Now Much to China’s dismay, the South China Sea dispute has become an open-house party: the US is invited by many to host the show, and even China’s arch rival India will tag along. The biggest allure for the party is oil, anywhere between 105 to 213 billion barrels of liquid gold deposited in the region—well-exceeding 80 percent of the entire Saudi kingdoms’ reserves, according to Chinese estimates.
The regional mess proves Beijing’s policy of “shelving disputes and developing jointly” is a total failure. In Territorial Disputes, sovereignty is a fiat currency solely backed by the economic and military might. Otherwise it’s simply bluff. Diplomacy and Economic ties alone will never win China the south China sea.
To solve the territorial dispute, Sino-Vietnamese war seems inevitable. It’s also the most cost-effective way for China to sort out the mess once and for all. The only thing that matters right now is the timing and how the US will factor in this event. We are going to look into the dynamics how this volcano is going to erupt:
The fragile Vietnamese economy hugely depends on the South China Sea oil production, which accounts for 30% of its GDP. Vietnamese economy will collapse if it loses its oil assets in the region. Vietnam is in dire straits: The inflation is running rampant while the consumer price index rose 20.82 percent in June from a year ago, the fastest pace since November 2008; The bank system is teetering with bad loans amid tight monetary conditions and busting economic bubbles; the widening trade deficit has eroded the country’s foreign-exchange reserves—estimated at $12.2 billion at the end of 2010, down 53% from the peak of $25.8 billion reached February 2008, which will deter foreign investment, worsen liquidity and increase systemic insolvency. All this will seriously aggravate social unrest and threaten the communist regime. Therefore, Stoking tension with China will be a good way for Hanoi to direct national grievance away from its domestic mismanagement and vindicate its legitimacy of rule with patriotism and even war. To Hanoi, the South China Sea is worth shedding blood for.
Now let’s look at this from Washington’s perspective: the diminishing American economic influence in Asia-pacific will force the US to sustain its engagement with the region in alternative capacities, for example, maintaining military power balance. China now serves as the hub for the region’s global supply chain, gobble up components, commodities and capital goods and is coming into its own as a vital pillar of support for the region’s economies, particularly at a time Western demand is lagging. “According to ASEAN statistics, China’s trade with ASEAN has jumped six-fold since 2000 to US$193 billion in 2009, surpassing that of the US. China’s share of Southeast Asia’s total commerce has increased to 11.3 percent from 4 percent in that time, whereas the US’s portion of trade with the bloc fell to 10.6 percent from 15 percent. During that time, ASEAN’s trade deficit with China widened by five times to US$21.6 billion. The bloc reported a US$21.2 billion trade surplus with the US in 2009, down 12 percent from 2000.” China is also a very important source of investment and the largest source of foreign tourists in the region. Meanwhile, Asia today is the region with the highest increase in defense spending in the world, and that combined with China’s skirmishes over territory disputes with Japan, Vietnam and Philippine, etc. present the US Military–industrial complex with a grave challenge and perfect opportunity. The South China Sea dispute offers the US a golden opportunity to come back to Asia, talk about friendship, energy deals and arms sales.
Now let’s look into the stakes for Beijing: the energy-intensive nature of Chinese Economy will underwrite the assertiveness of China’s south China sea stance and naval force buildup. “ China’s oil reserves have shrunk almost 40 percent since 2001 as the economy expanded 10.5 percent a year on average, according to data compiled by Bloomberg.” “Currently China depends on foreign imports for over fifty percent of the oil it consumes, and half of this imported oil is from the Middle East.” However, the Arab Spring and stand off between the US and Iran have intensified the volatility of the region to the extent that China must diversity its energy supply. China’s rapid economic development, expanding middle class population, motorization, and urbanization will aggravate its thirst for energy even further: IEA has predicted that China’s dependence on foreign energy will increase to over 60-70 percent of its total consumption in 2015. The fragile state of its energy security will leave China with few options but securing its oil supply more and more from the South China Sea. Failure to do so will not only threaten China’s status as World Factory but also its future survival. Furthermore, any concession on the sovereignty will seriously undermine CCP’s legitimacy of rule while it faces serious calls for democracy and freedom of speech. It is well known that China suffered a lot of humiliation, territory loss and slaughters in past wars with foreign countries. Nationalist sentiments are abundant for the government or the anti-government to tap into when necessary. CCP can’t afford to lose such a powerful initiative when it can tip the balance of. power.
All these variables will play out until we smell the blood and gun powder rippling across the South China sea.