The South China Sea 'V-I-P' solution
| By Stewart Taggart - posted Monday, 9 March 2015 | Sign Up for free e-mail updates! |
The 'VIP' Group of Vietnam, Indonesia and the Philippines all share both advantageous relations with and deep disagreements with China in the South China Sea. Working together, they could present a united front.
This would include establishing Joint Development Areas allotted by auction and linked by a common-carrier open-access energy infrastructure.
This would include establishing Joint Development Areas allotted by auction and linked by a common-carrier open-access energy infrastructure.
Each has a serious offshore territorial dispute with China. Meanwhile, each cooperates with China in important ways.
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The disputes revolve around over China's nine-dotted-line maritime territorial claim. How the V-I-P countries respond will determine how peacefully Asia is in coming decades.
None of the three can take on China alone. But together, however, they can create a compelling negotiating counter party.
Start with Vietnam. In 1974, China seized the Paracel Islands from Vietnam. In 1979, China and Vietnam fought a land border war. In 2014 China placed a rig in waters claimed by Vietnam.
Despite this, China and Vietnam now cooperate in the Tonkin Gulf. There, Vietnam and China jointly manage fisheries and are working together to explore for energy resources in the offshore area straddling their offshore equidistance line.
Over at Scarborough Shoal off the Philippine Island of Luzon, the Philippines and China have engaged in water cannon fights.
The Philippines continually warns about China's construction of facilities on disputed reefs, presumably to build up forward military bases for more aggressive action.
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Less reported, however, is that Philippine energy company Philex has been negotiating with with China National Offshore Oil Company (CNOOC) regarding joint development of the disputed Reed Bank.
Meanwhile, State Grid Corp of China is several years into a showcase 25-year contract to operate and upgrade the Philippine electricity grid.
State Grid's Philippine grid upgrade contract is a major international infrastructure showcase. It illustrates China's 'going out' strategy of overseas investment by China's now internationally-competitive infrastructure state champions.
Continued over the page...The South China Sea 'V-I-P' solution
| By Stewart Taggart - posted Monday, 9 March 2015 | Sign Up for free e-mail updates! |
Arguably, the positive potential for China in its global infrastructure outsourcing drive industrial policy is larger than any expansive territory grab in the South China Sea.
Forced to choose, China will almost certainly back down in the South China Sea if it jeopardizes the internal social stability that continued economic growth brings to the Communist Party's political legitimacy.
China's industrial state infrastructure champions' 'going out' strategy is providing this all important economic growth. Without it, destabilizing unemployment in China will rise because infrastructure is a huge employer.
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It's only a slight exaggeration to call this China's geopolitical jugular vein.
Consider recent developments with State Grid in the Philippines. This is where China's 'going out' strategy is now colliding with South China Sea tensions. There, the Philippines has flipped a big potential 'kill switch' on this tidy scenario.
In late February, the Philippine government announced it was sending home State Grid's Chinese technicians and replacing them with Filipinos in running the Philippine electricity grid the Chinese expensively revamped.
The Philippine government said the decision was taken because Filipino workers can now do the work performed by the Chinese, but also hinted the move was due to national security concerns.
Regardless of which it was, the move relegates State Grid to being a mere minority shareholder in the National Grid Corp.,the Philippine corporate entity that runs the grid.
Bringing in Chinese infrastructure state champions to rebuild national grids, and then booting them out - as the Philippines has done - creates an unattractive precedent for State Grid elsewhere, like in Australia, Portugal and Brazil, to name three.
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Ironically, the Philippines is applying a highly-successful strategy used by the Chinese themselves over the past few decades. This has involved inviting inward investment, but limiting foreign companies to minority stakes and requiring technology transfer as a condition of access to the domestic market.
If this playbook is applied in reverse in Southeast Asia (and elsewhere) to offset worries over potential Chinese expansionism, it has major implications for China's economy.
In China, economic growth is the key opiate damping down domestic social discontent over things like corruption, pollution and the dominant role of the Communist Party.
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