Flashpoint South China Sea

S P SETH

Nobody really knows how the South China Sea sovereignty issue will be sorted out. It featured in one way or the other at the recent Association of South East Asian Nations (ASEAN) meeting and the follow up East Asia summit in Laos. So far, China is resolute about its sovereignty claims regarding islands/islets/rocks that scatter around these waters. Indeed, it has dredged out new ones and has justified building airfields and other military structures as security measures to defend its sovereignty. Beijing has flatly rejected the recent ruling of the Permanent Court of Arbitration in Hague, which favoured the Philippines that had sought the court’s arbitration on China’s construction of military structures on Mischief Reef in the Spratly archipelago, claimed by Manila. In a sweeping judgment on China’s sovereignty claims, it rejected its “nine dash line” that tends to turn almost all of South China Sea into its exclusive lake.

An adverse finding from Hague court was expected but not with such vehemence. It said, “The Tribunal concluded that there was no legal basis for China to claim historic rights to resources within the sea areas falling within the ‘nine-dash line’”. And it found that the artificial islands that China has been building did not create extended maritime zones as they couldn’t naturally sustain human habitation. It, therefore declared that “certain sea areas [which China claimed] are within the excusive economic zone” of the rival claimant, the Philippines. And worse still, the tribunal found that “China had caused severe harm to the coral reef environment and violated its obligation to preserve and protect fragile ecosystems and the habitat of depleted, threatened, or endangered species.”

Not surprisingly, and considering that China had boycotted the tribunal, Beijing said that the ruling of the court, “is null and void and has no binding force.” China’s foreign minister, Wang Yi, said that the ruling has placed the South China Sea “in a dangerous situation of intensifying tension and confrontation.” And he called the unilaterally initiated (by the Philippines) case and the resultant ruling a “sheer political farce in the disguise of law…” He added that, “The attempts of any power to harm or deny China’s sovereignty and maritime interests in any form will be futile.”

And to this end, China is not averse to showing its military muscle by making it clear that it would use all the necessary measures to protect its sovereignty in South China as it sees it. China has been holding military exercises, and reportedly even cut off outside access to parts of South China Sea to host these exercises. It has also conducted combat air patrols in the region, which are slated to become a “regular” feature in the future, according to its state news agency, Xinhua. In other words, Beijing is steadfast on its position and is leaving no one in doubt that it means what it says.

China’s regional neighbours, at odds with China over the sovereignty issue, are reluctant to put up a united front. The Association of South East Asian Nations (ASEAN), for instance, has not been able to put up a joint front on this issue as they look to China for trade and investment. Besides, China is politically and militarily powerful. The diplomatic option, sought to be exercised by the Philippines, has apparently failed, as China doesn’t accept the Hague court’s authority and writ. In any case, China’s position is clear that it has sovereignty over the islands and over much of the South China Sea waters.  

The only way to confront China would be to team up with the United States. The US is trying to rally regional countries to exercise their right of freedom of navigation through Chinese-claimed waters and islands, which the US has done on a few occasions and is determined to continue doing. China has said that it might declare an air-defence identification zone requiring aircraft passing through the area to identify themselves. However, the US and its allies, Australia, for instance, might ignore this, potentially leading to military confrontation.

Beijing believes that the US is creating trouble in China’s backyard. It regards the US as an outside power that should stay out of regional affairs. But for the US ‘interference’, in Beijing’s view, the region will be peaceful based on China’s ‘historical’ sovereignty over the South China Sea islands and much of the waters surrounding them. The US, on the other hand, rejects China’s contention that it is an outside power seeking to stir up trouble, citing its large Pacific coast and vital economic, strategic and political interests. During a recent Australia visit, US vice-president, Joe Biden, was adamant that the US would remain a Pacific power. As if addressing China and regional doubters about the US stamina and determination, he said in Sydney, “We are not going anywhere. And that is vital because our presence in the region… is essential to maintaining peace and stability, without which the economic growth and prosperity I believe would falter.”

And he added, “America is the linchpin and we want to ensure the sea lanes are secure, the skies remain open. That is how to maintain the free flow of commerce, that is the life blood of this region.” To fortify the US resolve, Biden went on to say, “We have the most capable ground forces in the world and unmatched ability to project naval and air power to any and every corner of the globe, and simultaneously.” Talking specifically of US commitment to Pacific region, Biden said, “And we’ve committed to put over 60 per cent of our fleet and our most advanced military capabilities in the Pacific by 2020.” 

Biden’s choice of Australia to reiterate this commitment is interesting, as it was here that President Obama had announced the US “pivot to Asia” in 2011 during his visit to Australia. In a sense, it is designed to bolster the flagging confidence of regional countries that are not keen to confront China, being unsure of the US’ resolve and staying power. There is a sense, rightly or wrongly, that the US is a declining power and is over-stretched, while China is in ascendance. As if to calm some of the frayed nerves in Australia about US politics with Donald Trump as Republican presidential nominee, Biden said, “Don’t worry about our election. The better angels in America will prevail.” But that is more a prayer than a policy prescription.

The point, though, is that both China and the US are committed to their respective positions. Which is that China has sovereignty over the South China Sea islands and will defend it with all its power. The US, on the other hand, is determined to challenge this by exercising the right of free navigation through Chinese-claimed South China Sea islands and surrounding waters. And if they mean what they say, one cannot rule out military confrontation at some point,  with unpredictable results.

Note: This article was first printed in the Daily Times.

Contact; sushilpseth@yahoo.com.au

Obama’s Vietnam and Japan visits

S P SETH

The recent visit to Vietnam of the US President Barack Obama was epochal both for its imagery and substance. One just has to hark back to 1975 to the hurried evacuation of the US embassy personnel, when the North Vietnamese forces marched victoriously into Saigon, later renamed Ho Chi Minh City. It was a humiliating sight for a superpower to be pushed out by a guerrilla enemy after nearly 15 years of constant bombardment and military operations where Vietnam’s countryside was ravaged by the use of chemical Agent Orange, with anywhere between 1-2 million Vietnamese killed and many wounded and maimed and their offspring born deformed to this day. In the midst of it all, Vietnam not only survived but its communist regime prevailed and the country is now as normal as might be expected in the circumstances.

And now look at the rapturous welcome that greeted President Obama on his visit as if all was forgotten. Not only that there is now a fervent desire on both sides to forge a new relationship, bordering on a military alliance. During his visit, Obama announced the lifting of US arms embargo on Vietnam. During his three-day visit, unusual as it is considering their recent history, Obama announced that, “The United States is fully lifting the ban on military equipment to Vietnam that has been in place for 50 years.”

What lies behind this transformation in US-Vietnam relationship from their once implacable enmity to an emerging strategic alliance? It has to be understood against a backdrop of China’s projection of power into Asia-Pacific region to the point that it is asserting sovereignty over a cluster of islands and islets in the South China Sea, also claimed by Vietnam and some other regional countries.  China has also created a string of artificial islands in its claimed area and built up military structures and facilities, thus turning much of the South China Sea into its exclusive waters that contain precious oil and gas reserves as well as fisheries.

The resultant control of the South China Sea will enable China, if it so wanted, to control the passage nearly $5 trillion worth of trade that flows through it as well movement of all sorts of ships that pass through these waters. With China’s emergence as a superpower and all the economic and military leverage that flows from it, the regional claimants to South China Sea islands have very little countervailing power to China’s sovereignty claims sourced from old history. However, with the US turning its ‘pivot’ or ‘re-balancing’ act to Asia-Pacific region to forge a coalition of regional countries, Beijing’s task of completing its historical mission is not going to be all that easy. It will face tough opposition.

Not surprisingly, China is not happy with the US seeking to ‘stir up’ trouble in the region. Writing in Singapore’s Straits Times newspaper, Xu Bu, China’s ambassador to 10-member Association of South-East Asian Nations (ASEAN) reportedly said, “It is no coincidence that the changes in US policy [to rebalance China] have been followed by some South-east Asian countries making changes to their policies on the South China Sea issue.” And he added that, “The tension in South China Sea was intentionally churned and hyped [by the US].”

Commenting on Obama’s Vietnam visit, China’s official Xinhua news agency said: “It is welcome that Vietnam improves its ties with any other country, including the United States. However, such rapprochement should not be used by the United States to damage the strategic interests of a third country [China].” In other words, China sees its sovereignty as legally and historically valid and believes that, but for the US ‘meddling’, the regional countries will have no choice but to come to terms with the new situation.

At a recent international security forum in Singapore, Admiral Sun Jianguo said forcefully---responding to the US Defence Secretary, Ash Carter’s, remarks that  China risked erecting a “Great Wall of self-isolation--- that “We [China] do not make trouble, but we have no fear of trouble.” He added, “ China will not bear the consequences, nor will it allow any infringement on its sovereignty and security interest, or stay indifferent to some countries creating chaos in the South China Sea.”

China sees the US as an external power and would rather like it to remain out of Asia-Pacific region strategically. But the US doesn’t see it this way. It regards itself as much a regional power as China with its large Pacific coast, and vital economic and strategic interests by virtue of its alliances and old and new friendships, as with Vietnam. It is sending aerial and naval patrols to assert  ‘freedom of navigation’ in the vicinity of Beijing-claimed islands/islets, one of which almost led to a Chinese intercept, at least that is how the US saw it. All these activities, with China projecting its power by setting up military structures, and the US and its regional allies, like the Philippines, challenging it, is turning the region into a veritable tinder box.

The Philippines has taken the sovereignty issue to a UN court in Hague for arbitration, with China refusing to submit to its jurisdiction. If the court’s decision goes in the Philippines favour, as is generally expected, it is going to further complicate the situation. Lately, the sovereignty issue regarding another group of islands is also starting to feature in China’s relations, this time with Indonesia. Against such backdrop of rising regional tensions, Obama’s Vietnam visit and lifting of ban on the US arms sales to that country is indicative of how serious the situation is getting in the Asia Pacific region.

President Obama’s Vietnam visit was followed up by his trip to Japan, another country with contested sovereignty with China over a group of islands’ in East China Sea. In East China Sea, the two countries have almost come to blows a few times. The US is Japan’s security partner in the region. Their alliance has got even stronger against the backdrop of China’s power projection in the region. Tokyo has relaxed some of the pacifist features of its post-WW11 constitution with a view to meet new security challenges from China.

Apart from highlighting US-Japan security alliance, an important feature of Obama’s Japan trip was his visit to Hiroshima, the first Japanese city (Nagasaki was the second) subjected to US atomic bombing in WW11 that out rightly killed about 140,000 of its people, leaving a trail of destruction in its wake. Obama is the first US President to have visited Hiroshima. This gesture came as close to an apology, without a formal phraseology. And this should further strengthen US-Japan relations.

Note: This article first appeared in the Daily Times. 

Flashpoint South China Sea

S P SETH

In the midst of so many crisis points in the world, the potential of a sudden flare up in the South China Sea is not as seriously recognized, as it should be. This flash point arises from China’s sovereignty claims to a cluster of Islands in the South China Sea and the waters surrounding them, with some regional countries, like the Philippines and Vietnam, contesting these claims. China says that this region has always belonged to it historically and hence it is not subject to any kind of negotiations, international arbitration or the UN Convention on the Law of the Sea. And the islands and much of the South China Sea being China’s sovereign territory and waters, it has the right to build up military bases and structures on these and other artificial islands/reefs it has dredged up.

Beijing particularly objects to US military involvement in the region by strengthening its security ties with other countries that contest and challenge China’s sovereignty claims.  Washington, on the other hand, claims a legitimate role in the region arising from significant economic, political and strategic interests in the region, and is worried about China’s destabilizing and threatening role It, therefore, favours a peaceful negotiated settlement of the disputed issues between concerned countries based on international law to ensure a stable regional environment. It has security treaties with some of the regional states and is developing still closer relations with others. It is against China unilaterally declaring the South China Sea islands and waters around them as its sovereign territory, giving it the authority and power, if it chooses to do so, to restrict freedom of navigation through these waters.  About $5 trillion worth of international trade is carried through South China Sea lanes---not to speak of naval movements through these international waters. And the US is not going to let China restrict passage through theses waters and has sought to assert this right by sending a ship or two through, what China regards as, its sovereign territory. Beijing regards this as provocative.

Lately, there has been an uptake in regional tensions with the strengthening of the US-Philippines security ties, including joint naval and air patrols and stationing of US military assets in the Philippines. During his recent visit to the Philippines, US Defence Secretary, Ashton Carter, reportedly said that the initial US air contingent will “conduct flight operations in the area, including the South China Sea, and lay the foundation for joint air patrols to complement ongoing maritime patrols.” The US will also establish a command-and-control centre in the Philippines to co-ordinate the joint operations.

China hasn’t taken kindly to it. Reacting to it, China’s defence ministry said that,  “A strengthening of the US-Philippine military alliance--- is a manifestation of the Cold War mentality and is not conducive to peace and stability in the South China Sea.” And it added: “ The Chinese army will monitor this trend closely, and will resolutely safeguard China’s territorial sovereignty as well as maritime rights and interests.”

President Obama announced the US’s “pivot” to Asia policy in November 2011 during his Australia visit. In the decade before that the US had been engaged militarily with two ongoing wars in Afghanistan and Iraq and was now seeking to disengage from that region. With the US occupied in the Middle East, China was successfully expanding its political, economic and military space in the Asia Pacific region. It had never made secret of its sovereign claims in the region but, under President Xi Jinping’s regime, a process of assertive control of the South China Sea area by way of building artificial islands and military structures was put in place to test, as if, the limits of US power in the region. And that now is happening seriously, as indicated by the upgrading of the US-Philippines military ties.

The US has other friends and allies in the region. Among them, Australia is one of its most loyal allies going back to WW 11. Therefore, the choice of Canberra to announce the ‘pivot’ to Asia seemed deliberate to assure Australia and other others in the region Washington’s resolve to stay engaged and not leave China to do as it pleased. It was followed up with a further upgrading of US-Australia security ties with the announcement of rotation of US troops through northern Australia and access to other facilities. China reacted strongly to this, and Canberra’s criticism of its South China policy. Beijing claims that the region has historically been part of China. And in any case, Australia is not a disputant and should stay out of it.

Australia, more or less, follows the US position that Beijing’s actions are destabilizing the region and that it is against China’s own interests, because a stable Asia Pacific region in the last few decades has worked to its advantage by fostering its economic growth. Hence, it is in China’s interest to work through these issues peacefully with its regional neighbours within the framework of international law. China finds these arguments, by its proponents, self-serving to perpetuate status quo designed to contain China’s rise. And it apparently wants to break through this ‘containment’ ring.

During his recent high-powered visit to China, with a large delegation of  business people, Australia’s Prime Minister, Malcolm Turnbull, repeated the usual message of the need for peaceful resolution of the sovereignty issue in the South China Sea, while emphasizing the importance of their bilateral economic relationship. China is now Australia’s largest trading partner with a healthy trade balance in Australia’s favour. However, Beijing is unhappy about Australia’s even stronger strategic nexus with the US against the backdrop of tensions in the South China Sea, attributed to China’s muscular policy. But Beijing apparently believes that its increasing economic leverage from Australia’s dependent trade relationship would dent this nexus. Which is also worrying some in the US, as well as Australia’s strategic community invested in the US-Australia security alliance. Canberra, on the other hand, is equally hopeful that it can continue to have the best of both worlds—an expanding trade relationship with China as well as the security umbrella of the US alliance.

In a recent column in the Sydney Morning Herald, its international editor, Peter Hartcher, was pleased with the way Canberra has so far successfully done this balancing act. He, however, acknowledged that, “It is possible that Australia could one day be forced to choose, but only if China and the US break out into open war.” Which doesn’t bear thinking but the way things are going, there is always of a danger of things just getting out of control.

Note: This article was first published in the Daily Times.

Troubled times ahead for China

S P SETH

The state of China’s economy, and its impact on the country’s social and political stability, continues to figure prominently, even more so in the context of the recent National People’s Congress (NPC) meeting. China’s economy has slowed down from its double-digit growth some years ago to just under 7 per cent. There are even suggestions that the real growth might be much lower, probably as low as half of that. At around 7 per cent, though, China’s economy comparatively is doing much better than most other countries. However, there are serious problems emerging and some of it were acknowledged by Prime Minister Li Keqiang in his annual state-of-the-nation report to the NPC. For instance, talking of economy in general, Premier Li said in his report that, “Domestically, problems and risks that have been building up over the years are becoming more evident.” As a result, “Downward pressure on the economy is increasing.” He, however, maintained that, with appropriate adjustments, it would be possible for China to achieve an average annual growth rate of 6.5 per cent in the next 5 years.

And what are these problems? A major problem is that over the years some crucial industries have built up overcapacity that is weighing down on the general economy. For instance, there is now a glut of coal, cement, steel and other industrial commodities. Even as these industries have created high level of pollution, their profits have declined and some are even losing money. These and other industrial enterprises would need to be overhauled/closed, leading to massive loss of jobs. And it is already happening. As Li put it, “We will focus on addressing the overcapacity in the steel, coal and other industries facing difficulties.” Besides: “We will address the issue of ‘zombie enterprises’ proactively yet prudently by using measures such as mergers, reorganizations, debt restructurings and bankruptcy liquidations.” In other words, the economy will undergo a severe shake up and the resultant loss of jobs will not be without social unrest.

The legitimacy of China’s ruling system is largely based on an implied compact between the regime and China’s masses where its people abide by the Communist Party’s monopoly power in return for a progressive improvement in their economic conditions. The government is not unaware of the social problems that might arise from loss of millions of jobs and is setting aside about $15 billion to support laid-off workers. But such economic disruptions are never easy and inevitably cause social unrest. Already, protests are happening in some regions and industries--mining for instance-- over loss of jobs and unpaid wages. The scale and management of such unrest will be an important challenge for the political system. The economic turbulence recently experienced by China’s stock market, affecting millions of small investors earlier encouraged by the government to make good money through this seemingly ever-expanding channel, is another example of the general malaise. At the same time, its exports sector, once an important source of economic growth has slowed down, which has also caused unemployment.

Faced with slow economic growth and its inevitable social consequences, the Chinese government is easing its credit policy, though it is till not sure how far to go with injecting more liquidity. Such ambivalence is the result of a mountain of debt that has piled up following the stimulation of the economy after the 2008-9 global economic crisis. The total debt is said to be 2.5 years of its economic output, and there are questions being asked about its manageability. The views on this are varied. One view is that with its monopoly power, the ruling Communist Party of China (CPC) will not allow things to get out of control in any and all spheres of national life. Which is true but we have seen that its instruments of control didn’t help much when the stock market went berserk. If anything, it tended to aggravate the situation.

It has, of course, large foreign exchange reserves of over $3 trillion. Which might seem huge, but once the draw down begins they might not last long. China has already spent some of these reserves to support its currency from falling too precipitously. Then there is the flight of capital, caused by nervousness about the economy. As one American fund manager is quoted to say in the Sydney Morning Herald, “There are 1.3 billion people in China. If 4 per cent of the population took out their $50,000 limit, the $3.3 trillion in foreign reserves is gone…” At the same time, there are said to be a trillion dollar worth of seriously bad debts on Chinese banks’ books. Developing his argument about serious risk for China’s economy, Kyle Bass, the fund manager at Hayman Capital Hedge Fund, based in Dallas, USA is quoted to say, “The Chinese financial system is overstretched [likely to be further overstretched with more easy money]. China let the banking system grow 1000 per cent in 10 years.” And he adds, “China’s [ratio of] bank deposits to resources is one of the worst in the world.” And this cannot continue without causing economic tremors.

It is not a pretty picture. Its implications are quite bad for both global and domestic economies. China’s growth is now quite enmeshed into global economy. Its stimulation after the 2008-09 global financial crisis helped to mitigate the financial meltdown. In commodity-based economies like Australia, Canada, Brazil and others, it even ushered in a period of great prosperity. And its slowdown and stock market gyrations are causing great economic distress in parts of the world because of falling demand from China for commodities like iron ore, coal, oil and gas. There is a great need for China to stabilize its economy through sensible transition from exports and construction-led phase, which is almost all it has known in the last few decades, to a consumption-led domestic growth. The government knows this but it is not working as well and as fast.

And in the interim period, the restructuring of the economy leading to massive unemployment is creating unrest. And dealing with it through rough and ready and top heavy exercise of power, that has been the feature of the system, will be quite challenging. Indeed, President Xi Jinping is busy further consolidating his power, being christened as the ‘core’ leader in the tradition of Mao Zedong.   Does it mean, by any chance, that China’s ‘supreme’ leader is gearing for uncertain times ahead?

It doesn’t’ however, mean that China’s economy or system is going to crumble. What it means is that the seriousness of its economic problems might set in motion a process over a period of time that might erode the legitimacy and durability of the communist regime and all that underpins it. 

Note: The above article was first published in the Daily Times.