2014 was a formative year for Chinese territorial disputes with other nations in Asia. Tensions with Japan and The Philippines reached near breaking point, with signs of instability creeping into the entire Asian region. Yet behind these media-capturing headlines, trade has been booming. All in all, last year was a mixed bag when it came to assessing China’s relations with the rest of Asia, including in its own backyard of Hong Kong. What can be expected in 2015?
Tensions flared up between China and Japan over the Senkaku (Diaoyu) Islands at the beginning of 2014 and continued to fester for much of the year. Many commentators have suggested that, rather than a real grievance, the issue was perhaps related to President Xi Jinping’s desire to assert his authority over the Chinese military.
China does have a record of being seen to act aggressively during periods of political settling in. Japan remains an easy punch bag to use on such occasions. Disputes seem to have calmed down a lot, and focus today is now on repairing damaged trade ties. In fact, since the dispute intensified in 2012, Japanese-Chinese trade has been in recovery. Trade between the two increased year on year in 2014, and this looks set to continue into 2015. Talks on the China-Japan-South Korea Free Trade Agreement have re-commenced, with some parties suggesting a deal could be reached in 2015.
China may have realized that it needs Japanese consumption more than it likes to admit, especially during a slowdown in China’s domestic economy and amidst concerns over China’s own consumption rates. Economic and export pragmatism can be expected to keep China-Japan disputes at bay for 2015.
This, however, is unlikely to be the case in other major territorial disputes that China has been involved in, particularly that involving The Philippines over swathes of the South China Sea. Despite growing bilateral trade, the case has been sent to the United Nations Convention on the Law of the Sea and is due to start being heard in March. China has refused to recognize the proceedings and is not attending, despite The Philippines stating that the case is solely a maritime dispute and not a territorial one.
The Philippines seeks clarification on as to whether China’s 9-dashed line can negate The Philippines’ Exclusive Economic Zone, as guaranteed under the United Nations Convention on the Law Of the Sea (UNCLOS), of which China is a signatory. As part of the case, The Philippines also seeks clarification on whether rocks above water only at high tide, which include those at Scarborough Shoal, generate a 200-nautical-mile EEZ, or only a 12-nautical-mile territorial sea. Clarification of whether China can appropriate low-tide elevations, such as the Mischief Reef and the Subi Reef within the Philippines’ EEZ, has also been included in the case.
The Philippines has stated that it “is not asking the tribunal to delimit by nautical measurements overlapping EEZs between China and The Philippines. The Philippines is also not asking the tribunal what country has sovereignty over an island, or rock above water at high tide, in the West Philippine Sea.”
This does not sit well with Beijing, which regards even the discussing of the subject a breach of China’s sovereignty. With the case due to start hearings soon, one can expect a great deal of Chinese rhetoric to appear after the Chinese New Year. If The Philippines has a ruling issued in its favor, China could be put in a very awkward diplomatic position. The UNCLOS dispute has the potential to be a lowpoint for China this year.
China’s dispute with Vietnam also intensified last year over islands and shoals in the South China Sea. As a result, anti-Chinese sentiment rose so high in Vietnam that Chinese invested factories in the country were burned down and several Chinese killed.
Since then, both sides have been keen to play down territorial disagreements. However, much depends on China’s intent on replacing an offshore drilling rig in a disputed area. According to China, the rig has been withdrawn due to the “onset of the typhoon season.” As the low point for typhoons is from January-May, it will be interesting to see if China continues to antagonize Vietnam. Given that The Philippines is presenting its case to the UN at this time, the Chinese seem more likely to keep a low profile, at least for this year.
The on-going UNCLOS case is likely to cause China to be on its best behaviour lest international opinion turn against it. This points to a quieter 2015 for China – unless the UNCLOS ruling does go against it. If that occurs, it remains guesswork as to how China reacts.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email firstname.lastname@example.org or visit www.dezshira.com.
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