The Political Economy of China's Relationship With the ASEAN Countries: Conflict Management in a Multi-Polar World

-Shri Prakash, Professor, Jamia Milia University



The end of the Cold War has set in flux the relations between various countries and regions of the world. The seemingly firm contours of a bi-polar world are being replaced by newer correlations in which the responsibility of maintaining peace between nations, ensuring their security and curbing potential commercial and territorial conflicts while trying to resolve them no longer falls mainly on two superpowers, viz. the Former Soviet Union (FSU) and the USA. The fluid international situation generates the need for attempting innovative thinking about strategies to contain and manage latent regional conflicts which have surfaced due to the impact of basic developments in the global economy and the relative strategic withdrawal, emphatically by the FSU (Russian CIS—Commonwealth of Independent States) but partly also by the USA. My present paper sets out to analyse the relations between the People's Republic of China and the countries of South-East Asia (grouped together in the Association of South-East Asian Nations—ASEAN) in the context of the fluid and somewhat uncertain situation in the post-Cold War period. The present paper focusses on a discussion of the efforts initiated first by Prime Minister Mahathir of Malaysia to build an East Asia Economic Caucus (EAEC) as a future economic entity not unlike the European Economic Community (EEC) or North American Free Trade Agreement (NAFTA). It also sets out to analyse the recurdescence of the dispute over the Spratly Islands and the significance of these two developments for the future of Sino-ASEAN relations. The paper, in its concluding part, attempts to set out various possible options available to try and smoothen future relations between China and the South-East Asian countries and prevent any escalation of conflicts between the two regions with reference to the Spratly Islands dispute.

Trade and Foreign Direct Investments in PRC and Asean Countries: Regional Integration or Competition?

East Asia, taken to mean North-East Asia—Japan, Korea, China, Taiwan—and South-East Asia—the ASEAN countries—have been witness to a veritable economic revolution, especially in the last two decades. As can be seen from Charts 1 and 2, East Asia's share of global trade has increased from 13.7 percent 1980 to 19.3 per cent in 1990 and is predicted to increase to 33.1 percent in 2000 and 39.8 percent in 2010. The basis for this growing share of world trade is provided by the increase in East Asia's share of world output which from being 17.4 per cent in 1980 is expected to reach 34.6 percent in 2010 A.D. Higher rates of growth in East Asia compared to other parts of the world have been usual for some time as can be understood from the data tabulated in Table I.

Table 1. GDP Growth Rate

1970-1980 1980-1990 1990-1993 1994 1995

North America 2.9% 2.7% 1.6% 4.0% 2.7%

Western Europe 3.0% 2.3% 0.4% 2.8% 2.8%

Eastern Europe 5.4% 1.7% -10.8% -9.3% -3.1%

& Former USSR

South Asia 3.3% 5.3% 3.6% 3.8% 5.0%

East Asia 8.1% 7.1% 6.3% 7.2% 7.1%


South-East Asia

Source: Industrial Development Global Report 1995, UNIDO, pp. 43/58/64/97/109.

It is not surprising that this success story in economic growth has been accompanied by an increasing degree of regional economic integration. As a proportion of total East Asian trade (exports plus imports) with the world, intra-East Asian trade has risen from 33 percent in 1980 to 37 percent in 1989, to 39.7 percent in 1990 to 41.8 percent in 1991 to 44.4 percent in 1992 to 49.5 percent in 1994.1 What is striking is that when we try to disaggregate the pattern of the intra-regional economic integration, then not only do the different parts of the East Asian entity appear to be unequally or differentially integrated economically, the level of economic integration, specially as measured by the value of trade, shows a relative decline between some regions such as the People's Republic of China (PRC) and the ASEAN countries.

In order to analyse the state of economic relations between China and the ASEAN countries and whether these favour the setting up of an EAEC, I have made tabulations of the values of imports exports and total trade from and to China and the ASEAN and vice-versa. Table 1 shows the proportional share of China's trade with the USA, Japan, Europe, the six ASEAN countries and others between 1975 and 1993 based on the direction of trade statistics of the International Monetary Fund (IMF) and the China Customs Yearbook of 1993/94. Table I shows clearly that the share of China's exports going to the six ASEAN countries declined from 10.3 percent in 1985 to 5.1 percent in 1993, but the share of its imports originating in the ASEAN countries rose from 2.7 percent to 5.8 percent in the same period. Overall, however, when the total trade value (TTV) is considered (i.e. exports + imports) then ASEAN's share of China's TTV fell from 6.1 percent in 1980 to 5.4 percent in 1993.

When we consider in (Table I) the trade figures in the reverse direction i.e. ASEAN's trade with China, we find that between 1988 and 1992, ASEAN's imports from China rose by 50 per cent, exports to China by 60 per cent and the TTV by 58 per cent. This margin of increase, however, was still much lower than that of the aggregate trade value for the ASEAN countries which rose by 95 per cent in the same period (Table 2), and that of ASEAN's trade with Japan which increased by 99 per cent. The same phenomenon can be again seen from Table 3 which demonstrates how as a ratio of the TTV of ASEAN countries, China's share declined from 3 percent in 1988 to 2.4 per cent in 1992. As an index of the growing internationalisation and diversification of ASEAN's trade may be cited the fact that whereas in 1988, Japan, the USA, China, the intra-ASEAN trade, India and Pakistan accounted for 79 per cent of the ASEAN TTV in 1988, by 1992, their share had declined to just 69 per cent, whereas that of the rest of the world had increased from 21 percent to 31 percent. This only shows that ASEAN's trade with Europe, Australia and the West Asian countries too was increasing, rapidly minimising or diminishing its interest in organising a purely East Asia based economic group.

It might be argued that since a large part of Hong Kong's trade is with the PRC, including ASEAN's trade with Hong Kong is a better indicator of ASEAN's overall trade with the PRC. Before we consider these data tabulated separately in Tables 2 and 3, it must be emphasised that a large part of imports into Hong Kong are either re-exported to Taiwan, Japan, South Korea, etc. or are used by the manufacturing industry in Hong Kong. Hence, to assume that all the ASEAN trade with Hong Kong is intended for, or originates in, China, is only because the detailed analysis of the commodity composition of Hong Kong's trade with China and ASEAN to determine the share of Hong Kong's ASEAN trade going to China is not feasible with the available data. Even when we use Hong Kong-ASEAN trade as another proxy for ASEAN-China trade and add the two together, as has been done in the last columns of Tables 2 and 3, the results show a decline in the value of ASEAN-China trade as a share of ASEAN's TTV. As the last column of Table 3 shows, even when China-ASEAN and Hong Kong-ASEAN trade values are added together, then as a share of ASEAN's TTV, the cumulative figure declines from 7 percent in 1988 to 5.7 per cent in 1992 which is in fact a sharper decline than that recorded by China-ASEAN trade from 3 percent to 2.4 percent (Table 3). This is in spite of the fact that Hong Kong+China's trade value with the ASEAN countries in absolute terms rose by 61 per cent between 1988 and 1992 from $12,998 million to $22,557 million. By comparison it must be emphasised that the TTV of the ASEAN countries between 1988 and 1992 increased from $201,183 million to $392,501 million or by 95 percent. During the recent post-Cold War period when many countries have started to implement policies of trade and investment liberalisation, ASEAN trade has experienced the phenomenon of greater diversification as well as internationalisation involving its renewed expansion with European, West Asian and Australasian countries.

The above developments or the relative decline in China's share of ASEAN trade during the late 1980s and the 1990s has occurred even while its political, diplomatic and legal relations governing bilateral trade policy have been rapidly normalised.

In 1990, Sino-Indonesian diplomatic relations were upgraded to the normal level and a trade agreement was signed granting each other the Most Favoured Nation status.2 Similarly, full diplomatic relations between Singapore and China were restored in 1990 and this was expected to lead to a spurt in bilateral trade and investments.3 Today China has a guest status at ASEAN meetings. It is also a participant in the recently formed ASEAN Regional Forum (ARF), meant to try and think about as well as coordinate a new post-Cold War security structure for Asia.4 There has been a resumption of dialogue and diplomatic relations between China and Vietnam which until a few years ago were considered as rivals in South-East Asia. However, this has not yet resulted in any substantial increase of Sino-Vietnamese trade. China supports the idea put forward by Prime Minister Mahathir for the formation of an EAEC and along with the ASEAN countries is a member of the Asia-Pacific Economic Cooperation (APEC).

The key issue to be discussed on the basis of an analysis of empirical trends is whether the regional integration process between China and South-East Asia is likely to progress through the APEC route or through the EAEC route, and what are the wider implications of either for the resolution of territorial-commercial disputes like the one over the Spratly Islands as well as the evolution of perspectives regarding the development of a cooperative security framework in Asia as well as in the global context.

An analysis of the direction of trade data has indicated the growing internationalisation of the trade of the ASEAN countries in the post-1989 period. A further analysis of the commodity composition of Sino-ASEAN trade shows a structural decline in complementarities and a long-term increase in competition in the external trade of both the regions. As may be gleaned from Table 4, the bulk of the commodities exported from the ASEAN countries to China until the early 1980s at least, were resource based commodities produced in the primary goods sector.

Table 4. Commodity Composition of Sino-ASEAN Trade in the 1970s and the Early 1980s.

Country China's Major Imports From China's Major Exports To

Thailand Rice, corn, sugar, rubber, Crude and diesel oil,

tobacco, steel, synthetic fibre. chemicals produce,

pharmaceuticals and machinery.

Malaysia Rubber, palm oil, timber, Textiles, cereals, oils,

logs, cocoa, beans. produce, light industrial

goods and machinery.

Indonesia Plywood, rubber, rattan, Coal, cotton, machinery,

cement, pepper, coffee electrical appliances, light

industrial and agricultural equipment.

Philippines Fertilizers, coconut oil Light industrial products,

bananas, copper, concentrates steel, machinery, foodstuffs.

and cathodes.

Brunei Crude oil Light industrial products,

steel machinery, foodstuffs.

Source: The China Business Review, May-June 1990, p. 34.

Two main items of export from China to the ASEAN countries were oil and textiles in the 1970s and the early 1980s. China has decreased its exports of oil to a large extent in order to meet increases in domestic de-mand and conserve existing reserves for the future since no new sources of oil have been discovered. This has made the ASEAN countries increase their imports of oil from Saudi Arabia and Brunei. On the other hand, increasing production and exports of textiles in and from the ASEAN countries have again curtailed China's exports to these countries. The growing proportion of similar commodities being imported and exported by China and the ASEAN countries to similar destinations makes them less likely to increase their mutual trade substantially and more likely to compete in major markets like Japan, the USA, South Korea, Taiwan and the South-East Asian and South Asian region as well.

An analysis of data of imports and exports according to the Standard Industrial Classification Code used in the United Nations International Trade Statistics Yearbook reveals that whereas earlier in 1987, the similarity in the structure of trade of China and the ASEAN countries was limited to imports, by 1992, in the post-Cold War period, due especially to the growing presence and penetration of Foreign Direct Investments (FDI), the nature of exports has also become similar with the share of manufactured exports growing at a fast pace. The import data show that all the six ASEAN nations and China in 1987 had a similar share of manufactured imports. For example, lumping together SITC import classifications 5, 6, 7 and 8 (chemicals, basic manufacturing, machines, transport equipment and miscellaneous manufactures) the respective shares are : Brunei 74 percent; Indonesia 80 percent; Malaysia 75 percent; Philippines 45 percent; Singapore 69 percent; Thailand 68 percent; and China 72 percent. At this time, i.e. in 1987, on the export side there were differences in the pattern of trade of various ASEAN countries. Brunei's and Indonesia's exports were concentrated in petroleum and so also Malaysia's, to a much less extent. Thailand was heavily dependent on food exports. The bulk of Malaysia's exports too were resource based i.e. they included products in SITC categories 0-4, (food, beverages, crude materials, mineral fuels and vegetable oils) as well as category 68, non-group, earned most of its export earnings from processed mineral fuels and machinery. China had about one-third of its exports in the resource based category and nearly one-half in manufactured goods (20 percent of exports were" not classified"). Export data for the Philippines too had a large "not classified" component. This pattern may be seen from the SITC data presented in Table 5.

Table 5. Exports of Resource Based Commodities

(Percentage of total exports)

Country 1975 1980 1985 1986 1987

Indonesia 100% 97% 89% 82% NA

Malaysia 81% 81% 73% 63% NA

Philippines 83% 63% 45% 38% NA

Singapore 56% 48% 41% 42% 29%

Thailand 81% 70% 60% 55% NA

China 52% 35%

Source : United Nations, 1987 Yearbook of International Trade Statistics (UN: New York, 1989).

As Table 6, columns (a) and (b) show, the picture had substantially changed by 1992. The bulk of ASEAN's exports as well as that of China now consist of manufactured exports, the ratios being 87 percent for China; 81 percent for Thailand; 88 percent for the Philippines; 76 percent for Malaysia and 58 per cent for Indonesia—the average for these 5 countries then being 78 percent. Of these, the bulk consisted of textiles, metal manufacturers and chemicals. On the import side, capital equipment, with parts and processed fuels accounted for 72 percent of China's imports; 64 percent of Thailand's imports; 39 per cent of the Philippines' imports with combustible fuels accounting for another 14 per cent; 71 per cent of Malaysia's imports, and 72 per cent of Indonesia's imports. Given this similarity in the commodity composition of the trade of China and the ASEAN countries, it is clear why the trade between them has not increased as fast as their trade with other countries, thus, showing a relative decline. Since the two sets of countries i.e. the ASEAN countries and China, are selling and buying similar commodities mainly to/from Japan the USA, South Korea, the EEC countries and Australia, they are more of competitors in these markets and cannot also hope for any dramatic increase in their own bilateral trade in spite of the fact that Singapore-based entrepreneurs have recently emerged as not insignificant investors in China.

Another sphere in which China and the ASEAN countries are more competitors than collaborators is FDI. For a variety of reasons, ASEAN and China have emerged as the leading areas for FDI and because they have been making many incremental policy changes and providing an increasing number of incentives to attract foreign investments, they have also provided alternative avenues for investors functioning, therefore, as competitors in the international capital markets. According to the data published in the Asian Development Outlook, the report of the Asian Development Bank between 1987 and 1993, the PRC received $ 53,910 million worth of FDI. By comparison, Singapore got $33,400 million of FDI in the same period; Malaysia got $ 17,960 million FDI; Indonesia $7,999 million; Philippines $3,871 million; and Thailand $11,427 million FDI. Hence, as a region, the ASEAN countries between 1987 and 1993 got $ 74,657 million FDI which is 38 percent more than what China got. It is worthwhile to try and understand the reasons behind this phenomenon.

In the 1980s, the trade policies of the developed countries, especially the US also encouraged the inflow of FDI into the ASEAN region. The US System of Preferences (GSP) tariff rates for the newly industrialising countries (NICs), mounting pressures for currency appreciation and stepped up investigations of dumping and countervailing duty complaints all helped turn Japan and the NICs toward the South-East Asian countries as a base for economic activities. In addition, Taiwan and South Korea experienced rapid wage increase in the 1980s. In Taiwan, for example, wages increased by 35 percent in 1987 and an additional 12 percent in 1988, making Taiwan's wage rate about three times higher than comparable rates in Indonesia and five times more than those in Thailand and Malaysia. The rapid rise in labour costs has encouraged North-East Asian investors to relocate their labour intensive industries to South-East Asia. Major adjustments of individual currency rates is another key factor in promoting the flow of FDI into the ASEAN countries. The currencies of Korea and Taiwan followed later by that of Japan have appreciated significantly during the 1980s. Since 1985, the South Korean won has risen almost 30 percent against the dollar, while the New Taiwan dollar has risen by over 40 percent. Since the currencies of Malaysia, Thailand, Indonesia and Philippines did not appreciate significantly, they could attract new foreign investors eager to capitalise on the cheaper currency rates. In all these respects, China provides keen competition to the ASEAN countries, itself attracting large amounts of FDI, especially into its Special Economic Zones (SEZs). Partly as a response to China's economic liberalisation programme and to counter the negative impact of an increase in real wages in their own economies, the ASEAN countries launched the ASEAN Free Trade Area, (AFTA), an economic liberalisation programme which aims at reducing internal tariffs to a maximum of 5 per cent in 15 years (i.e. by 2000AD). The ASEAN governments and entrepreneurs also identified three major potential growth areas within their region, encompassing southern Thailand, Indonesia's Sumatra and northern Malaysia, Singapore and Indonesia; and the southern Philippines, Indonesia's Sulawesi Island and Malaysia's Sabah.5 It is obvious that ASEAN and AFTA will provide competition to China and other investment destinations in Asia trying to attract an inflow of foreign investments. (See Charts 1 and 2)

The diversification and internationalisation of ASEAN's external economic relations provides us with a clue to understanding why the governments of this region have not shown sufficient enthusiasm to build and operate a sub-regional economic organisation like the EAEC whereas they have been far more active in promoting an entity like the APEC which has a broader reach. It also allows us to appreciate the increasing number of nations and governments which are interested in preserving peace and stability in the South-East Asian region either because they trade with the countries in this area, or have investments in them or their sea-borne commerce passes through the busy shipping lanes of this region. This would comprise all the countries in East and South-East Asia, the USA, the major countries of the Oceania region, especially Australia and New Zealand, select countries of West Asia and the European Community as well as Russia and the South Asian countries, including India. In other words, any conflict between the states of the East Asian and South-East Asian regions over a dispute like the one over the Spratly Islands will be of concern not only to the countries which claim a part or all of these islands, it will also impinge upon the interests of all those countries who stand to have their trade disrupted by any deliberate or accidental closure of sea lanes caused by a military conflict between the fairly well armed countries of ASEAN and the dominant regional military power, viz China. The prospects of a war-like situation developing over the Spratly Islands dispute during the next decade are more than real unless preventive conflict avoidance and dispute settlement measures are set into motion well before events come to a head once again.

From China's point of view, the dispute about claims to, and control of, the Spratly Islands, located 1,300 km south of the Chinese mainland is just one of several territorial issues it has to settle with various countries of South-East Asia, especially Vietnam; the other issues are the land boundary with Vietnam, the delimitation of the Gulf of Tonkin, and sovereignty over the Paracel Islands located about 150 miles south-west of Hainan Islands claimed by both China and Vietnam. (See Map 1). China had forcefully occupied the Paracel Islands in 1974 and subsequently built an airstrip there during the 1980s. Of these disputes China gives the greatest amount of importance and attention to the Spratlys Archipelago dispute. Not only do the Spratly Islands lie astride one of the most important Sea Lines of Communication (SLOC), but also have been credited with having potential natural resources on a large scale. According to the extensive surveys carried out in the early 1990s by China's Ministry of Geology and Mineral Resources, the Spratly Islands have potential deposits of oil and natural gas of 17.7 billion tons compared to 13 billion tons for Kuwait and hence can be ranked as the fourth largest in the world.6 This discovery only makes the Spratlys more attractive for various claimants to want to control.

The real basis which the PRC government cites for claiming all of the Spratly Islands is that the Chinese discovered these islands many hundreds of years ago in a pre-seismic era. A lot of laborious research has been undertaken by the Chinese scholars to discover, describe and document early historical accounts of Chinese expeditions to the islands.7 As early as 1976, China had clarly stated "Nansha [Spratly] Islands have always been a part of China's territory....Any foreign country's armed invasion and occupation of any of the Nansha Islands or exploration and exploitation of oil and other resources in the Nansha Islands area constitute encroachment on China's territorial integrity and sovereignty and are impermissible. Any foreign country's claim to sovereignty over any of the Nansha Islands is illegal, null and void."8 Hence, China's claim to the Spratly Islands is based on historical grounds.

The dispute over the Spratly Islands originates in the fact that apart from China (and Taiwan), four other South-East Asian nations—Vietnam, Malaysia, the Philippines and Brunei—claim parts of the island territories. In fact, the Philippines and Malaysia have stationed their troops in eight and three of the islands respectively, while Vietnam has occupied 21 islands, atolls and reefs. Brunei has a claim but does not occupy any territory.9 The actual Chinese efforts to create a locus standi for themselves by occupying a part of the Spratly Islands started in 1988, when the Chinese captured six tiny islands in the Spratlys from the Vietnamese in a naval battle that took scores of Vietnamese lives. It has to be remembered that the islands so far occupied by the various claimants constitute only a very small part of the actual area of the Spratlys Archipelago, which consists of hundreds of islands and atolls, 50 submerged land spits, and 28 partly submerged bits of coral and rock, scattered over 340,000 square miles in the South China Sea.10 (See Map 1).

China's claim to the Spratly Islands as has been mentioned above is based on historical grounds but it is not accepted by the four other claimants. What is noteworthy is the increasing degree of assertiveness the Chinese have displayed over the Spratly Islands dispute, especially after the USA has closed down its naval base in Subic Bay in the Philippines in 1992. Earlier, during the Cold War years, on several occasions China had chosen to overlook the competitive claims being made by other countries since its policy objective was to try and include the ASEAN countries in maintaining a regional balance of power in the face of a growing Soviet-Vietnamese alliance during the 1960s and early 1970s. In 1971, immediately following Manila's attempt to occupy islands in the Spratlys, Beijing only responded indirectly in a speech by an official spokesman "The Nansha Islands and the Hsisha [Xisha] Islands have always been China's territory. The Philippine government must immediately stop its encroachment upon China's territory and withdraw all its personnel from the Nansha Islands."11 However, when President Marcos travelled to Beijing to normalise diplomatic relations in June 1975, the Spratly Islands dispute was not allowed to come in the way of renewing official relations with the ASEAN countries.

Vietnam began to assert its claim to the Spratlys particularly after it had gained possession of some islands held by the Saigon regime once it collapsed in 1975. Earlier, on various occasions, it had accepted China's claim over the Spratlys in order to get its support against the USA. Even before the start of the war, the Vietnamese Prime Minister, Pham Van Dong, had in 1958 acknowledged China's claim over the Spratly Islands.12 However, it changed its position after it won the war against South Vietnam and the country was reunified. This changed position was tested militarily in 1988 when China forcefully occupied some of the islands and Vietnam resisted unsuccessfully.

A detailed analysis of the Chinese official policy statements at various forums and the actual initiatives China has taken on the ground to enlarge its physical occupation of parts of the Spratly Islands reveals the evolution of its two-track policy in which the military and the political dimension seem to have had a greater weightage than the diplomatic one during the last decade or so. During the 1970s and the 1980s, China has renewed formal diplomatic relations with all the ASEAN countries and stepped up its interaction with them. China renewed formal diplomatic relations with Malaysia in February 1974, with Indonesia in February 1989 and with Singapore in August 1990. It has been granted an observer status at the ASEAN heads of state meetings. Recently, it has, along with the USA, Russia, Japan, the European Union, Australia, New Zealand and South Korea, become a member of the ARF, launched by the ASEAN countries in 1994 to initiate dialogues on issues concerning Asia-Pacific security with special reference to the South-East Asian region.13 At the diplomatic level, China has softened its stand on how to negotiate with the ASEAN countries about the Spratly Islands dispute. Initially, while calling for a joint exploitation of the natural resources said to potentially exist on the Spratlys, China had insisted on holding only bilateral talks with the different claimants. It defended this position, as the Chinese Foreign Minister, Qian Qichen did by asserting that as China had indisputable sovereignty over the Spratlys, it was a matter to be dealt with bilaterally, not as ASEAN would like, in a regional forum.14

At the meetings of various Foreign Ministers organised alongside the annual meeting of ASEAN at Brunei in August 1995, China came up with a new diplomatic approach to the Spratlys dispute. Firstly, it agreed to negotiate simultaneously with all the ASEAN countries based on international law.15 Hence, it agreed to consider an alternative legal approach to the one enunciated in the Law on the Territorial Waters and the Contiguous Areas passed by the Standing Committee of the National People's Congress in China on February 25, 1992. This law had reasserted China's claims to "undisputed sovereignty" and authorised the use of military force to prevent other states from occupying the islands.16 At the Brunei Conference of the ASEAN states, China's Foreign Minister, Qichen, stated that his country would abide by the 1982 UN Convention on the Law of the Sea.17 This law, as distinct from China's 1992 Law on the Territorial Waters, only recognises an area extending 12 nautical miles from the shore as a country's territorial waters and up to 200 nautical miles as the Exclusive Economic Zone. Ships carrying commercial cargo or passengers have the right of innocent passage through the Exclusive Economic Zone excluding the 12 nautical mile limit, which they can only enter after seeking the permission of the country whose sovereignty is recognised internationally.18

When these positive developments on the diplomatic side are examined closely and set off against China's moves on the ground, a more objective and less optimistic picture emerges in relation to the Spratly Islands dispute. To start with, China has still to ratify the 1982 UN Convention on the Law of the Sea. Then, the northernmost point of the Spratlys Archipelago is about 1,300 km from the southernmost point of Mainland China which puts it outside China's Exclusive Economic Zone. Lastly, the 1982 UN Convention on the Law of the Sea cannot be used to decide on China's claim to "undisputed sovereignty" over the Spratly Islands; it can be used by China only if and when the dispute over sovereignty is decided in its favour.

The ambivalent nature of the diplomatic positions so far adopted by China derives from a perceived gap between intention and practice. Alongwith the several statements inviting joint exploitation of the oil and gas supplies said to be on the Spratly Islands, Beijing signed a contract in May 1993 with an American company, Crestone Energy Corporation from Denver, to explore for oil and gas and pledged the use of its Navy to protect the company. In July 1993, China awarded a second contract to an American company to cooperate in the development of the South China Sea oil fields.19 In addition to treating the sea around the Spratlys as being within its legal jurisdiction, China has also undertaken several military actions to establish physical control of parts of this archipelago. In 1988, when China seized control of six of the Spratly Islands, it sank two Vietnamese warships, killing more than 70 Vietnamese troops. It has since sent troop reinforcements to its six islands and sandbars facing off soldiers on the 21 islands occupied by Vietnam.20 Then in early February 1995, the Philippines discovered that the Chinese had built a military style structure on Mischief Reef, just 135 miles west of the island of Palawan claimed by the Philippines.21 They had also laid markers in the same area. China claimed the structures were shelters put up by Chinese fisherman, although it later reportedly admitted that the People's Liberation Army (PLA) had built them. In fact, the Chinese allegedly claimed that the structures on the reef were constructed by the Hainan command without the knowledge and approval of Beijing, which would suggest that it is not imperative for the PLA's central command to clear such major operational decisions by regional commands before they take effect.22

Confronted with the two-track policy being followed by China, the ASEAN countries too have evolved a double edged policy relating to the Spratly Islands dispute. In the beginning they had placed almost total reliance on diplomatic methods, dialogue and pursuasion. Hence, they had outlined several principles of self inhibition in the ASEAN Treaty of Amity and Cooperation (TAC) approved in 1976. Subsequently, in July 1992, the ASEAN Declaration on the South China Sea was adopted, emphasising the relevance of enunciating and promoting confidence building measures, as well as calling for a peaceful solution to the Spratlys dispute. It also sought and obtained China's agreement during the ASEAN-China dialogue in May 1995 to evolve a code of conduct reflecting the principles in the TAC and China's consent to discuss the South China Sea disputes with ASEAN as a group.23 Unofficial consultations between China and the ASEAN countries proposed by Indonesia have been held since 1990. Recently, China and Vietnam have also agreed to use only peaceful means to resolve the Spratlys dispute.24 Hence, ASEAN openly acknowledged that China also has claims in the South China Sea, which have to be reasonably met.

The diplomatic initiatives and designs undertaken or suggested by various ASEAN countries and China have not prevented a deterioration of the military situation. On several occasions, various ASEAN countries have, despite an enormous gap with China on the military front, taken action in order to back up their claims over the Spratlys. Vietnam's bitter defeat in 1988 has been mentioned. During the incident on the Panganiban (Mischef) Reef in February-March 1995, Manila filed a diplomatic protest and the Philippines Navy destroyed the markers built by the Chinese, but was unable to do anything about the structures which had been fortified.25 The continued fishing by Chinese fishermen in Spratly waters close to ASEAN countries provides a potential flash point for future conflicts. On March 25, 1996, the Philippines authorities arrested four boats with 62 Chinese fishermen near Half Moon Shoal, 50 miles from Palawan. In August, 58 fishermen were released without their captains. Manila's determination to try the captains appears to be a way of underlining its claim. Again on November 2, 1995, 10 Chinese nationals were arrested for illegal fishing in Malaysian waters. A hearing is set for early January. In a previous incident, 16 Chinese fishermen had been arrested in March 1996 after the Malaysian Navy stopped their trawler near Bintulu in Sarawak. The Chinese crew, heavily armed, were convicted and fined. Due to non-payment of fines, they were subsequently jailed for four months. Vietnam is said to suspect that Crestone, the US corporation, will expand its exploration activities using Chinese oil-rigs and drilling equipment to stop which its puny Navy would be helpless.26 These incidents and apprehensions create a volatile situation that demands fresh steps for confidence building, reduction of tensions and avoidance of actual conflict.


The Complexities of the Spratly Islands Dispute and Policy Suggestions for Confidence Building and Conflict Avoidance

The complexity of the Spratly Islands dispute arises from the fact that both China and Vietnam claim total sovereignty over all the islands on historical grounds whereas the other ASEAN countries lay claim to some of the islands in the Spratlys Archipelago on the grounds of proximity and the 1982 UN Convention on the Law of the Sea. This provides for 12 nautical miles of territorial waters and 200 miles of an Exclusive Economic Zone. On this basis the Philippines claims about 50 islands forming a region named Kalayaan; Malaysia a dozen or so; and Brunei only the Louisa reef about 240 km from Bandar Seri Begawan.27 Given the wide expanse of the sea covered by the Spratly Islands, permanent military occupation even by a strong and rising power like China would not be easily undertaken. However, even an occupation of the majority or the better part of the Spratly Islands by any one country e.g. China or Vietnam, would not be acceptable to the other claimants.

The two possible solutions so far suggested i.e. of joint exploitation of the Spratly Island's potential resources and using the 1982 UN Convention on the Law of the Seas to settle the dispute, are acceptable for discussion to all the disputants, but are ambiguous and not easy to use at the practical level. Joint exploitation suggested by China presupposes some agreement on how and in what measure to share the Spratly's potential resources, which in turn presupposes a willingness to share sovereignty as well. The use of the 1982 UN Convention on the Law of the Sea has not yet been ratified by China. Its use in any case presupposes an acceptance of joint occupation or legal occupation of different parts of the Spratlys based on division or partition approved by all the parties to the dispute. Such a solution is not at all easy to achieve or even propose. The map of the PRC produced by Beijing's Cartographic Publishing House shows the entire South China Sea falling within China's sphere. Maritime boundaries are depicted as only 75 km seawards from Brunei, Malaysia, the Philippines and Vietnam. The Exclusive Economic Zones of the Philippines, Malaysia, Brunei and Vietnam based on the 1982 UN Law of the Sea include some of the Spratly Islands.28 This situation alone means that as long as China claims total sovereignty over the Spratlys and believes that now or in the future it can enforce its claims through sheer military superiority over the other claimants the chances of a diplomatic solution are dim. The relative military withdrawals of the Former Soviet Union and USA from this region in the post-Cold War period and the advances made by China in its military modernisation both have reinforced China's belief that in time it can have the whole of the Spratlys.

The fact that Taiwan approved of and agrees with the Chinese position about the Spratlys further serves to harden China's nationalist stance on this issue. Taiwan agrees that the Spratlys belong to China and claims some of the islands for itself of which it occupies one of the northern ones, Taiping, since 1956, which is also the largest in the Spratlys Archipelago. In April 1995, Vietnam complained that Taiwanese troops stationed on Taiping Island had fired on Vietnamese transport ships passing nearby. In response, the Taiwanese Foreign Ministry said it would investigate the incident but added in a statement that "it is within the sovereign right of our Government to have activities and disperse boats from other countries in the area."29 In September 1993, Taipei had, at a government sponsored seminar on the South China Sea, announced plans to increase sea-patrols in the Spratlys. Participants in the seminar called for Taipei and Beijing to exchange official documents jointly affirming Chinese sovereignty over the islands and that Taipei should sponsor cross-strait meetings on the issue. Taipei also did not criticise Beijing's use of force to wrest control over the Paracels and the Spratlys from Vietnam. Indeed, in March 1988, Taiwan's Defence Minister indicated that Taipei would, if necessary, help Beijing defend its position on the Spratly Islands.30

The disposition of the various claimants on sovereignty over the Spratlys and the post-Cold War situation of a partial power vacuum in the region have further pursuaded China that altering the balance of military power in the long run in its own favour would, if not enable it to wrest outright control of the Spratlys, definitely help it to negotiate from a position of undisputed strength. Such a belief would be further reinforced by the recent Chinese success in negotiating a joint development agreement with Japan in the Senkaku Islands and the way it refused to withdraw from Mischief Reef in the face of active opposition from a militarily inferior Philippines. In fact, it was the superior military presence of the USA in the region since the 1950s which had precluded a more active and assertive Chinese diplomacy on the Spratlys issue. The advent of Democratic Administrations under Kennedy and Johnson did not in any way change the "domino" theory which had been enunciated by John Foster Dulles i.e. if one state in South-East Asia fell to Communists, the neighbouring states would also topple. This strategy inspired and justified the massive flow of American aid and the build up of American forces around China. American military bases in South Vietnam, Okinawa, around Taiwan, in Guam, South Korea and Japan and the relatively modest Chinese response during the 1960s can be seen from Maps 2 and 3.31

The situation began to change in the early 1970s when the Nixon Doctrine initiated a gradual withdrawal of the United States from the region. It culminated inadvertently in the post-Cold War retreat of Russia from the balance of power regime in South-East Asia, although it retained some presence in its Cam Ranh Bay base in Vietnam, and the closure of the Subic Bay US base in the Philippines in 1992. This has encouraged China to seek to enhance its ability to project force into the South China Sea. Beijing has received 24 advanced Russian Su-27 fighter aircraft, has 48 more on order and has concluded an agreement to buy 24 MiG-31s while seeking an agreement for joint production of more in China. These Su-27 fighters operating from southern Chinese bases, currently have a "loiter time" of only several minutes over the Spratlys, but Beijing is apparently developing its aerial refuelling capabilities.

China also is in the process of developing a much stronger blue water Navy since many of its military strategists believe that it cannot hold on to its claims in the Spratlys because of insufficient naval forces. China is negotiating with the Russian Pacific Fleet to purchase as many as two aircraft carriers. The PLA has plans to develop three new naval bases along the east coast, with one located in Zhanjiang in southern Guangdong province.32

The ASEAN countries and other countries in East Asia have in response to the post-Cold War strategic situation embarked on a significant modernisation of their Air Force and Navies.33 In terms of military expenditure in 1991, Japan and Taiwan together spent 47 percent more than China on developing their defence systems. The five South-East Asian countries, Vietnam, Indonesia, Malaysia, Thailand and Singapore, spent 85 percent more.34 Estimates of military expenditure after 1989 show comparable increases for China, the ASEAN countries and Taiwan.35 One expert has further estimated that by 2000 AD the ASEAN countries will spend another $10 to 12 billion in further acquiring modern weapons.36

The basic weakness in the balance of power situation in South-East Asia is a lack of any effective military coordination between the ASEAN countries. Vietnam is the only country which has initiated military action on any noticeable scale in relation to the Spratlys issue. According to a military analyst, Vietnam is moving MiG-21 and Su-27 jet fighters to a base in Phan Rang, close to the likely trouble spots. After the recent stand off with China, the Philippines has enacted an ambitious military law which promises to provide adequate protection in the next 15 years to its territorial waters, Exclusive Economic Zone and fishermen who are regularly harassed by foreign vessels in the South China Sea.37

The latest comparative view of the balance of power situation in the region can be judged from Table 7.

Table 7. Military Strength of Various South-East Asian Countries and China

Country Number of Number of Tonnage Number of

troops ships displacement combat aircraft

1. China 2,200,000 1,080 (80 1,020,000 880


2. Vietnam 50,000 100 30,000 190

3. Philippines 68,000 70 47,000 60

4. Thailand 33,000 --- --- 30

5. Indonesia 214,000 210 181,000 110

6. Brunei 3,000 10 700 2

7. Singapore 45,000 60 190,00 160

8. Malaysia 90,000 80 34,000 100

9. Cambodia 36,000 10 1,000 20

Source : Defense of Japan, 1995, Defence Agency, Tokyo, p.54.

Compared to China, the military strength of the 8 South-East Asian Countries (SEAC) is shown in Table 7 (A)

Table 7 (A)

Countries Number of Number of Tonnage Number of

troops ships displacement combat


China 2,200,000 1,080 1,020,000 880

8 SEAC 539,000 540 322,700 672

8 SEAC as% 24.5% 50% 31.6% 76.4%

of China

As can be seen from Table 7 (A), even on their own, the South-East Asian countries do not fare badly in comparison to China as far as their naval and air power is concerned. However, in any major engagement they would not expect to be on their own. The Philippines still has a treaty association with the USA. Singapore allows for visits of US aircraft and naval vessels for refuelling purposes. Indonesia has recently signed a defence agreement with Australia in terms of which "they will consult regularly at a ministerial level on matters affecting their common security and to promote beneficial cooperative military activities."38 Manila and Hanoi plan to establish a Spratlys hotline and exchange military attaches. Malaysia continues to be part of a Five Power Defence Treaty invoving Britain and Australia. Alongside, Indonesia and Malaysia in late 1991, Australia, and later in mid-1993, Singapore, have held joint naval exercises with the Indian Navy which has the largest Navy in the Indian Ocean littoral region. Although most of these agreements remain at the level of military diplomacy and have not so far come into play in recent clashes, that is because no one's right of commercial passage has so far been infringed. As the US State Department put it during the recent China-Philippines imbroglio, while it wanted a peaceful solution to the Spratlys dispute, it also would not tolerate any disruption of international commercial routes.39

As an expert study has emphasised, the maintenance of open sea lanes throughout this region continues to be viewed by the USA partly as the responsibility of the US Seventh Fleet in conjunction with Australian forces and the Thirteenth American Air Force Units.40 The Seventh Fleet has 120 major ships based in Hawai, Diego Garcia, Japan and Guam. The Marine Corps attached to it has 67,000 personnel and 290 aircraft based in the USA and Japan. In addition, the US Pacific Command deploys 320 aircraft in Japan and the Republic of Korea.41 As in the case of the recent confrontation between China and Taiwan, the US military strength could come into play in a major showdown over the Spratlys. India which is a member of the ARF can also help in keeping the sea lanes open in the Indian Ocean.

While all the involved countries are pursuing their diplomatic strategies, the following steps may be suggested to lessen tensions in the South China Sea and prevent further conflicts:

I. The ARF is made the focal point for diplomatic dialogues to resolve the Spratlys dispute, and not the EAEC which has not progressed due to economic and political causes.

II. An agreement is reached between all the countries at present in occupation of parts of the Spratlys Archipelago to limit their military forces within clearly specified, reasonable, mutually balanced and safe limits.

III. Outside of the agreed parameters, no new military forces should be deployed within a clearly specified delimitarised zone. A joint Sino-ASEAN Peace Force could be formed after mutual negotiations to oversee the implementation of this agreement.

IV. A time-frame could be discussed for a possible solution of the sovereignty issue and separate possession of parts of the Spratlys by the disputants as well as for demarcating the respective boundaries.

V. Alternatively, joint exploitation of the Spratlys' resources could be thought about under the aegis of the UN Trusteeship Provisions provided there is also an agreement on how to share these resources.

VI. Disputes about implementation of agreements or their infringement can be referred to the International Tribunal for the Law of the Sea constituted by the 1982 UN Convention on the Law of the Sea or to a separate Permanent Commission set up by the ARF specifically to adjudicate on this issue. Since China and all the other claimants to the Spratly Islands are members of the ARF, such a commission and its rules of operation can be decided on through a consensus.



1. Noordin Sopiee, "The Revolution in East Asia" Strategic Analysis, vol. XIX no.1., April 1996, pp.13/14. See Charts 1 and 2.

2. Fu Zhengluo, "Sino-Indonesia Trade : Today and Tomorrow," Intertrade, February 1991.

3. Cao Yunhua, "Sino-Singapore Economic Relations and Trade", Intertrade, February 1991

4. Report on ASEAN, "Preventive Measure," in Far Eastern Economic Review, August 4, 1994, p.14.

5. Ibid.

6. Michael Leffer "Chinese Economic Reform and Security Policy, the South China Sea Convention", Survival, vol. 37, no.2, Summer 1995.

7. Eric Hyer, "The South China Sea Disputes: Implications of China's Earlier Territorial Settlements", Pacific Affairs, September 1994, p.43.

8. "ASEAN, Facing Upto Security," Peking Review, no. 25, June 18, 1976, p.4.

9. Far Eastern Economic Review, August 6, 1992, p.8.

10. "China Pledges Safe Passage Around Isle" New York Times, May 19, 1995, Section A. p.11. Column 1.

11. New China News Agency, July 16, 1971, cited by Eric Heyer, n.7. p.39.

12. Ibid., p.27.

13. "South-East Asia's Sweet Tooth", The Economist, August 5, 1995, p.25. The latest entrant to the ASEAN Regional Forum is India.

14. Ibid.

15. "Comforting Noises," Far Eastern Economic Review, August 10, 1995, p.14.

16. Heyer, n.7. p.41.

17. Far Eastern Economic Review, August 10, 1995, p.14.

18. The Law of the Sea, UN, 1982 (Official Text), (New York: 1983) p.XXV.

19. Eric Heyer, n.7.

20. Far Eastern Economic Review, August 6, 1992.

21. Report on "Rival Claims to Island Chain Bring Edginess to Asia's Rim," by Philip Shenon, The New York Times International, April 5, 1995, P.A. 11.

22. "The Philippines in 1995," Asian Survey, vol XXXVI, no.2, February 1996, p.148.

23. Ibid., 149.

24. Report on Defence of Japan 1995, Defence Agency, Tokyo, p.56.

25. n.22, p.149.

26. "Regional Security, Hang on Tight," Far Eastern Economic Review, December 28, 1995 and January 4, 1996, pp. 17/18.

27. Brian Cloughley, "No Need for War in South China Sea," Strategic Digest, vol XXV, no.9, September 1995, p.1227.

28. Ibid.

29. Philip Shenon, n.21.

30. Heyer, n.7. p.52.

31. Alan Lawrance, China's Foreign Relations Since 1949, World Studies Series (London: Routledge and Kegan Paul, 1975) pp.62/63.

32. Eric Heyer, n.7. pp.47/48.

33. Desmond Ball, "Arms and Affluence, Military Acquisitions in the Asia-Pacific Region," International Security, vol. 18, no.3, Winter 1993/94, pp 78-112.

34. Asian Strategic Review (New Delhi: IDSA, 1992/93) pp.83 to 136.

35. Shri Prakash, "Causes of Conflicts in the Third World During the Post-Cold War Phase," India Quarterly, nos. I and II, January-June 1994, p.35.

36. G.V.C. Naidu, "India's Strategic Relations with South-East Asia, "Seminar on South East Asia : Indian Perspectives, India International Centre, New Delhi, February 14-15, 1994, 10, (Mimeo).

37. "Regional Security", Far Eastern Economic Review, December 28, 1995 and January 4, 1996, p.18; n.22, p.148.

38. Ibid. p.18.

39. Report, Daily Yomiuri, February 21, 1995, p.1 and 8.

40. William L. Dowdy and Russel B. Trood ed., The Indian Ocean, Perspectives on a Strategic Arena, Reprint, (New Delhi: Himalayan Books, 1987) p.383.

41. n.24, p.57.