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The Vanguard Bank Standoff: A New Tempest in the South China Sea and What It Represents

Sep 02, 2019

The standoff at Vanguard Bank demonstrates China’s increasing ability and willingness to disrupt legitimate maritime economic activities of other South China Sea claimants, as well as engage in unlawful survey activities in the continental shelf of its neighboring littoral states. While countries subjected to such actions generally seek to downplay such incidents and maintain dialogue with Beijing, constant recurrence may galvanize a stronger concerted pushback with possible ASEAN or even external support. It may also jeopardize ongoing Code of Conduct (COC) negotiations which had seen marked progress with the conclusion of the first reading of the single draft negotiating text last month.

Despite directly avoiding naming China, subtle change in the carefully-choreographed language of ASEAN statements suggest a growing unease over the South China Sea (SCS). In contrast to the recent 26th ASEAN Regional Forum (ARF) and 9th East Asia Summit (EAS) Chairman Statements, where SCS came only second in importance to the Korean Peninsula in regional and international issues, the Joint Communique of the 52nd ASEAN Foreign Ministers Meeting (AFMM) in Bangkok considered SCS a priority regional issue. Compared to the ARF and EAS statements, the AFMM statement went beyond expressing concern over “land reclamations and activities in the area” and added concern over “serious incidents in the area.” The debut appearance of the last phrase came after recent incidents, including the swarming of Chinese vessels in Philippines’ largest occupied feature in the Spratlys, Pag-Asa (Thitu) and the involvement of a Chinese ship in the sinking of a Filipino fishing boat in Recto (Reed) Bank last June. Philippine President Rodrigo Duterte called for the early conclusion of the COC to avoid accidents and misunderstandings that may heighten tensions in the contested sea.

The phrase: “serious incidents in the area” was absent in previous AFMM Joint Communiques. In 2015 at Kuala Lumpur, ASEAN took note of serious concerns expressed by some Foreign Ministers on “land reclamations.” In 2016 at Vientiane, concerns over “escalation of activities in the area” was added. In 2017 at Manila, concerns were raised over “land reclamations and activities in the area,” which was repeated in the AFMM statement in Singapore last year. The evolution of the wording illustrates ASEAN’s increasing worry over China’s actions and the ability of competing claimants to handle untoward maritime incidents. The 2017 and 2018 references can be seen as more subdued, but the 2018 citation signals renewed anxiety. As Hanoi hosts the ASEAN Chairmanship next year, it is likely that stronger wording may come about.

With the completion of its forward bases in SCS, the window for other claimants to unilaterally exploit the marine resources in their SCS frontage without succumbing to Chinese interference is diminishing. This may canalize their option to joint development, but the circumstances by which such agreements may come about generate worry about their equitability and implications on their respective claims and positions in the sea.

China’s actions also expose the failure of other claimants to protect offshore energy investors. The harassment of Filipino-British Forum Energy’s oil exploration activities in Recto Bank in 2011 and suspension of Spanish company Repsol’s work in Vanguard Bank last year due to Chinese interference are instructive. The force majeure in effect in Recto Bank since 2014 not only hinders Philippine efforts to address its burgeoning energy demands by tapping into local resources, but also show Manila’s tentativeness to bear risks consequent to unilateral drilling.

Apparently, China wishes to exclude non-claimants from ongoing COC talks. From the vantage point of the sea being the subject of a longstanding territorial and maritime row, there is merit to this. But the claimants, including Beijing, must also recognize the legitimate interests of other relevant states for access to maritime commons and to see the disputes peacefully resolved without duress. Future partnerships between Chinese state-owned energy giants and domestic energy players of other littoral states to explore and extract hydrocarbons in the sea is sensible, especially as Chinese firms have demonstrated financial and technological capability for deepwater operations. However, upending prior transactions entered into by other claimants with other foreign players will tarnish investor confidence in them. This may not bode well as fast developing ASEAN economies like Philippines and Vietnam race to attract more foreign capital to sustain growth.

Other foreign energy players may see their investments in SCS more from a strategic rather than commercial lens. This may have given Beijing valid cause for disquiet. China may buy out such foreign stakes and not a few may accept the offer just to avoid further political risks that may imperil their larger business interests in China, if any. However, coastal states, notably Vietnam, have been encouraging foreign energy companies, including those from Russia, U.S., Japan, India and other ASEAN neighbors, specifically to keep some distance from China. Possible complications may also arise if other bigger or state-backed investors refuse to budge.

At the moment, Beijing may bask in its ability to interrupt its neighbors’ maritime resource activities. But the tactical gains are fleeting, and the consequences may soon backfire on the sea’s biggest claimant. It is not in China’s interest for other claimants to take its interference and put pressure on other foreign energy firms as an affront to their sovereign choice to decide who to partner with in harnessing their seabed resources. This will only give common ground for ASEAN and other powers to push back against China’s exclusionary overtures. It may also rollback hard-earned positive momentum in COC negotiations.

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