South China Sea: A priority for Beijing during COVID-19?

21 April 2020

On April 18, China’s State Council approved the creation of two new municipal districts in the South China Sea: one covering the Paracels, administered by Woody Island, and one over the whole of the Spratly Islands, administered by Fiery Cross Reef. The latter alone means there will be a municipal district responsible for an area the size of roughly 420,000 square kilometers, filled mostly by water and uninhabitable rocks. This will truly prove itself a feat of local government administration, but like their supposedly-real Ming Dynasty counterparts, we can be sure China’s bureaucrats are up to the task.

That this comes in the middle of the COVID-19 pandemic vindicates those who predicted China would seize the moment to more aggressively assert itself in its neighborhood– especially given Beijing is conducting Code of Conduct negotiations with the Association of Southeast Asian Nations (ASEAN). If this new development does not cast a shadow over those negotiations, which by all accounts were not going well in the first place due to China’s intransigence over the nature of its claims, then it can be assumed a Code of Conduct in the South China Sea will be worthless.

How should we interpret the timing of this with COVID-19? First of all, it’s important to note the pandemic’s aftermath will chiefly hurt China and its economically interdependent neighbors in Southeast Asia.

Trade-dependent economies like that of China’s are about to be pounded by COVID-19’s chilling effects on the time-sensitive shipping industry. China and its massive manufacturing sector is facing a phase of no demand abroad after finally restarting supply at home. A blow to the Chinese economy of this scale will hit the China-entangled economies of Southeast Asia hard. That’s not even assuming Southeast Asian countries with large manufacturing bases like Thailand will suffer from the same supply and demand shocks.

The World Bank forecast for ASEAN countries and Timor-Leste is dismal. Without dwelling on the issue further, the International Monetary Fund predicts no growth in Asia at all in 2020, and China’s growth to slump to 1.2%. The implications of this slowdown will affect the region for the rest of the decade.

Looking at China’s strategy in the South China Sea however, we can make some assumptions.

An era of ‘empty bellies’

China weathered the 2008 Financial Crisis by employing a number of policy options, but few were as critical as greasing domestic demand for commodities to counteract less exports abroad. This was achieved through massive infrastructure projects – including the dubious projects we see today along the Belt and Road Initiative (BRI), some of which are mired in debt and political controversy.

This can’t be replicated again. For a country replete with newly-made infrastructure projects and a crop of ghost districts, choosing such an economically expanise option is a road to nowhere.

Without this easy way to turn China’s industries inward, they could invest further afield. The debt-laden nature of the BRI however has led to political resistance abroad and enforced a more modest vision. Similarly, other countries in Europe and South Asia are more wary of Chinese state-owned enterprises on a buying spree than they were in 2010.

There is a contradictory nature to Beijing pouring resources into the South China Sea. As more work is done to solidify China’s presence on occupied features and integrate them as if they are on the mainland, more external actors are attracted to the area for nationalistic posturing.

Stagnation is therefore likely to happen, absent any titanic policy shifts. This is different from a full market crash, but represents no less dire a scenario for China’s economy – especially its defense spending.

China’s military budget has grown exponentially without fail for the past 10 years. The armed forces under the Central Military Commission – the People’s Liberation Army Ground Forces, Navy (PLAN), Air Force (PLAAF), Rocket Force (PLARF), Strategic Support Forces, and the People’s Armed Police (PAP) – have all planned and operated under the assumption of continued economic growth above 6% of GDP for the past decade. Now, the PLA are going to need to adjust their expectations and fight harder for funding, especially for capabilities that could be seen as redundant or extravagant.

Aside from the Ground Forces, the Air Force and Navy in particular have competed with each other for a slice of this growing pie. This is not even considering the substantial upkeep it will take to maintain what the PLAN and PLAAF already have.

But how does this change the operations of the China Coast Guard and related organizations in the South China Sea?

First of all, the thought of an economic crunch won’t dampen Beijing’s territorial ambitions at all. As of April, China has reaffirmed its claim to the entirety of the South China Sea on the basis of land features that do not qualify as islands and on the basis of ‘historic rights’ to the waters themselves. Neither of these are legally valid arguments, but have remained a mainstay of China’s stance throughout the Code of Conduct negotiations with ASEAN.

The CCG is already operating under a tighter budget than it used to – part of the reason it was put under the People’s Armed Police in the military reforms of 2017 was to get rid of the redundancy in maritime capabilities across armed services. CCG officers primarily come from the PAP, but how will the PAP’s focus on internal security threats change the allocation of personnel and funds to the CCG in the near-term? Likely in a meaningful way. But for now, it won’t qualitatively change the CCG’s behavior, mostly because the CCG fleet is already big enough to achieve its goals.

It would be tempting to assume China’s recent provocative activity near Vietnam, Malaysia, and the Philippines is a sign of a new, aggressive approach, asserting China’s claims when other claimants are distracted by COVID-19, or just as a way to mask China’s own insecurity during this time. But it’s really a sign of continuity, not change. The survey vessel operating within Malaysian waters now was at the infamous Vanguard Bank standoff with Vietnam last July. While reporting for Radio Free Asia, I’ve noted CCG ships are a daily presence at disputed features, refueling at China’s artificial islands between rounds of patrolling Scarborough Shoal or Union Banks. This predates COVID-19. Provocation is regular and predictable, and not a sign of China seizing the opportunity to spark paramilitary conflict.

What do qualify as new developments are more likely to go under the radar: China is strengthening its claim in the South China Sea through ostensibly civilian institutions like the Ministry of Transport, or through new deep-sea research centers run by the Chinese Academy of Sciences. The latter is indicative of China’s new imperative to find some material use for the South China Sea territory it so fiercely defends.

The expense of expansion

There has always been a caveat to all of China’s recent actions in the South China Sea – its creation of new islands and military bases, its building up of a warship-laden coastguard, and the training of a People’s Armed Forces Maritime Militia (PAFMM). The caveat is that these things are expensive.

Relative to other armed forces, manning and equipping the coastguard and militia members is a cheap endeavor. However, maintaining a city on Woody Island is not. Numerous bases China has built to support its militia and the CCG are now known to be degrading due to the tropical environment. Estimates for their upkeep are quite steep according to researchers from China’s National University of Defense Technology.

The blitz of dredging and base-building China undertook between 2014 and 2016 was incredibly brazen– but it could also be seen as another side-effect of China’s overcapacity in infrastructure and construction. Now that China’s largess is over, there will need to be a reassessment of the resources poured into the South China Sea, especially as China prioritizes expeditionary capabilities for contingencies elsewhere. The militarization of these bases is an attempt to squeeze as much utility out of them as possible in light of the costs and risks it took to make them.

The bases at Fiery Cross Reef and Woody Island are not solely for the CCG – they’re great for projecting the power of China’s massive navy and are home to a fierce interservice rivalry between the PLAAF and the growing PLAN naval aviation wing.

Thus, there are many incentives for China’s armed forces to exploit these bases, including as nationalistic overtures to the political elites that control their budgets. Now the Ministry of Transport is seemingly getting in on the competition to make use of them as well.

Auxiliary vessels operated by the MoT have been in the South China Sea for a while. But the MoT’s China Rescue Service is dispatching its ships more frequently, rotating them between occupied features, and has built a maritime rescue center on Woody Island and Subi Reef in 2018 and at Fiery Cross Reef in 2019. MoT search-and-rescue ships, like the Nan Hai Jian 115 or 117, are tasked with saving regular fishermen, militia and coastguard ships after they get stuck or even sick – an example of which happened this past month. On top of this, the MoT is quickly consolidating its various agencies in the South China Sea to better solidify its presence around occupied features.

We can also expect to see an enhanced ‘Sansha City Patrol’ presence around the new Xisha and Nansha Districts to handle maritime law enforcement, ironically because the China Coast Guard (CCG) is far too busy harassing other countries to engage in what actual coastguards typically do.

In short, Chinese state actors in the South China Sea are multiplying, and beginning to make the cauldron a little crowded.

Monetizing the South China Sea

There is a contradictory nature to pouring all these resources into the South China Sea. As more work is done to solidify China’s presence on occupied features and integrate them as if they are on the mainland, more actors are attracted to the area for nationalistic posturing and appeasing those who control the purse strings. But these are remote bases, especially in the case of Fiery Cross Reef. Turning them into modern Chinese cities requires ever-higher subsidies, and more money for institutions like the Ministry of Transport. Maritime law enforcement bodies will demand more ships to protect the growing population on the frontier. In other words, costs go up.

The reality after COVID-19 will make it so that these costs are going to weigh more on China’s ability to maintain its hold on the South China Sea. And so, there is a new impetus to find wealth in its waters. The seabed is the answer to that problem.

As China consolidates its control over the South China Sea, the resources of its seabed are going to prove valuable, primarily to justify the expense of keeping all other countries out. Civilian uses for the South China Sea also help China avoid the label of being interested in it solely for the military applications.

This explains the two new marine research stations set up at Fiery Cross and Subi Reef in March. There was already an Integrated Research Center on Mischief Reef from 2018, but that was apparently a trial run for the newly established Innovation Institute for Ecological and Environmental Engineering, an institute solely focused on strategic resources and economic development for China’s footholds in the South China Sea. The research center on Mischief Reef is ostensibly focused on environmental sustainability – a curious claim given the complete destruction of coral reefs it took to build China’s artificial islands – but the new research stations are more focused on deep sea minerals, energy, and ecology.

Too often, the South China Sea’s material value is reduced to potential oil fields – oil fields that lay mostly within territory China can’t operate freely in. China is at the forefront of deep sea research, though, and has found numerous opportunities to extract lucrative resources that few other countries and companies are even capable of finding.

One such resource is the mineral wealth clustered on the seabed. It isn’t a coincidence that the head of the International Seabed Authority believes China will be the first to commercially exploit seabed mining. Technologies of the future like electric car batteries and smart phones rely on rare, hard to find metals – metals like cobalt and manganese, which coincidentally are found in polymetallic nodes clustered on the seafloor. China has invested in the extraction of them from the South China Sea as far back as 2017. If China wants to continue its dominance over the rare metals new industries are depending on, the hydrothermal vents and seeps sitting at the bottom of the South China Sea are the next logical step.

On the subject of energy, oil is actually negligible compared to natural gas trapped in so-called ‘flammable ice.’ Supposedly, these reserves of methane hydrates sitting under the ocean floor are double that of other forms of natural gas combined. In the same month China established its research stations to focus on this potential source of energy independence, it set a new record for extracting them in a trial run.

But perhaps the most interesting subject of deep sea research is its ecology. Biological material from the ocean floor has a host of applications in medical research, and creatures found in deep sea environments may be useful for biomimicry - the inspiration for new types of experimental unmanned, underwater vehicle (UUV). Patenting anything derived from deep sea biological organisms will be extremely lucrative and give a permanent edge to China in these fields, and may have renewed urgency thanks to the biosecurity wake-up call of COVID-19. Furthermore, this is probably the field of deep sea research closest to being commercially viable at this time.

A new treasure fleet

The appetite for raw resources in China shouldn’t be underestimated – Premier Li Keqiang supposedly told a U.S. delegation in 2017 that other countries only existed to funnel raw resources back to China’s manufacturing base. But as economic depression sets in, desperation for new industries and resources will come with it. This is not solely about making money; China’s researchers find the deep sea to be useful for everything from sand to solving food insecurity.

This pursuit of self-sufficiency will come at the expense of other maritime states. Southeast Asia is already getting a taste of this as China, a country with only 7% of the world’s freshwater within its borders, hoards freshwater from the Mekong for itself in the middle of a drought.

How we should view the density of Chinese maritime agencies in the South China Sea is as a precursor to a new fleet of research and dredging vessels focused on the seabed for precisely these material reasons. Military applications and civilian exploitation will start to go hand-in-hand. A veritable ‘treasure fleet’ of survey vessels, seabed dredging ships, fishing trawlers, and deep sea submersibles will be deployed to justify China’s claim over the South China Sea to itself and help subsidize the cost of its expansion.

China will be at the forefront of the increasing human expansion into the ocean, which is alternately called the ‘Blue Acceleration’ or the Blue Economy. The COVID-19 pandemic will simply speed the process up. China may or may not be more aggressive in the military dimension – Southeast Asia will be hard-pressed to avoid political tumult after an economic shock that is projected to be worse than the Asian Financial Crisis of 1998, and China could take advantage of that to pressure its neighbors out of disputed waters. But that is missing the point; the South China Sea will enter a new phase focused on commercial exploitation and the retrenchment of China’s existing infrastructure.

There is no clear prescription for the region on how to deal with this. At the bare minimum, South China Sea claimant states will need to revitalize and tweak their legal arguments related to underwater cultural heritage, similarly to how China is now.

The Code of Conduct negotiations need to reflect China’s unilateral move to incorporate all of the South China Sea into local governance. If that means the talks are canceled or delayed further, then that is a shame, but ASEAN states could hash out a new Code of Conduct just between themselves that helps provide a unified front for the next round of negotiations with China. This is unlikely to happen, however.

The only other countries investing in deep sea resources with the same enthusiasm as China are India and Japan. The threat of China dominating the seabed could bring those outside countries into more joint exploration and research projects with Southeast Asian countries. But that would entail being in the same position as Rosneft or Repsol – outside oil companies harassed out of exploration deals with Vietnam by China’s coastguard and maritime militia. It is also assuming China does not get its way in its negotiations with ASEAN over banning international corporations and outside countries from resource exploration in the South China Sea.

Perhaps the best option is to seek a moratorium on deep sea energy and mineral extraction in the South China Sea entirely. One way to do this would be to convince another United Nations Security Council member – especially the United States – to exert more influence on the International Seabed Authority. However, the United States has not ratified UNCLOS, so its ability to affect the situation is moot. Alternatively, the potential environmental devastation from energy exploration and mineral extraction could galvanize a global campaign that would shame China from commercial activity.

Whatever individual states decide to do, their actions will inevitably have to happen in the middle of a regional, if not global, economic depression. In such case, China’s rapacious hunt for marine resources will be the last priority for Southeast Asian governments. The only hope is that China is affected enough that it, too, has to focus on other things like domestic stability and shrinking budgets for overseas contingencies.

However, China’s formation of the new ‘Xisha’ and ‘Nansha’ districts makes it clear the South China Sea is one of its top priorities even in crisis. Whether this is a venture that goes bust remains to be seen, but China certainly has had luck turning a profit on risky behavior in the past – just look at the artificial islands it has now.

DISCLAIMER: All views expressed are those of the writer and do not necessarily represent that of the 9DASHLINE.com platform.

Author biography

Drake Long covers the South China Sea and Southeast Asian maritime issues for Radio Free Asia (RFA). He is also a 2020 Young Professionals in Foreign Policy Asia-Pacific Fellow. Image credit: CC BY-NC 4.0/U.S. Navy/Flickr

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