South China Sea Risk Briefing

As Covid-19 commands headline news and the agendas of Southeast Asia policymakers, tensions in the South China Sea continue to simmer. This will continue as the world is distracted by other headline news – a novel virus disrupting global supply chains chief among them.

High-profile standoffs between Indonesian and Chinese vessels took place near the Indonesian-claimed Natuna and Riau islands in December. Meanwhile, Philippine President Rodrigo Duterte’s announcement on February 11 of the suspension of the Visiting Forces Agreement, a pact that allows U.S. troops to be stationed in the Philippines, could lead to Manila moving closer to Beijing and relenting territorial claims in the South China Sea in exchange for greater investment from Beijing.

This is arguably the most serious spat between the two treaty allies since U.S. soldiers were ordered off the Subic Bay naval base in 1991. Duterte’s decision was described as a “move in the wrong direction” by U.S. Defense Secretary Mark Esper.

Less publicized events, however, are just as concerning. An ongoing spat between Malaysia, Vietnam and China over Malaysian oil exploration of the coast of Sabah State has been underway since December, when Chinese vessels began patrolling areas of Malaysia’s maritime exclusive economic zone (EEZ) where the Malaysian state-owned energy firm Petronas is drilling for oil – at the same time that Chinese vessels patrolled an area of Vietnam’s EEZ near the Vanguard Bank most of last year.

While Malaysia’s exploration vessels were at first trailed by Chinese ships, by late January there were indications Vietnamese vessels were also sailing in the territory, a sign that Hanoi might also dispute Malaysia’s oil exploration claims. The respective governments have been largely silent about these standoffs, though Malaysia’s Foreign Minister Saifuddin Abdullah said Kuala Lumpur is seeking an agreement with Hanoi to stop what he called the “encroachment” of Vietnamese fishermen off Malaysian territorial waters.

Access Asia Group expects tensions in the South China Sea to remain high in 2020, especially as China has seemingly established a policy of harassing Southeast Asia oil exploration projects in parts of the waters that Beijing claim within its contested “Nine-Dash Line.”

 “New energy development by Southeast Asian states anywhere within the nine-dash line will be met by persistent, high-risk intimidation from Chinese law enforcement and paramilitary vessels,” the Asia Maritime Transparency Initiative, a think-tank, reported earlier in February.

But 2020 could also see major changes to how Southeast Asian powers respond to Beijing’s intimidation. After stand-offs with China in 2016, Jakarta was relatively silent about the South China Sea until December 2019, and now is looking increasingly attentive to the issue. Some analysts think that Indonesia – which dominated Southeast Asian foreign policy in the 1970s and 1980s but receded back to isolationism afterwards – could now reclaim its place as first among equals in the region and construct a collective response to Chinese aggression.

Such a position, alternatively, could be wielded by Vietnam, the loudest critic of Beijing’s actions in the South China Sea.Vietnam also holds the chair of the Association of Southeast Asian Nations (ASEAN) bloc this year. It is an important position as Beijing pushes to forge ahead with a Code of Conduct with the ASEAN bloc over the South China Sea, which. If Beijing gets its way, it would severely restrict how Southeast Asian governments cooperate with Western partners.

The People’s Republic of China (PRC) aims to prohibit signatories of the Code Of Conduct from engaging in oil exploration projects with firms from non-signatory nations – namely American and Russian oil giants. Closer cooperation between Southeast Asian states in opposition to Chinese vessels surveying their claimed territories could perhaps take the PRC by surprise – and, perhaps, be effective in combating Beijing’s increasingly aggressive tactics.

Yet the U.S. – a bulwark against Chinese aggression in the maritime area – is likely to be distracted for much of 2020 by domestic politics, with a highly contested presidential election looming in November. An independent and assertive pan-Southeast Asian stance would hopefully be formed this same year.

In Vietnam, anti-China sentiment in recent years has been the biggest harbinger of domestic opposition  and one of the biggest triggers of protests and political violence (in May 2014 at least 21 people were killed in riots targeting Chinese companies following the deployment of a Chinese oil rig in disputed waters.) As such, tensions between China and Vietnam affect both regional security and domestic stability in Vietnam.

Although Access Asia Group views China’s assertiveness over the South China Sea as the No. 1 security threat to Vietnam with little likelihood of a resolution to the dispute any time soon, the two rivals share political loyalties and have demonstrated in the recent past a great deal of constraint; they have been very careful to mitigate the risk of both deliberate and accidental clashes between their two militaries and Access Asia Group expects this trend to continue.

Nevertheless, Covid-19 presents significant challenges to Vietnam’s economic security – and also a threat to Vietnam’s political stability. It should be considered a public health issue that could escalate tensions between Vietnam and China on both a social and political level.

As such, recent developments represent a new multi-dimensional development in Vietnam and China relations. The outcomes of so much uncertainty will be difficult to assess for months to come, but Access Asia Group expects Vietnam to emerge in a stronger economic position as a result of corporate flight from China, which could possibly result in dividends in the den of Asia’s most promising “Tiger Economy.”