Thayer Consultancy

ABN # 65 648 097 123

Background Briefing: South China Sea Revisited Carlyle A. Thayer February16, 2012

[clientnamedeleted] Q1.WhyarethearchipelagoesandthewatersintheSouthChinaSeasoimportant? ANSWER: The South China Sea is important because of the vital sea lines of communications(SLOCs)thatpassthroughcarryingtradeandenergysupplies.The waterscontainfishthatprovidevitalproteinformillions ofpeople;butfish stocks are being depleted through overfishing and environmental pollution. More to the point,itisbelievedthattheSouthChinacontainsawealthofhydrocarbonsoiland naturalgasandthattheseabedcontainsminerals. No one has carried out the proper seismic surveys to determine accurately the extent of hydrocarbon reserves. Chinas estimates are at least seven times greater than those provided by the U.S. Department of Energy. It is also unclear whether Chinese figures relate to oil reserves or the amount of oil that can be produced commercially. An estimated onetenth of oil reserves are all that can be produced commerciallyinnormalcircumstances. The South China Sea contains a number of islands and features. Islands, in internationallaw,arenaturallyformed,andcansupporthumanhabitationandhave aneconomicfunction.Theyareentitledtoa200nmExclusiveEconomicZone(EEZ). Featuresrocks,reefs,etc.cannotclaimanEEZ. If islands are grouped into an archipelago the country that has sovereignty over themcanrestricttravelthroughitsarchipelagicwaters.Thiscouldhaveimplications forSLOCsintheSouthChinaSea. Q2.HowisVietnam'srelationshipwithChina,ifyoulookatitapartfromthedispute intheSouthChinaSea? ANSWER:VietnamandChinahaveawellregulatedbilateralrelationshipbasedona longterm cooperative framework agreement signed in 2000. A Joint Steering Committeeatdeputyprimeministerleveloverseesallaspectsofbilateralrelations. Over200viceministerialorhigherdelegationsareexchangedineachyear.Thetwo communistpartiesholdregularseminarsonideology.Over13,000Vietnamesestudy in China. The two militaries hold regular strategic dialogues at vice minister level. China has a massive trade surplus, in excess of US $11 billion annually. Vietnam encourages Chinese investment in Vietnam. In terms of political relations, the secretarygeneraloftheVietnamCommunistPartyvisitedBeijinglastyear.Chinas

2 vice president, and heir apparent to Hu Jintao (state president and party chief), Xi Jinping visited Vietnam last year. Vietnams foreign minister has just concluded a visit. At societal level, however, thousands of netizens have taken to the internet and blogging to attack each other in vitriolic terms. Because of the South China Sea dispute there is widespread antiChina sentiment among students and sections of thepoliticalelite. Q3.HowcouldonedescribeVietnam'sjointlivefiredrillswiththeUS?Whatwere thereasons,andwhatweretheoutcomes? ANSWER:Vietnamhasneverconductedlivefiredrillsormilitaryexerciseswiththe UnitedStates.Ithasconductedtwonavalactivities/navalexchangeactivitiesinthe past two years. This has involved a visit by a US warship with the naval activities beingconductedwhiletheshipwasmooredintheportofDaNang.Thefirstactivity involved a simulated fire fighting drill, a table top search and rescue exercise, and the exchange of cooking recipes. These are basic getting to know you activities aimed at building confidence. An activity explicit does not include exchange of combatskills. The naval activities are an extension of annual ship visits negotiated in 2003. They aredesignedtoillustratethattheU.S.isalegitimateplayerintheregionssecurity andnotanoutsidepower,asclaimedbyChina. Q4. Is it fair to say, that Vietnamese will have to acknowledge that relations with Chinawillbeincreasinglyimportantandeconomicallybeneficial?Andifso,willthere beapoint,whereVietnamwillhavetobackdownovertheclaimsintheSouthChina Sea? ANSWER: Vietnams relations with China are already the most important set of bilateralrelationsVietnamhas.Vietnamhasalreadyacknowledgedtheimportance of political and economic ties with China. Vietnam will not back down on its right under international law to claim a 200 nautical mile EEZ and continental shelf and the right to the water and seabed resources within this area. There is no Chinese occupiedislandwithanEEZthatoverlapswithVietnamsEEZ.ButChinas9dashline ushapedmapcutsdeeplyintoVietnamsEEZ. Vietnamwillcontinuetomakesovereigntyclaimsoverislands/featuresintheSouth China Sea. If it backs down it will lose an important legal basis for its claim. InactionorsilenceonVietnamspartcanbeinterpretedasacquiescencetoChinas claims. Vietnam will not withdraw from the nearly 30 islands/features that it currentlyoccupiesintheSpratlyIslands. The Paracel Islands are a different case. Vietnam has a sovereignty claim to the western Paracels but China occupies the lot. This situation is unlikely to change. Vietnam must protest each and every assertion of Chinese sovereignty to keep its claimalive.Inthepastthishasresultedintitfortatverbalexchangesandprotests thathavebecomequiteroutine. Chinawasassertive,excessivelyso,inthefirsthalfof2011.Thisprovokedastrong Vietnamese reaction including its first publicly announced live fire drill. Chinas

3 actionsalsodrovethePhilippinesbackintoitsalliancewiththeU.S.Therealissueis how China and Vietnam choose to manage their claims. They could work out a modusoperandiandevenengageinjointdevelopment. Q4. Could a continued dispute between China and Vietnam have financial consequencesforVietnam? ANSWER:Vietnam,asamemberofASEAN,isalsoalegalpartytotheChinaASEAN FreeTradeAgreement.VietnamisalsoapartoftheGreaterMekongSubregionthat is being developed by the Asian Development Bank and other donors. There is a huge and growing infrastructure linking Chinas southern provinces with mainland Southeast Asia, including roads that pass through Vietnam. All of these realities constrain China from taking punitive economic sanctions against Vietnam. Besides economicrelationsbetweenthetwocountrieshavenotsufferedasaresultofthe SouthChinaSeadispute. The main threat to Vietnam is that foreign oil companies and investors could be deterredbyChineseactionsandceaseworkinginVietnam.In200708Chinaquietly pressured major oil companies such as ExxonMoble not to assist Vietnam or face difficultieswith the commercialarrangements in China. The Obama Administration quicklyappliedcounterpressureandChinahasstoppedputtingpressureonforeign oilcompanies. Q5. What will be the worst case scenario in the dispute? Both seen from a Vietnamese,aChinese,andaninternationalperspective? ANSWER: The worst case scenario is that a mishap or accident involving warships, submarinesorarmedcivilianvesselswilloccurintheSouthChinaSeathatleadsto the loss of human life and an escalation of conflict. Two warships could confront each other, a warship and a civilian vessel could confront each other, or two submarinescouldcollide.Giventhatthewarships(andjetaircraft)arearmedwith antishipmissiles,thereisthepossibilitythatawarshipcouldbesunkwithgreatloss of life. It is not inconceivable that during a crisis that one side either seizes or destroys an oil rig or feature belonging to the other party. During a time of heightenedtensions,theintentionsoftheothersidecouldbemisread.Chinacould conduct a naval exercise that Vietnam views as threatening. Both sides could over react. Q6.WilltheUnitedStateshavearoletoplayinthedispute? TheUnitedStateswillnotbecomedirectlyinvolvedmilitarilybycomingtoVietnams aid.TheU.S.willexertpoliticalanddiplomaticpressuretoendanybrushuporsmall scaleconflictthatmightbreakout.TheUSwillmobilizetheinternationalcommunity topressurebothsidestostanddown.TheUSpositionwillbecomplicatedbecause ChinaisamemberoftheUNSecurityCouncil. It is conceivable, however, that the US could provide intelligence information to Vietnam.AndifthesituationescalatedtowardsafullblowncrisisandChinabegan mobilizingasubstantialnavalforceitisconceivablethattheUSmightrespondwith measurestodeterChina.ThesemostlikelywouldbecommunicatedtoBeijing.