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Asian Tribune is published by World Institute For Asian Studies|Powered by WIAS Vol. 12 No. 974

Sino-Vietnamese South China Sea war, Blood oil and American Interest

By Dee Woo

Dee_Woo_2.JPGNow much to China's dismay, the South China Sea dispute has become an open-house party: the US is invited by many to host the show, and even China's arch rival India will tag along. The biggest allure for the party is oil, 7.5 billion barrels of the liquid gold deposited in the region---well-exceeding 80 percent of the entire Saudi kingdoms' reserves, according to Chinese estimates.

 The regional mess proves Beijing's policy of "shelving disputes and developing jointly." is a total failure. In Territorial Disputes, sovereignty is a fiat currency solely backed by the economic and military might. Otherwise it's simply bluff. Diplomacy and Economic ties alone will never win China the South China Sea.

 To solve the territorial dispute, Sino-Vietnamese war seems inevitable. It's also the most cost-effective way for China to sort out the mess once and for all. The only thing that matters right now is the timing and how the US will factor in this event. We are going to look into the dynamics how this volcano is going to erupt:

 The fragile Vietnamese economy hugely depends on the South China Sea oil production, which accounts for 30% of its GDP. Vietnamese economy will collapse if it loses its oil assets in the region. Vietnam is in dire straits: The inflation is running rampant while the consumer price index rose 20.82 percent in June from a year ago, the fastest pace since November 2008; The bank system is teetering with bad loans amid tight monetary conditions and busting economic bubbles; the widening trade deficit has eroded the country's foreign-exchange reserves—estimated at $12.2 billion at the end of 2010, down 53% from the peak of $25.8 billion reached February 2008, which will deter foreign investment, worsen liquidity and increase systemic insolvency. All this will seriously aggravate social unrest and threaten the communist regime. Therefore, Stoking tension with China will be a good way for Hanoi to direct national grievance away from its domestic mismanagement and vindicate its legitimacy of rule with patriotism and even war. To Hanoi, the South China Sea is worth shedding blood for.

Now let's look at this from Washington's perspective: the diminishing American economic influence in Asia-pacific will force the US to sustain its engagement with the region in alternative capacities, for example, maintaining military power balance. China now serves as the hub for the region’s global supply chain, gobble up components, commodities and capital goods and is coming into its own as a vital pillar of support for the region's economies, particularly at a time Western demand is lagging. “According to ASEAN statistics, China's trade with ASEAN has jumped six-fold since 2000 to US$193 billion in 2009, surpassing that of the US China's share of Southeast Asia's total commerce has increased to 11.3 percent from 4 percent in that time, whereas the US's portion of trade with the bloc fell to 10.6 percent from 15 percent. During that time, ASEAN's trade deficit with China widened by five times to US$21.6 billion. The bloc reported a US$21.2 billion trade surplus with the US in 2009, down 12 percent from 2000.” China is also a very important source of investment and the largest source of foreign tourists in the region. Meanwhile, Asia today is the region with the highest increase in defense spending in the world, and that combined with China’s skirmishes over territory disputes with Japan, Vietnam and Philippine, etc. present the US Military–industrial complex with a grave challenge and perfect opportunity. The South China Sea dispute offers the US a golden opportunity to come back to Asia, talk about friendship, energy deals and arm sales.

 Now let's look into the stakes for Beijing: the energy-intensive nature of Chinese Economy will underwrite the assertiveness of China's south China sea stance and naval force buildup. “ China’s oil reserves have shrunk almost 40 percent since 2001 as the economy expanded 10.5 percent a year on average, according to data compiled by Bloomberg.” “Currently China depends on foreign imports for over fifty percent of the oil it consumes, and half of this imported oil is from the Middle East.” However, the Arab Spring and stand off between the US and Iran have intensified the volatility of the region to the extent that China must diversity its energy supply. China’s rapid economic development, expanding middle class population, motorization, and urbanization will aggravate its thirst for energy even further: IEA has predicted that China’s dependence on foreign energy will increase to over 60-70 percent of its total consumption in 2015. The fragile state of its energy security will leave China with few options but securing its oil supply more and more from the South China Sea. Failure to do so will not only threaten China's status as World Factory but also its future survival. Furthermore, any concession on the sovereignty will seriously undermine CCP's legitimacy of rule while it faces serious calls for democracy and freedom of speech. It is well known that China suffered a lot of humiliation, territory loss and slaughters in past wars with foreign countries. Nationalist sentiments are abundant for the government or the anti-government to tap into when necessary. CCP can't afford to lose such a powerful initiative when it can tip the balance of. power.

 All these variables will play out until we smell the blood and gun powder rippling across the South China sea.

The Conclusion

 Yes, It's true that Vietnam has tried really hard recently to make the South China Sea dispute an open-house party as crowded as possible. It's crying out loud for the US's interference, flirting with India against China and ganging up with the rest of ASEAN to beef up the offensive. Even so, no matter how fancily Hanoi plays the game, the deciding factor is still the substance of American support.

 To Washington, it is of course very important to contain China's burgeoning influence. However, it won't be in the US's strategic interest to include as many players as possible and exclude China from its coordinated alliance, because nobody knows for certain how far the US can come near Asia in 50 years, but it is certain that China will be a huge player in Asia for a thousand years. Without China's cooperation, the US will sooner rather than later lose its strategic relevance in Asia. Let's have no doubt about that.

 Moreover, Vietnam shouldn't expect too much of the US. Washington at best can act as a buffer, deterrent and arms dealer between waring parties. It won't directly engage China in the war in the foreseeable future, because the US dominates China with its superior naval and air force and the only way for China to level the playing field is to apply nuclear weapons. The nuclear nature of Sino-American warfare will make both the world no.1. and no.2 economy the fallen giants. The world can be effectively dominated by the Sino-American alliance if the two countries establish the mutual trust to cooperate. Nevertheless, if that window of opportunity passes in a war, the US and China will both be destroyed and at best become the also-runs just like Russian, Germany and France.

 Washington's most urgent task is to tackle the fiscal deficit, trade deficit and unemployment. As the US's biggest trading partner and financier, China will play the biggest role in American renaissance. As the world's biggest creditor for dollar liabilities, China will be pivotal to sustain the dollar's status as world reserve currency. The pillar of the US superpower lies on the dollar's world reserve currency status, because the operation cost of a superpower can't be sustained by fiscal policy, which is often comprised by partisan politics while most emergent. That's when you can count on the monetary relief of the fed. Without dollar's world currency status, such relief won't exist. In such a scenario, the importance of China is self-enforcing.

 So Vietnam will be left to its own devices in the war cause the US's priority lies somewhere else. It's good to see the last two outstanding communist regimes fight against each other. In the end whoever owns the South China Sea will need the superior expertise and technology of American oil companies. It's good to be America when there's no losing scenario.

 For China, it is very important to defeat Vietnam. It will serve as a wake-up call to Philippine among other contenders and remind them of the false hope for unrealistic American engagement. Furthermore, unlike Philippine, Vietnam shares land borders with China. So China's attack against Vietnam won't be restricted by sea. It also can utilize its superior land force to invade Vietnam. Chinese army has plenty of ground warfare experience against Vietnam in previous two wars. It can destroy Vietnamese infrastructures and facilities to sustain the war and economic growth, and bring about the regime change or a civil war in Vietnam. That's the only cost-effective objectives for the army but not the costly occupation. Leave the chaotic Vietnam to Vietnamese themselves. A dissolved Vietnam will need another 50 years to muster enough strength to strike China.

 Once the dust settles, China and the US can jointly exploit the rich oil and gas resources in the South China Sea. ExxonMobil, Chevron and Shell will be all over Spratly Islands.

 Citizen Economist and Citizen Diplomacy Activist

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 -         Asian Tribune -

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