever combined air force exercise earlier this month. Impacts The Philippines will strengthen defence ties with India and South Korea as well as Japan. US vaccine supplies should help the Philippines speed up its COVID-19 inoculation programme. Duterte will continue to encourage investment from China and downplay Beijing’s assertiveness in the South China Sea.


Subject Risk of armed conflict in the South China Sea. Significance US patrols close to Chinese installations in the South China Sea, in the context of growing willingness among China, Vietnam and the Philippines to assert maritime claims by force, raise fears of lethal clashes. These have occurred before, between China and Vietnam in 1974 and 1988, leading respectively to around 70 and 60 deaths. Impacts Neither China's rival claimants nor the United States are likely to risk physically disrupting China's island-building activities. Unintended conflict is more likely than calculated use of force. Conflict between China and Vietnam is the most likely conflict scenario. Washington's need to preserve credibility as a treaty ally and security guarantor would force it to intervene in conflicts.


Subject The Duterte administration's relationship with China. Significance President Xi Jinping’s first state visit to the Philippines late last month highlighted the risks and opportunities associated with President Rodrigo Duterte’s close embrace of China. The two sides signed several deals including one furthering talks over joint exploration for oil and gas in the South China Sea, in which both countries are claimants. Impacts The Philippines will be central to ASEAN-China negotiations over a Code of Conduct for the South China Sea. Recently appointed Foreign Secretary Teodoro Locsin will be less supportive of close China ties than his predecessor Alan Peter Cayetano. Debate over deals with China will likely feature prominently in the 2022 presidential election. China will explore joint energy development with Brunei in its exclusive economic zone.


Subject New military activities in the South China Sea. Significance Military moves and minor on-water incidents in recent weeks have ended 18 months of relative calm in the South China Sea that followed a 2016 international arbitration tribunal ruling against Chinese claims and the China-friendly Rodrigo Duterte's election as president of the Philippines. Impacts France, the United Kingdom and other countries will increase patrols in the South China Sea, and publicity thereof. Russia offers Vietnam an offshore development partner that China will not want to confront. Russian oil giant Rosneft will press on with joint offshore oil drilling with Vietnam. Duterte’s China-friendly foreign policy will increasingly be tested. China’s integration of civilian, paramilitary and military maritime forces will progress rapidly.


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