Vietnam, China: The Dispute over Significant Waterways

http://www.stratfor.com/products/premium/read_article.php?id=299411&selected=Analyses

Summary

Continuing disputes over maritime resources are souring other developing relations between China and Vietnam.

Analysis

Vietnam’s Foreign Ministry objected Dec. 3 to a Chinese State Council decision to establish symbolic administrative control over the city of Sansha on Hainan Island in order to oversee the disputed islands. This is the second Vietnamese objection to Chinese action in the South China Sea, following a Nov. 23 complaint about Chinese naval exercises in disputed waters.

In recent years, and even recent weeks, China and Vietnam have significantly increased economic cooperation, as well as attempts to settle disputes over their land and maritime borders and access to maritime resources, including oil and natural gas. Bilateral trade reached nearly $10 billion in 2006, up from just under $2.5 billion in 2000, and the two countries are on track for some $13 billion in trade in 2007. In 2006, China was Vietnam’s top source of imports and its fourth-largest export destination.

But disputes over maritime resources continue to sour the other developing relations. Vietnam and China have long bickered over control of the Spratly and Paracel islands (and faced down claims from Indonesia, Malaysia, the Philippines and Taiwan). The two, however, have been largely cordial over the issue since the last flare-up in 2004, when Vietnam renovated an airfield on the disputed Big Spratly Island and expanded Vietnamese tourism to the chain.

By the end of 2004, however, China had charmed its neighbor after defusing even more extreme frictions with the Philippines and coming to an agreement on joint exploration for energy and other resources in disputed territory — a formula it sought to apply to Vietnam as well.

Despite the understanding between Hanoi and Beijing, Vietnam has nonetheless sought its own partners for offshore energy exploration. In June, following Chinese complaints, BP suspended offshore exploration operations in Vietnam’s Block 5.2. More recently, India’s Oil and Natural Gas Corp. (ONGC) faced Chinese objections to its operations in Blocks 127 and 128, which China claimed fell within the disputed territories and thus could only be explored and exploited by Chinese and/or Vietnamese companies.

For both Hanoi and Beijing, however, the issue is more than just access to the energy resources (or the denial of access to competitors). Rather, territorial claims in the South China Sea carry a further strategic element — sovereignty over some of the most significant waterways in the world. The South China Sea is the maritime approach to both the Chinese and the Vietnamese coasts. Control of the Spratly Islands, or even select islands, expands the naval and maritime aviation reach of countries such as Vietnam and China, which have developing navies. In China’s case especially, the Spratly Islands would give it the military foothold to actually project meaningful force toward the Strait of Malacca and establish more than a transitory military presence there — should it choose to base troops on the islands. In addition, vast quantities of energy and goods flow through the area, traversing from the Middle East and Indian Ocean basin to Japan, South Korea, China and Vietnam — and no claimant wants another to be able to interdict its supplies.

For now, no claimant has the ability or will to try to enforce its claim over the entire area — something that would lead to a face-off among claimants. Moreover, attempted enforcement would pit the claimant against Japan and, more important, the United States, which relies on free access through the region and the continued flow of goods to and from its regional allies. But with oil prices still hovering near $90 a barrel, and demand not looking to slack off any time soon, the question of access to the energy resources increasingly will take the forefront of relations. Just as China’s relations with Japan have been tainted by disputes over natural gas deposits under the East China Sea, so will China more frequently butt up against its South China Sea neighbors as they seek to tap the available resources.

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