The South China Sea dispute is a multiparty row. While run-ins between the Philippines and China grab much attention, incidents between other claimants, including fishing boat seizures and shootings, also occur. For the most part, claimants handle such episodes tactfully, recognizing that the maritime tiff is just one aspect of broader relations. The gains from growing economic interdependence far outweigh the risk of unintended conflict and lost largesse should the sea spat sully overall ties. This logic has long kept all parties in check. Unless the equation changes, this calculus will stay.
The South China Sea littoral states have been upgrading their maritime capacities, protesting and negotiating intensely, and growing their partners. But much of these was done without fanfare, and rightfully so. Vietnam, which occupies the most number of geologic features in the contested Spratlys, is doing major reclamation work, with a possible second airstrip in the offing. The country has one of the most extensive offshore petroleum blocks in the contested sea, and its fishermen are among the most active in choppy waters. Malaysia’s Kasawari gas field offshore Sarawak is expected to start commercial production this year, and its carbon capture storage project is set to be one of the world’s largest.
As long as coastal states get what they want, there is little incentive to sustain complaints. Untoward sea encounters will be treated as irritants that must be managed discreetly, so the bar to raise hell with Beijing will be high. Hence, Manila’s bold campaign to name and shame the sea’s biggest claimant and the region’s largest trade partner is striking.
Last year, the Philippines embarked on a transparency initiative to expose China’s illicit and gray zone activities in the contested sea. The media were inserted in patrol and resupply missions to broadcast Chinese disruption of routine Philippine sovereign activities in features and waters within its exclusive economic zone (EEZ). From Washington and Tokyo to Canberra and Berlin, President Ferdinand Marcos Jr. raised the South China Sea issue in order to canvas support for his country’s position. However, while his overtures get a sympathetic audience in the West, open support from fellow ASEAN members - its neighboring co-claimants - remains lackluster.
Marcos has demonstrated high investment into what happens in the South China Sea. China was the first country he visited last year, and Vietnam was his first stop this year. A ministerial-level direct communication mechanism to handle maritime issues was established with Beijing, and an agreement on incident prevention and management of the row was reached with Hanoi. However, relations with Beijing quickly plunged. Despite assertions of agency, the revitalization of Philippine-U.S. alliance ties in the context of growing U.S.-China enmity cannot be discounted. Manila’s decision to grant Washington expanded military access, including four sites in northern Luzon far from the South China Sea but just opposite Taiwan, upset ties with their big neighbor.
Beyond close calls in troubled waters, the worsening state of affairs has lamentably begun to affect economics. Beijing has not yet resorted to overt economic statecraft, but foregone infrastructure funding and diminished inbound tourism are already felt. Manila is now looking for alternative funders for three railway projects that were previously discussed with Beijing.
From the sunshine industry before the pandemic with the surge of Chinese visitors, Philippine tourism struggled to sustain the momentum. From a record 1.7 million Chinese tourists that visited the country in 2019, the number dropped to 260,000 last year. In contrast, in 2023, Vietnam received 1.7 million, Malaysia got 1.4 million, Indonesia 700,000, and fellow U.S. ally Thailand welcomed 3.5 million. While Malaysia, Singapore, and Thailand gave visa-free entry to Chinese travelers and Indonesia is considering following suit, Chinese visitors to the Philippines face hurdles and stigma.
The Philippines is also being left out in the region’s transition to green mobility on the back of Chinese capital and technology. While the country labors to modernize its iconic public utility jeepneys, Vietnam already began to export its electric vehicles (EVs) to the U.S. in 2022. Marcos, in his visit to Hanoi early this year, met with officials from Vingroup, the conglomerate behind emerging EV maker Vinfast. Vingroup expressed interest in entering the Philippine EV and EV battery scene and would likely leverage its access to Chinese supply chains. Vinfast has a joint venture with Chinese company Gotion to produce EV batteries in Vietnam, with mass production slated for this year. Gotion also invested $150 million in VinFast. Vinfast also entered into a strategic cooperation with another Chinese firm, CATL, to insert intelligent chassis products in the company’s EV units.
China is also a major actor in Indonesia’s bid to build a complete EV ecosystem, from nickel ore processing and battery production to EV manufacturing. Last year, Indonesian state-owned miner Antam partnered with CATL, the world’s largest EV battery maker. This year, China’s BYD, the world’s largest EV carmaker, bared plans to build a $1.3 billion factory in Indonesia. Last year, Chinese EV maker Geely also teamed up with Malaysia’s Proton on a $10 billion hub to serve Southeast Asia’s burgeoning EV market. Absent in all of these is the Philippines. Toxic bilateral ties make the country unappetizing for Chinese enterprises looking for stability to facilitate big-ticket projects. Thus, while Manila’s neighbors jockey to position themselves as regional EV hubs riding on Chinese money and supply chains, Philippines may end up simply buying from them.
Chinese investment is massive and transformative. This would help explain why other South China Sea disputants take the long view and look at the bigger picture in their ties with Beijing. The Geely-Proton deal surpassed the combined business pledges Marcos bagged in his recent trips to Australia ($1.5 billion) and Germany ($4 billion), plus the $1 billion promised sum made during the visit by a U.S. trade and investment mission to Manila led by Commerce Secretary Gina Raimondo. It makes sense to diversify and position oneself to benefit from de-risking. However, forfeiting investment due to mismanagement of a longstanding row is neither practical nor principled. Manila may be betting big on the U.S., Japan, and Europe to offset lost opportunities from China. It is a high stakes game none of its neighbors are willing to play as they prefer to manage differences so they can engage all.
