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Will China and USA further escalate tension in South China Sea?

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South China Sea (SCS) is emerging a hotbed of tension between China, the economic and military power of Asia and its sea neighbors of the Asia Pacific region. Following military activity by China which claims its authority over the zone, tensions between China and its northern maritime neighbours continue to dominate developments in the SCS but further unresolved disputes add to the dangerous atmosphere because no side is ready to back down and seek genuine reconciliation, while US super power opposes Beijing and supports its neighbors.

China has issues with ASEAN as Philippines, Japan and Vietnam are been wooed by USA to fight China as part of President Obama’s Asia Pivot agenda. US military role in the region in support of China’s neighbors further complicates the tension. July 12, 2016, marked a turning point in the long-standing disputes over the South China Sea. After more than three years of proceedings at the Permanent Court of Arbitration, an international body in The Hague, a tribunal constituted under the UN Convention on the Law of the Sea (UNCLOS) issued a widely anticipated decision in a case the Philippines brought in 2013 to challenge China’s maritime claims to most of the contested waterway.

The members of the Association of Southeast Asian Nations (ASEAN)—have become increasingly wary of Beijing in recent years and have clearly supported resolving the region’s disputes through the mechanisms of international law. Were China to make aggressive new moves, it would deepen their sense of alienation, encouraging them to strengthen their militaries to further balance against Beijing. The Philippines’ new president, Rodrigo Duterte, has signaled that he is interested in pursuing a more conciliatory approach to Beijing and has held out the possibility of resuming negotiations with China over resource sharing in the South China Sea. If Chinese President Xi Jinping accepts Duterte’s offer, he might be able to reach a deal with Manila that allows China to continue to claim some rights to resources in the far corners of the South China Sea.

As expected by many, the tribunal ruled in Manila’s favor and China rejected the tribunal’s decision, since Beijing, a signatory to the convention, has long opposed the proceedings and had warned that it would not abide by the judgment. China believes Washington has played its role in getting the judgment against China’s position over the SCS. USA and its local partners can avoid a dangerous escalation, and encourage China to abide by the ruling. China responds with increased belligerence.

China insists that it has sovereignty over the Spratly Islands, and the tribunal did not rule on their rightful ownership. But by declaring all of the Spratlys’ features to be reefs or rocks, it significantly limited the claims China can make to the surrounding water and airspace. Under international law, China’s outposts in the Spratly Islands should be considered isolated enclaves floating in a part of the ocean that is in the Philippines’ exclusive economic zone, since they lie within 200 nautical miles of that country’s territory. And Beijing cannot use the Spratlys to justify any claims to the surrounding waters.

The tribunal ruled in favor of the Philippines on almost every count, declaring nearly all of China’s maritime claims in the region invalid under international law, bringing a substantial amount of new clarity to a number of contentious legal issues and has set precedents that will affect the law of the sea for years to come. The tribunal held that all the territories in the contested Spratly Islands are reefs or rocks, not islands. That distinction matters, because under UNCLOS, reefs cannot generate a claim to the surrounding waters or airspace, and rocks can serve as the basis for only a small maritime claim of 12 nautical miles. Islands, on the other hand, generate a 200-nautical-mile exclusive economic zone; states can also assert additional rights based on the extent of the continental shelves that underlie them.

The tribunal found that China had conducted illegal activities inside the Philippines’ exclusive economic zone and thus completely invalidated China’s claim that it holds historic rights to the South China Sea through its “nine-dash line,” a sweeping cartographic projection that encompasses as much as 90 percent of the waterway. Chinese vessels, the tribunal ruled, had fished where they shouldn’t have, and had prevented others from fishing and extracting petroleum within the zone. The tribunal also censured China’s construction of artificial islands in the region, which it determined had caused severe environmental damage and heightened geopolitical tensions.

The tribunal’s ruling that the Spratlys do not constitute islands under UNCLOS complicated Chinese position and closed off another opportunity for Beijing to save face and destroyed China’s ability to justify its expansive claims to the South China Sea in legal terms. As speculated, China has rejected the legitimacy of the Philippines’ case and the tribunal’s jurisdiction to hear it since Manila first brought its complaint in January 2013. Beijing has decried the tribunal’s decision as illegitimate, and it will certainly not abandon its outposts in the Spratlys or return the sand it used to manufacture them to the seabed. In fact, in the wake of the ruling, China landed civilian aircraft on some of those outposts, presumably to demonstrate that possession is nine-tenths of the law.

Since the tribunal rejected China’s claims to historic rights in the waterway entirely, Beijing now must either continue to reject the tribunal’s ruling wholesale or offer the Chinese public a fresh explanation of why its rights still stand—a tough approach, since Chinese leaders have long stuck to exactly the narrative that the tribunal rejected. The line was first unveiled by the Republic of China in 1947 and was adopted by China’s Communist rulers after they took power in 1949. Chinese officials have never explained the nine-dash line’s precise legal meaning, but they have repeatedly claimed that it demarcates an area from which China can extract resources.

China can be stubborn. Beijing knows for sure, as being veto members USA would not think of a war with China. It could also apply new domestic laws to the areas it controls. However, China’s actions would be deeply worrisome for neighbors and would demonstrate that Beijing is uninterested in playing by the rules of the international order. China’s withdrawal from the UNCLOS convention would suggest not only that Beijing intends to ignore the tribunal’s ruling but also that it does not want to be bound by the many other maritime rights and provisions that UNCLOS enshrines and that govern the free use of the global commons. USA is not a party to the convention to observe its provisions.

Although the tribunal dealt a blow to China’s maritime claims—its rights to water and airspace and its authority to conduct certain activities there—it did not rule on China’s claims to sovereignty over territory in the South China Sea, which are beyond the scope of UNCLOS. For that reason, Beijing can rightly argue that its sovereignty over the contested reefs and rocks it occupies has not been affected. It cannot legally continue to declare military zones in the water or airspace around the reefs it occupies, nor can it do so more than 12 nautical miles from the rocks it controls. But if Beijing emphasizes sovereignty claims instead of maritime ones, it could draw criticism from the West.

China might now choose to flout the decision more explicitly by deepening its de facto control of the area, declaring an air defense identification zone in the South China Sea, as it did in the East China Sea in 2013, unsettling many of its neighbors in Southeast Asia. Chinese forces could attempt to intercept a US ship or plane as it conducts a freedom-of-navigation operation, raising tensions between Beijing and Washington.

China has issues with Japan. There is a continual stream of events that all sides use to test the others’ resolution, with a dangerous possibility of the tension turning violent at any moment. The Chinese organised a large fishing fleet to visit islands which the Japanese claim and call the Senkaku. Japan lambasted the Chinese for sending the fishing fleet, and pointed out that they were supported by Chinese government ships. The joint presence of commercial and official Chinese vessels on such a large scale is something new. China is aggravating the situation. China appears to be asserting its right to protect its interests by mobilising fishing vessels during the summer fishing season, escorted by official vessels. Also in a recent development in a gas field in the East China Sea near the midway line between China and Japan, China installed naval vessel surveillance radar on its exploration platform. This, too, is an arbitrary move that cannot be overlooked. Beijing is steadily aiming for de facto control as fait accompli. The same tactic has been employed in the South China Sea.

Chinese sources blamed Japanese intransigence for much of the tension that has arisen with China in recent years over islands in the East China Sea. For years, Japan has refused to acknowledge it has any territorial dispute with China, which has basically shut the door to finding a peaceful solution to their sovereignty dispute over the Diaoyu Islands (Senkaku Islands in Japan) through diplomacy and dialogue.” “Japan has tried to blame China for the deteriorating situation in the region, accusing it of unilaterally seeking changes to the ‘status quo’. But it was Japan that did that by ‘nationalizing’ some of the islands in 2012, betraying the acquiescence reached by leaders of the two countries in the 1970s and subsequently maintained that the dispute should be shelved.”

A recent cyber attack in July by Chinese sources on computer system of Vietnam Airline has been condemned by Vietnamese leadership. The computer system was hacked. In addition, for a day, the screens displaying flight information at Hanoi’s and Ho Chi Minh City’s international airports were taken over and displayed derogatory messages about Vietnam and the Philippines regarding their dispute with China over South China Sea.

Although the South China Sea disputes have deep historical roots, they have flared up in recent years because China’s growing military capabilities have meaningfully improved Beijing’s ability to press its claims. If China goes further by deliberately flouting the ruling or withdrawing from UNCLOS, it could destroy the maritime order it has already damaged.

Satisfying as the tribunal’s decision may be for Manila, all parties now have a strong stake in ensuring that the situation doesn’t escalate. The judgment sets a significant legal precedent: the principles that guided the tribunal’s decision are now part of international law, and countries must embrace and reinforce them if they want others to uphold them in the future. The USA and like-minded countries around the world should continue to declare their support for the legal process, calling on China and the Philippines to abide by it without taking a position on the underlying sovereignty disputes. USA should make clear that it will investigate the implications of the decision for its own island claims.

If China does not begin construction at Scarborough Shoal, there will be ample room for cooperation between China and its neighbors and between Beijing and Washington. The wider world is looking on with some concern and it is putting a lot of the blame on China. The New York Times said that the waterway is too strategically important and the disputes too complex for the competing claims by China and five other countries Yet, provocations continue, raising questions about “China’s commitment to the rule of law and heightening fears of a wider conflict”.

Observation

World needs and seeks peace even as many top military nation is trying to disturb peace and tranquility by all possible means. US led western military forces are after energy resources and energy routes of Arab nations and Afghanistan; China and USA are complicating SCS normalcy; Israel is bent upon destroying peace and prosperity of Arab nations, especially Palestine, killing them by fake pretexts and denying them sovereignty. Palestinians keep dying just like Kashmiris because the colonialist India and Israel keep killing Muslims as their major policy.

Advanced terror techniques are being employed by fascist, imperialist and colonist nations against weak nations. They have converted may Muslim nations into enslaved peoples without freedom.

USA should be committed to acting responsibly. US officials should work closely with their Chinese counterparts, encouraging them to negotiate with the South China Sea’s other claimants, particularly the Philippines, and to make progress on a binding code of conduct with ASEAN, a long-sought multilateral agreement that would create a strict set of guidelines for behavior in the South China Sea. A code of conduct would likely also freeze the waterway’s political and territorial status quo, helping China reassure its neighbors that its long-term intentions are not threatening.

USA and China should also press ahead with the confidence-building measures they agreed to at June’s US-China Strategic and Economic Dialogue, to reduce the risk of an accidental clash between them. That would help each demonstrate to the other and to the region that neither wants to see a great-power conflict over the South China Sea.

Whether or not China move forward to secure cooperation with its neighbors is difficult to forecast right away; similarly, will USA let the region return to normalcy also remains to be seen.

Of course, resolving the current showdown in SCS peacefully and legally would be in everyone’s interests.

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Southeast Asia

Will Mahathir Reset China-Malaysia Trade Relations?

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A shock electoral upset has just returned 92-year-old Dr Mahathir Mohamad to the prime ministerial chair in Malaysia. The run-up to this climax was muddled by a miasma of fake news, lurid allegations and outright conspiracy theories from eitherside of the political divide. China-baiting was inevitably drawn into this tawdry mix despite mainland investments being a stabilizing main stay of the local economy.

According to an Economic Intelligence Unit report last year, Malaysia was the fourth-largest recipient of mainland Chinese direct investments – right behind Singapore, United States and the autonomous Chinese province of Hong Kong. Although the sum total of Chinese investments in Malaysia has not been adequately tallied,the US$100 billion Forest City project provides a snapshot of the staggering amounts being invested into the local economy.

While former Prime Minister Najib Razak hailed these investments as an imprimatur ofhis government’s investor-friendly policies, the opposition camp (and new government) accused him of “selling out to China”. In reality, one doubts whether foreign consortiums canmatch the scale, cost-effectiveness and speed of execution of many Chinese-led projects in Malaysia.

Business Compradors

Dr Mahathir has particularly taken issue with the inadequate number of local jobs created by Chinese investments in Malaysia. It is an argument not without merit.Overseas Chinese infrastructure projects are known for their heavy reliance on mainland labour, machines and supplies – of the lock, stock and barrel variety – tokeep costs, graft and middlemen interference to the lowest possible scale.

Curiously, the backbone of Dr Mahathir’s electoral tsunami came from the ethnic Malaysian Chinese community who openly hailedthe global ascent of China. That was until theydiscovered thatmainland business models accommodated as few middlemen as possible.It was Alibaba on a massive scale, missing 40 thieves and in perennial need of 40innovators.

Many Malaysian consumerssave thousands of ringgit each year by purchasing a variety of consumer products directly from China instead of forking out a hefty mark-upat local stores.Unsurprisingly, there are now growing calls to tax online purchases from China. This is not going to help budget-strapped Malaysians who voted in the new administration on the back of complaints over rising living costs. Malaysia’s shadow economy has been estimated by various studies to range between 30 percent and 47 percent of its GDPup till 2010.

The anti-China narrative therefore may be couched in terms of multifaceted grievances like jobs and the South China Sea but it primarily boils downtoincentives for middlemen who contribute little or nothing in terms of value-additions to projects, productsor services offered by mainland companies. These modern-day compradors have an ally in another area bereft of value – added or otherwise.

Media Compradors

The biggest impediment to the Malaysian economy is not China, its business modus operandi or the lack of local talent. It is the Malaysian media which has abjectly failed to relay grassroots ideas and innovations to national policy-makers for decades.

The author himself vividly remembers the lament of Dr Mahathir’s former national science advisor on the dearth of science journalists in Malaysia. This translates to recurring losses in taxpayer money.There is an oft-told account of how a fact-findingdelegation to the United States, seeking particular expertise in renewable energy technology,were told that the expert they were looking for was a Malaysian academic back in Kuala Lumpur!

Researchers needing critical economic or scientific data on Malaysia are likely to get them from foreign sources as even google cannot cope with the bottomless insipidity and juvenile meanderingsof the local media. Publicity-seeking experts with dodgy backgrounds are routinely sought for their banal insights and quotes in return for guaranteed filler spaces in a lack lustre media.Malaysia is gradually losing its economic and intellectual competitiveness due to the entrenched practise of mediocrity promoting mediocrity – egged on by Western interests.This forms the main backdrop to the current anti-China narrative.

Local media stalwarts privately blame politicians, in particular Dr Mahathir himself (during his previous 22-year reign) for the lack of media vigour and freedom in Malaysia. While media restrictions undeniably exist, one wonders how proposed articles on topics such as Open Governance could be seen assubversive.

It is high time to drain the swamp in Malaysia. Dr Mahathir has already indicated that the bloated 1.6 million-strong civil service in Malaysia would be pruned to promote economic and government transparency. For decades, successive governments had rewarded personal loyalty with plush posts and contracts. Malaysians now have another chance to demand efficient, meritocratic and transparent governance. Not mass-mediated bogeymen, viral passions and pies-in-the-skies.

The billion-dollar question now is whether the new administration will be able tousher in a transparent and vibrant media – one that can explore greater synergies within and abroad.Otherwise, Malaysia’s relations with its neighbours and trading partners are bound to deteriorate, along with its economy.

An abridged version of this article was published by CCTV’s Panview on May 14, 2018

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Changing dynamics of China-India and China-Japan ties

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Over the past year, there has been a growing interest with regard to the vision of a Free and Fair ‘Indo-Pacific’. While this term has been used in recent years by policy makers from the US and Australia and has been pushed forward by a number of strategic analysts, a number of developments since last year have resulted in this narrative gaining some sort of traction.

US President Donald Trump during his visit to South East Asia and East Asia in November 2017, used this term on more than one occasion, much to the discomfort of China (which prefers ‘Asia-Pacific). On the eve of his visit to India last year, Former Secretary of State, Richard Tillerson while speaking at the Centre for Strategic and International Studies (CSIS, Washington DC) spoke about a larger role for India in the Indo-Pacific, and the need for India and US to work jointly. Said Tillerson:

     ‘The world’s center of gravity is shifting to the heart of the Indo-Pacific. The U.S. and India, with our shared goals of peace, security, freedom of navigation, and a free and open architecture, must serve as the Eastern and Western beacons of the Indo-Pacific, as the port and starboard lights between which the region can reach its greatest and best potential’.

In November 2017, the Quad grouping (Australia, US, India and Japan) met on the sidelines of the ASEAN Summit pitching not just for a rules based order, but also in favour of enhancing connectivity. Commenting on the meeting, US Department of State had said that the discussions were important and members of the Quad were:

‘committed to deepening cooperation, which rests on a foundation of shared democratic values and principles.”

Earlier too the four countries had coalesced together, but as a consequence of Chinese pressure, the grouping could not last.

There have also been discussions of coming up with connectivity projects. While this was discussed during Australian PM, Malcolm Turnbull’s meeting with Donald Trump in February 2018. In April 2018, representatives of Japan, US and India met in New Delhi and committed themselves

Indo-Pacific and China factor 

While members of the Quad continuously denied, that the Indo-pacific was specifically targeted at China, it would be naïve to believe, that this assertion. In fact, during a visit to Australia, French President Macron who is trying to position himself as one of the frontline protagonists of liberalism in the Western world, spoke about the need for India,  Australia and France to work together in order to ensure a rules based order.  Commenting on the need for India, France and Australia to jointly work for a rules based order, and checking hegemony (alluding to China), the French President, Emmanuel Macron, stated:

   ‘What’s important is to preserve rules-based development in the region… and to preserve necessary balances in the region….It’s important with this new context not to have any hegemony,”

Changing dynamics of China-India and China-Japan ties

While it is good to talk about a rules based order, and Free-Fair Indo-Pacific, it is important for members to do a rational appraisal, of ensuring that the Indo-Pacific narrative remains relevant . especially in the context of two important events. First, the reset taking place between India-China, and second the thaw between Japan-China.

This has already resulted in some very interesting developments.

First, Australia was kept out of Malabar exercises in June (Japan, US and India will be participating).  Australia is a member of the Quad alliance, and has been one of the vocal protagonists of a Free and Fair Indo Pacific Narrative, and a greater role for India in the Indo-Pacific.  Australia has on more than one occasion, expressed its desire to participate in the Malabar Exercises.

Many argue, that the decision to exclude Australia from the exercises, is a consequence of the significant shift taking place in India-China relations. Though India has been dismissive of this argument,

Second, Japan has expressed its openness to participate in the (Belt and Road Initiative) BRI,  as long as international norms are met. During meetings between the Chinese and Japanese Foreign Ministers (Wang Yi, in April 2018, such a possibility was discussed. During Wang Yi’s meeting with Japanese PM, Shinzo Abe too this possibility was discussed. The Japanese PM who is seeking to improve ties with China, reiterated the potential of the Belt and Road Initiative in giving a boost to the regional economy.

It would be pertinent to point out, that a number of Japanese companies are already participating in countries which are part of the Belt and Road Initiative.

Interestingly,  Japanese led Asian Development Bank ADB which has been funding many projects (spearheaded by Japan) which have been projected as a component of the Indo-Pacific strategy has even gone to the extent of stating, that it does not perceive AIIB as a threat. Commenting on the possibility of cooperation between ADB and AIIB, President of ADB, Takehiko Nakao  stated:

“AIIB, it’s not the kind of threat to us. We can cooperate with AIIB because we need larger investment in Asia and we can collaborate.”

Where does Indo-Pacific go from here?

In terms of strategic issues, especially ensuring that China is not unfettered influence in the region, the narrative is relevant. The Chinese approach towards Indo-Pacific and Quad as being mere froth is an exaggeration. Addressing a press conference on the sidelines of the National People’s Congress, Chinese Foreign Minister, Wang Yi had stated, that there was:

‘no shortage of headline grabbing ideas” but they were “like the foam on the sea” that “gets attention but will soon dissipate”,

Similarly, in terms of promoting Democratic values it certainly makes sense. The real problem is in terms of connectivity projects (beyond India-Japan, none of the members of the Quad have elaborated a coherent vision for connectivity). The US has spoken about an Indo-Pacific Economic Corridor, but given the Trump Administration’s approach, it remains to be seen to what extent this can be taken further. While Australia has been steadfast in its opposition to China’s growing economic clout, it has its limitations, in terms of funding any concrete connectivity projects. Possible regions where Australia could play a key role should be identified. It has been argued, that Australia could play a key role in important infrastructural projects in the South Pacific.

Conclusion

It is fine to speak in terms of certain common values, but to assume that China can be the only glue, is a bit of a stretch, especially given the fact that it has strong economic ties with key countries pushing ahead the Indo-Pacific vision. It is also important, for the Indo-pacific to come up with a cohesive connectivity plan. Currently, the narrative seems to be driven excessively by strong bilateral relationships, and the individual vision of leaders. In the ever evolving geo-political and economic dynamics in Asia, with China re-examining its relations with both Japan and China, the key stakeholders in the Indo-Pacific region need to do some serious thinking.

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Southeast Asia

Infrastructure Drive, Strong Domestic Demand to Sustain Philippine Growth

MD Staff

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The Philippines’ economic growth is expected to sustain its quick pace in 2018 and 2019 as the government’s infrastructure program is rolled out, says a new Asian Development Bank (ADB) report.

In its new Asian Development Outlook (ADO) 2018, ADB projects Philippine gross domestic product (GDP) growth at 6.8% this year and 6.9% in 2019, up from 6.7% in 2017. Rising domestic demand, remittances, and employment, in addition to infrastructure spending, will drive growth. ADO is ADB’s flagship annual economic publication.

“Along with domestic demand, the government’s infrastructure investments will fuel the country’s growth in the next few years, supported by a sound economic policy setting,” said Kelly Bird, ADB Country Director for the Philippines. “We expect this growth to further lift wage employment numbers, add to household incomes, and benefit more poor families across the archipelago.”

The Philippines remained one of the strongest growing economies in Southeast Asia in 2017. Domestic investment recorded 9% growth last year, moderating from a brisk 23.7% in 2016, although growth in fixed investment in industrial machinery, transport equipment, and public construction remained robust. Household consumption grew by 5.8% in 2017, from 7% in 2016, on the back of higher remittances and employment, with the unemployment rate falling by 1.3 percentage points to 5.3% in January 2018 as 2.4 million jobs were added. Public spending rose by 7.3% last year from 8.4% in 2016.

Consumer price inflation reached 3.2% last year from 1.8% in 2016 due to strong economic growth, higher international fuel prices, and Philippine peso depreciation, but well within the 2% to 4% target by the Bangko Sentral ng Pilipinas—the country’s central bank. The country’s external debt further declined to 23.3% of GDP in 2017, from 24.5% of GDP in 2016.

Moving forward, ADB projects services will continue to drive GDP growth, along with manufacturing and construction industries. The approval of the Tax Reform for Acceleration and Inclusion law in December 2017 will augment tax revenues and provide additional fiscal space for more progressive public spending. The policy reforms are expected to yield additional 90 billion to 144 billion Philippine pesos ($1.73 billion to $2.76 billion) in tax revenue collection in 2018 and 2019, respectively.

With economic growth gaining momentum, inflation is projected to reach 4% in 2018 as global oil and food prices rise, and higher excise taxes on some commodities take effect. In 2019, meanwhile, inflation is expected to marginally decline to 3.9%.

The report notes there are external risks to the Philippines’ growth outlook from heightened volatility in international financial markets and uncertainty about global trade openness, although the country’s strong external payments position would cushion these effects.

A major policy challenge to the country’s growth outlook, according to the report, is managing the rollout of the government’s “Build, Build, Build” infrastructure program, which is expected to raise public infrastructure spending to 7.3% of GDP by 2022 from 4.5% in 2016. The report provides suggestions on ways to enhance government capacity, including strengthening coordination between government agencies and improving technical capacity of staff within these agencies, and fostering stronger partnerships between government agencies, the private sector, and development partners.

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