The South China Sea Conflict after the Arbitration of July 12, 2016

Editor’s Preface

Two years have passed quickly… In November 2017, political scientists, law experts and historians from Germany, Britain, Russia and Norway met in Hamburg to discuss the situation in the South China Sea one year after the 12 July 2016 award of the Permanent Court of Arbitration (PCA) in the The Hague, which ruled in the case 2013–19 Philippines versus The People’s Republic of China (PRC) in the matter of the South China Sea arbitration.

The main question was to what extent the PCA ruling and its non-implementation has been or has not been a mile-stone in the development of this more than forty-years-old conflict. Break-through or dead end – that was one of the heatedly debated questions.

The answers given in the contributions to this volume are careful, measured and guarded, partly contradictory, depending on the subject and the researcher’s area of expertise. Several contributors discussed the subject as to whether an extension of the PRC’s One-Belt-One-Road or Belt and Road Initiative (OBOR or BRI)¹ was a face-saving answer to a legal defeat, as China could use this program to buy ASEAN’s silence regarding the PCA ruling.

In his introduction, Thomas Engelbert has presented the reactions of China and several ASEAN countries to the PCA award. Interior and exterior politics are inseparably intertwined in all states concerned. There are different views with regard to the ongoing discussion about China’s policies in the South China Sea and beyond.

Suzette V. Suarez is of the opinion that the Arbitral Award, though final and binding according to the UN Convention on the Law of the Sea (UNCLOS), will neither be complied with nor enforced any time soon, because both sides, the PRC and the Philippines have decided to ignore it. Notwithstanding this, the ruling will have far-reaching effects on other ←7 | 8→law-of-the-sea issues. In this legal aspect, it could be regarded as a mile-stone in the history of the conflict.

Jörn Dosch and Shengmin Cui have presented outlines of China’s One Belt, One Road Initiative. They show, how this initiative can be regarded ←8 | 9→as a water-shed in the Chinese discourse about the role of the PRC in international relations, especially in the region of Southeast Asia.

Thomas Engelbert

The South China Sea Conflict: Analyses and Perspectives.

An Introduction to the Topic

On 12 July 2016, the Permanent Court of Arbitration (PCA) in The Hague ruled on the case Philippines versus China concerning the South China Sea. The PCA ruling invalidated Beijing’s claim to virtually the entire South China Sea, where altogether six countries (PRC, Taiwan, Vietnam, the Philippines, Indonesia and Brunei) claim territories. The court ruled in favour of seven of the Philippine submissions, especially the invalidity of the so-called nine-dash line of China’s maritime borders and the historic rights on which this line is based. The PCA did not rule on any question regarding either the sovereignty of land territories within the South China Sea or maritime borders.¹ China had refused to participate in the arbitration and declared the result “null and void”. The PRC would continue its military program in the South China Sea, where the “blustering US” was only “a paper tiger”.²

Even with this outright rejection of the verdict by one of the conflicting parties, the rule can be considered as a juridical milestone in the history of the South China Sea conflict as China’s claims have been proven inconsistent with international law. This alone, however, does not yet lead to a conflict settlement.

Whereas the legal counsel of the Philippines, Paul Reichler, declared the rule an “outright victory” for his client, the new Philippine president, Rodrigo Duterte (in office since 30 June 2016) astonished the world with his public praise of China and his “trashing” of Philippine-US relations. His statements and the withdrawal of the Philippine naval forces from joint US-Philippine patrols in the South China Sea were regarded as undermining the fragile security architecture of the region and ASEAN unity – all to China’s benefit.³ In the wind shadow of Rodrigo Duterte’s backing down in public, Vietnam also seemed to have taken notice of, but has not officially recognized, China’s stance on the PCA case.⁴

The month of September, 2016, brought a flurry of diplomatic activities. At the ASEAN-China Summit in Vientiane (Laos) in early September 2016, the ASEAN leaders and the Chinese premier agreed to continue their two-track diplomacy on the basis of the Declaration of Conduct of the Parties in the South China Sea (DOC). The joint statement stressed the respect for the freedom of navigation within and the right to over-fly the sea. Both sides expressed their willingness to resolve their territorial and jurisdictional disputes by peaceful means in accordance with the universally recognised principles of international law, including UNCLOS (1982). They promised to exercise self-restraint in the conduct of activities that could complicate and escalate disputes or affect peace and stability.⁵ It is interesting to note that China had rejected the PCA award which was based on UNCLOS, but officially adhered to the principles of this UN declaration.

Later in September 2016, the new Vietnamese prime minister, Nguyễn Xuân Phúc, headed a 132-member delegation on an official visit to Beijing where he was solemnly greeted with 19 cannon shots on Tiananmen Square almost like a head of state (who usually gets 21). Nine agreements about science and technology, education, trade, infrastructure and environment were concluded during this visit. Both sides emphasised again the necessity to solve the differences in the South China Sea peacefully. Only Premier Nguyễn Xuân Phúc, not his Chinese counterpart Li Keqiang, mentioned in their statements the importance of international law, especially the UN Declaration on the Law of the Sea (UNCLOS, 1982) and “respect for legal and diplomatic procedures”.⁶ Obviously, Vietnam has ←13 | 14→decided not to let the conflict dominate the overall close and successful cooperation with the PRC. ASEAN solidarity is a key factor indeed, but difficult to achieve. Bilateral relations between China and most individual Southeast Asian countries are imbalanced in trade and investments. Other countries were even more exhilarated to get the carrots in the aftermath of the PCA ruling.

OBOR is perhaps not a coherent program with a strategic long-term vision, but rather a sum of individual projects wrapped together as one large-scale program. Without any doubt, the very nature of this generous Chinese “present to the world” is the utilization of industrial over-capacities in China, especially in the steel and construction industries, dominated by large, centrally-controlled state conglomerates with access to loans from state banks. In recent years, they have been used to drive the staggering economic growth, but have at the same time squeezed the Chinese market. Smaller players have been forced out.⁷

Of all the contractors participating in Chinese-funded projects in Asia, 89 percent are Chinese, and only 7.6 percent are local companies. China uses several tools, like state-owned companies as contractors, credits with commercial terms, and infrastructure and trade agreements to boost its export industries especially in steel and construction-related goods. The key Chinese players act as a united front and use flexible payment terms, such as compensation in natural resources or equities. This “flexibility” creates short-term incentives and masks long-term risks.⁸

Malaysia is an interesting case study. Prime Minister Najib Abdul Razak visited the PRC in late October and early November 2016, and concluded trade and investment agreements worth 32 billion USD, the largest of any such deals ever reached at a Malaysian PM’s visit abroad. After his return to Kuala Lumpur, the domestically beleaguered PM⁹ had to dissipate fears of his own UMNO party leadership that he had sold out Malaysian national interests to China. In an open-ed article for the China Daily, Razak lashed out against “former colonial powers” that had no right to teach Malaysia a lesson. Global institutions did not reflect the historical peculiarities of the non-Western countries. The coming century belonged to the Asians¹⁰, he stated, but not to him anymore, it seems.

On 9 May 2018, his alliance Barisan Nasional lost the elections to a loose coalition of three main parties (Pakatan Rakyat) which were united to fight Razak’s corruption. On 22 May 2018, the former PM was taken into custody. His long-term predecessor (1981–2003) and successor (since May 10, 2018) Mohamad Mahathir had strongly condemned China’s infrastructure investments during the election campaign, claiming that Razak had sold out the country for bribes, and expressed his firm will to renegotiate the treaties. Mahathir went as far as using terms like “unequal ←15 | 16→treaties” and “new colonialism” during the campaign, and stopped two large projects¹¹ after he had taken office. The old new PM seems to have understood, that there were many white (or “red”) elephants along the proposed new maritime and land silk roads, constructed by Chinese state companies with loans coming from Chinese state banks, to be paid back by Southeast Asian tax payers. The larger the project, the bigger the profits from payola under the table, realised by Chinese construction and engineering companies, national and international banks or investment funds as well as Southeast Asian politicians.¹² The 1Malaysia Development Berhad (1MDB) scandal has thrown a light on the darker side of this assistance. It has also pointed to the methods of local authoritarian regimes, which keep themselves in power by a mixture of nationalistic populism (e.g. election promises and anti-Western rhetoric), looting of state funds, graft, money-laundering and criminal breach of trust.¹³

Notwithstanding this scandal, PM Mahathir was received in Beijing with full honours. He has turned down his anti-China rhetoric considerably since. Notwithstanding his milder tone, even during his visit he dared to confirm his position that China had to respect the freedom of movement of all vessels, even foreign warships, through the South China Sea. Anything else, he stated, would lead to trouble.¹⁴

Last but not least, the Kingdom of Cambodia should not be forgotten. Here, the relations between the South China Sea conflict and “generous” Chinese rewards are even more visible. The Philippines of President Rodrigo Duterte and Cambodia, led by the long-time PM Hun Sen, were instrumental in watering down the language in several ASEAN declarations and joint communiqués in 2016 and 2017, which criticised Chinese actions, like land reclamation and militarization, in the South China Sea. Any mention of the PCA ruling were to be dropped.¹⁵