China’s State-Run Firms Make Big Money in the South China Sea

FILE - In this Aug. 16, 2017, file photo, a construction worker waits to cross an intersection near buildings under construction in the central business district of Beijing. The World Inequality Report 2018 released Friday, Dec. 15, 2017, is based on a massive collection of data compiled by an international …
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China’s aggressive territorial claims in the South China Sea are generally viewed in the context of a security threat to the freedom of navigation and political warfare against Asian nations with competing territorial claims, but a report published this week by the ISEAS Yusof Ishak Institute of Singapore reveals a massive cash grab as well.

China’s state-controlled industries are planning to make a great deal of money from those disputed islands and reefs.

Reuters summarized the report on Thursday:

The work by academic Xue Gong and published by Singapore’s ISEAS Yusof Ishak Institute this week sheds light on a little-examined element of rising tensions across the vital trade route, showing extensive work by Chinese SOEs in developing infrastructure and tourism, as well as oil and gas, some in hotly disputed areas.

Some experts and regional diplomats believe the strong commercial presence could further complicate any future regional solution should Beijing, which research shows has encouraged firms to operate, protect them politically and militarily.

China’s state-owned enterprises operated in a complex and often opaque environment, serving national strategic interests as they sought new opportunities, Gong told Reuters.

“They cannot operate independently but they are ultimately opportunists and when the policy environment is favorable, then they will go for it. And we have seen signs of that behavior in the South China Sea,” said Gong, who is based at Singapore’s S. Rajaratnam School of International Studies.

“If the Chinese government can maintain an upper hand and leverage while achieving stability, there might well be greater opportunities.”

China’s island-building projects have cost billions so far, and billions more in spending has been earmarked, which should make it painfully clear that Beijing has no intention of negotiating away the territory it has claimed, no matter how many international court cases it loses.

Reuters mentions a $15 billion spending plan by the China Communications Construction Corporation for the Paracels, which are also claimed by Vietnam. The Vietnamese can complain all they want, but a tsunami of Chinese money is heading for the Paracels, and when the financial storm clears the islands will be littered with Chinese resorts, cruise ships, construction companies, and fishing boats.

Naturally, there is oil involved as well. The Vietnamese have already been forced to clench their teeth and watch Chinese oil rigs work in waters claimed by Hanoi. The South China Sea has become the second most important source of oil and gas for the China National Offshore Oil Corporation, and it has even bigger plans for the region.

The bottom line is that China has enough gunships and bombers to ensure no one interferes with the early stages of a colonization project that no other party to South China Sea disputes can match.

“Beijing is incentivizing companies to become major players in the South China Sea. This is something that China can do that the other claimants cannot do, particularly on this scale, ISEAS analyst Ian Storey told Reuters.

In fact, Vietnam tried to compete with China by bringing in a Spanish offshore drilling company to work in the South China Sea. Beijing told Hanoi it was ready to go to war to protect its oil interests. The Spanish company limped home in March with a $200 million loss on its books when Hanoi capitulated and canceled its contract.

The message sent to anyone else who dared to compete with China was unmistakable. Vietnam decided to disregard the message in August and sign a deal with two Japanese firms to develop gas reserves in the South China Sea. The Chinese Foreign Ministry said it is willing to work out a “compromise” but chastised Vietnam for “taking unilateral actions that may further complicate and expand the disputes.”

Chinese bases on fortified South China Sea islands have begun sending warning messages to planes and ships from the Philippines, to the great consternation of Philippine officials. Those Chinese bases have plenty of missiles to back up their threats.

The Wall Street Journal postulated in July that China’s fanciful legal claims in recent court actions were not serious efforts to contest international law, but rather a signal to Asian business elites that Beijing’s hold on the South China Sea is nearly complete, and they should prepare to do business with the new landlords of those valuable island chains. These court theatrics also cement the narrative that China has effectively nullified the international tribunal rulings that went against it two years ago.

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