Chinese officials showed confidence and satisfaction that the cooling tensions in the South China Sea demonstrated increasing regional deference to Beijing’s interests while China’s economic importance to Southeast Asia loomed larger in a period of anticipated international retrenchment. They remained alert to possible actions by the United States, Japan, Australia and South China Sea claimant states that might upset the recent positive trajectory, but generally saw those states preoccupied or otherwise unwilling to push back strongly against Chinese ambitions. The way seemed open for steady consolidation and control of holdings and claimed rights along with a Chinese supported code of conduct on maritime activity in the South China Sea, diplomatic initiatives to promote closer ties and reduce regional suspicion of Chinese intentions, and an array of economic blandishments in line with Beijing’s ambitious Silk Road programs.

South China Sea issues

In his press conference after the annual meeting of the National People’s Congress in March, Foreign Minister Wang Yi reflected the prevailing optimistic Chinese view of the situation in the South China Sea. Without referring to China’s defeat in the arbitral tribunal ruling against its South China Sea claims and accompanying military tensions featuring shows of force by the US and Chinese navies over the past year, Wang affirmed strongly that the South China Sea is cooling down in ways sought by China. He said that the China-ASEAN 2002 “Declaration on the Conduct of the Parties in the South China Sea” (DOC) is being implemented well, in contrast to past Chinese complaints of other disputants violating the DOC, especially the actions of the Philippines during President Benigno Aquino’s tenure (2010-2016). He highlighted “notable progress” being made in China-ASEAN meetings that will provide a framework for a long-sought code of conduct governing behavior over South China Sea disagreements. In response to a question about a US military buildup and possible conflict with China over the South China Sea, he judged that since China and ASEAN are “very satisfied” with cooling tensions and improving contacts, if the US or others attempt to “stir up trouble,” they will be “unpopular” and will meet regional resistance.

As reviewed in the US-China Relations section of this Comparative Connections, the Chinese Foreign Ministry spokesperson responded in carefully measured language to statements in January by Secretary of State-designate Rex Tillerson and White House spokesman Sean Spicer showing a more assertive US posture against China in the South China Sea. The Chinese spokesperson reacted positively to Defense Secretary James Mattis’ declaration in early February that the United States should pursue diplomacy in dealing with China in the South China Sea. The deployment of a US aircraft carrier task force to patrol in the South China Sea later in February elicited measured reaction from the Foreign Ministry spokesperson. Separately, a spokesperson for the Chinese People’s Political Consultative Conference, meeting in tandem with the National People’s Congress in early March, rebuked the US for its shows of force, advising that “though peace reigns over the land, the stupid people create trouble for themselves.” Subsequent developments showed little US action to upset Chinese depiction of a calming situation, with Foreign Minister Wang Yi giving only a one-sentence reference to the South China Sea in his briefing after the Trump-Xi  Mar-a-Lago summit on April 7.

Meanwhile, China consolidated holdings and advanced its claims in the South China Sea. The CSIS Asia Maritime Transparency Initiative (AMTI) disclosed in late March that Chinese construction of military infrastructure on disputed South China Sea islands had reached a point where Beijing can now deploy combat planes to bases on three of the newly created features. According to a background briefing by regional specialist Carlyle Thayer, with the recent rapid building of reinforced hangers and other infrastructure on each of the three artificial islands with airfields, these three installations can house 24 jet fighters plus four larger aircraft. China also has installed anti-aircraft guns and weapons systems to defend against cruise missiles on all seven of its artificial islands in the South China Sea. A Reuters report in late February quoted two US officials for the news that China has built on each of the three artificial islands with long runways a total of over 20 large concrete structures (33 feet high and 66 feet long) with retractable roofs that the officials judged would house long-range surface-to-air missiles.  CSIS AMTI followed, saying recent imagery supported the Reuters report. Against this background came a Kyoto report of an internal magazine article authored by officers of China’s Southern Fleet who judged that Chinese island building and defense preparation “intimidated” regional states and secured China’s central leadership role in the South China Sea. It warned that a military crisis could emerge but that military confrontation with the US was unlikely because it “lacks both the ability and will to engage in a military conflict or go to war with us.” Reinforcing such strategic confidence was the news that China’s first indigenous aircraft carrier – a 70,000-ton vessel featuring a ski-jump aircraft launch platform – was launched around the time of the anniversary of the founding of the Chinese Navy in late April.

China’s Ministry of Agriculture released a notice on Feb. 20 that this year’s fishing moratorium in the South China Sea and other Chinese claimed waters, which begins on May 1, will be “the strictest in history,” among other things restricting more types of fishing operations. At that time, the State Council announced that China plans to update its Maritime Traffic Safety Law in ways that were seen to challenge and restrict existing US practice in carrying out patrols and surveillance, including the use of submersible drones, in disputed South China Sea and other waters. At the National People’s Congress in March, the Supreme People’s Court announced a change in jurisdiction that extended the Chinese state’s broad regulatory powers beyond fisheries to include other illegal activities throughout most of the South China Sea and other Chinese-claimed waters and that explicitly authorized enforcement against foreigners carrying out illegal activities.

Diplomatic initiatives on South China Sea issues saw the Philippines’ acting Foreign Minister Enrique Manalo corroborate Wang Yi’s claim of progress in the China-ASEAN code of conduct discussions. Following a China-ASEAN meeting in Manila in early April, Manalo said identification of the contents of a framework for a code of conduct was more than halfway done and he anticipated that the framework document that will provide the basis for serious negotiation on the code of conduct would be completed in August.

Meanwhile, Chinese Vice Foreign Minister Liu Zhenmin used the venue of the annual Boao Forum on Asia in late March to call for a new regional cooperation mechanism among countries bordering the South China Sea. The mechanism would provide a platform for these countries to have exchanges on such subjects as disaster relief, maritime rescue, environmental protection, and navigation safety, and thereby strengthen cooperation and build trust. The new body would complement existing China-ASEAN and China bilateral arrangements on such matters, including the DOC of 2002. Foreign observers saw the Chinese move as being in line with plans laid out in a State Council white paper in January on the subject of Asia-Pacific security cooperation that was critical of the US-led alliances in Asia as it called for alternative mechanisms among Asian countries to enhance regional security.

Capitalizing on improving China-ASEAN relations and focusing on the importance of finalizing the code of conduct, the Philippines softened its tone in the ASEAN chairman’s statement issued at the end of the regional summit in late April. The statement dropped references to China’s land reclamation activities and militarization in the South China Sea that were originally included in an earlier unpublished draft of the statement. ASEAN diplomats reported that there were some efforts made by the Chinese government to pressure the Philippines to keep the South China Sea issue off the ASEAN agenda. The statement, however, called for the need to demonstrate “full respect for legal and diplomatic process” in resolving the dispute, a subtle reference to the Hague tribunal ruling and to the regional negotiations on the code of conduct. ASEAN diplomats noted that a mutual aspiration to complete the code of conduct framework this year was a major consideration behind the softened tone from both sides.

Economic overtures

A steady drum beat from government outlets promoting China’s economic beneficence to Southeast Asia in line with China’s 21^st Century Maritime Silk Road program meshed with concurrent laudatory publicity focused on China’s overland Silk Road Economic Belt program in the lead-up to the most important foreign event in China in 2017, the Belt and Road Forum for International Cooperation to be held May 14-15. The publicity underlined President Xi Jinping’s address to the World Economic Forum at Davos in February that placed China at the center of international efforts to support open economic growth and avoid protectionism seen in the US rejection of the Trans-Pacific Partnership (TPP) accord and other multilateral economic agreements, along with other retrenchment among developed countries. Vice Premier Zhang Gaoli’s keynote address to the Boao Forum in late March highlighted the importance of Asian cooperation in sustaining globalization of benefit to the region. China’s publicity put great emphasis on growing Chinese investment along the Silk Road routes, citing such big ticket investment projects as the $5.8 billion China-Laos Railway construction project and the China-Thailand railroad project said to start later this year.

The combination of China’s growing economic importance to Southeast Asian countries and its demonstrated power in the South China Sea was widely viewed in the region and by the Economist and other Western media as leading the governments in the Philippines, Cambodia, and Malaysia to cut back ties with the US and give priority to developing mutual interests with China. Nevertheless, China’s use of economic largess to gain influence in Southeast Asia continues to run up against various obstacles.

One such obstacle is the overall drop in Chinese foreign trade in recent years that has negatively impacted Southeast Asian partners, especially those linked to production chains with China. According to China Daily reporting on the Boao Forum in late March, China, Japan, South Korea, and India have all decreased their trade dependency on Asia in this period of declining overall trade.

China’s focus on the US rejection of the TPP has been married with endorsement of the Chinese-backed Regional Comprehensive Economic Partnership (RCEP), which includes all the ASEAN states but excludes the United States. Despite repeated Chinese avowals in recent years that the RCEP deal will be reached soon, the negotiations are bogged down, among other things, over competition between China on one side and Japan and Australia on the other. The chief negotiator told the media in late March that only 10 percent of the agreement’s text had been completed and that his best estimate of an overall agreement was “sometime next year.”

Seemingly to compensate for declining trade, Chinese publicity highlighted the importance of Chinese investment, including the Laos and Thailand railroad projects noted above. Other reporting showed major obstacles greatly slowing the actual implementation of those two projects. Chinese publicity on the growth of outward bound investment usually does not highlight the low amount of investment going to poorer countries and the disproportionate amount going to the US and other developed countries. Nor does it flag the fact that a large number of announced deals fail to be implemented.

The Lowy Institute explained China’s low investment in poorer countries by noting that two-thirds of the countries along the Chinese silk roads have a sovereign credit rating below investment grade and that Chinese financiers have been hurt by badly performing investments during China’s investment drive 10 years ago. They fear similar negative outcomes coming from a strong political push to make the Silk Road projects seem successful. Similarly, impediments to the Thai railway project emerged when Chinese financers would not offer the same financial concessions that were offered in China’s earlier and assumed money-losing deal to build a modern railway in Indonesia.

Another obvious obstacle to the advancement and spread of Chinese economic influence is the distrust of Chinese motives, notably as a result of its intimidation and forceful posture on South China Sea disputes. South China Sea expert Wu Shicun told the Chinese language Huanqui Shipao on April 5 that strategic distrust of China “plagues” Southeast Asian countries and makes them wary of Silk Road initiatives.  He referred to the new Chinese proposal noted above to build a cooperative mechanism among China and the South China Sea bordering countries as a step to reduce deeply rooted strategic distrust. He judged that as the Silk Road projects are proposed and completed, trust in China on the part of Southeast Asian countries will grow.

Philippines-China relations

Consistent with Chinese officials’ overall positive outlook regarding Southeast Asia, Wu Shicun, an early participant in Chinese negotiations with the government of President Rodrigo Duterte, also offered a decidedly positive assessment of the status and outlook for Philippines-Chinese relations under Duterte. Wu advised that the turnabout in China-Philippines relations under Duterte was very important in cooling and stabilizing the South China Sea issues along lines favored by China. Moreover, the massive pledges made during Duterte’s visit to Beijing in October have been followed by more discussion and capped by Vice Premier Wang Yang’s visit to Manila in March and the signing of a six-year Development Program for Economic and Trade Cooperation now being implemented by the two governments. Trade and tourism have increased; China has committed to finance at least three infrastructure projects in the Philippines worth $3.4 billion, two of which could be launched in 2017, according to Chinese media. Meanwhile, Duterte has pledged to participate in China’s Belt Road Summit in May, the two coast guards have established a commission on cooperation, and the two foreign ministries will begin talks on South China Sea matters in May.

Nevertheless, there were also episodes of angst and friction, reflecting uncertainty about the durability of the new Philippines alignment with China. After CSIS AMTI reports in January of China’s installing anti-aircraft and anti-missile weapons on its artificial islands in the South China Sea, Foreign Secretary Perfecto Yasay told the media that Manila made a low-key diplomatic protest while Defense Secretary Delfin Lorenzana issued a stronger statement calling the Chinese actions “very troubling.”

The issue of China installing weapons and militarizing disputed territories rose again when Foreign Secretary Yasay told the media following a retreat of ASEAN foreign ministers in the Philippines on Feb. 21 that the ASEAN countries were unanimous in noting concern over China’s actions. China’s Foreign Ministry spokesperson responded sharply, asserting that these were Yasay’s personal opinions and not the official opinion of the ASEAN ministers, and indicating that China viewed the foreign secretary’s behavior as not in line with the approach to China of President Duterte.  China’s disapproval also seemed to be registered when the commerce minister abruptly postponed a scheduled visit to Manila for talks on China-Philippines economic cooperation. Yasay did tell the media on Feb. 23 that China had reassured the Philippines that it had no plans to convert Scarborough Shoal into an artificial island with facilities like the other Chinese land features in the disputed South China Sea. Yasay was forced to resign on March 8 on an unrelated matter involving perceived lying to authorities about his past US citizenship.

Territorial tensions arose in two areas in March and April.  One involved perceived Chinese surveying to the east of the Philippines along a feature known as Benham Rise, a vast area that has been accepted by the United Nations as part of the Philippines continental shelf. Defense Secretary Lorenzana told the media on March 9 that he had received satellite imagery supplied by allies showing Chinese vessels carrying out what he believed were survey missions. Lorenzana complained that the Chinese embassy did not respond to repeated requests for clarification about Chinese activities relevant to Philippine claims. On March 24, the Philippines disclosed that it had sent a warship to Benham Rise to safeguard Philippines territorial claims. China’s eventual reaction to the controversy was conciliatory in a Foreign Ministry spokesperson statement on March 23 that took pains to highlight positive China-Philippines relations and to make assurances that China had no designs on Benham Rise. Philippine concern focused on possible Chinese claims to the resources of the area, but foreign analysts judged that the Chinese ships were surveying water depths to prepare submarine routes to the Pacific.

The second area of tension followed reports in official Chinese provincial media that the top official in the administrative unit that governs Chinese territories in the South China Sea said that building an environmental monitoring station on Scarborough Shoal was among the government’s top priorities. President Duterte said in response that there was little the Philippines could do to stop Chinese construction. China’s Foreign Ministry spokesperson tried to calm the situation saying flatly there was no plan for such a station on Scarborough Shoal.

President Duterte’s caused controversy over territorial issues when on April 6 he publicly ordered troops to occupy Philippine-claimed islands in the South China Sea and declared that he might visit one of the locations on Philippines Independence Day (June 12) to participate in a Philippine flag raising ceremony.  China’s Foreign Ministry spokesperson voiced “concern.”  The defense secretary and other officials tried to play down the president’s remarks and assure China of positive intentions. They said that the Philippines’ effort would involve upgrading existing facilities on features already occupied by the Philippines. Duterte reassured China in remarks on April 11 and China’s Foreign Ministry spokesperson said there was “close and effective communication” between the two sides.

In late April bilateral relations were put to the test when the Philippine Defense Secretary Delfin Lorenzana and the military chief of staff Gen. Eduardo Ano made a high-profile visit to Thitu Island in the Spratlys. Chinese outposts on nearby Subi Reef warned the incoming Philippine aircraft carrying Lorenzana and Ano not to enter the peripheral airspace but the Philippine pilots continued their flight path uninterrupted. Beijing lodged protests over the visit. The Philippine government indicated that it plans to reinforce and lengthen the air strip on the island and build a dock to accommodate ships with construction materials.

Vietnam-China relations

The highlight of China-Vietnam relations in early 2017 was a four-day visit by General Secretary of the Communist Party of Vietnam Central Committee Nguyen Phu Trong to Beijing in mid-January that focused on security and economic priorities. Trong met Chinese counterpart Xi Jinping and issued a joint communiqué that included “a candid exchange of views” on bilateral relations. The two leaders pledged to manage their differences on maritime security, work toward the early conclusion of a code of conduct in the strategic waterway, and focus on joint development projects in the South China Sea. The communiqué also called for further deepening of a bilateral strategic partnership with more frequent exchanges, official visits, and cooperation on law enforcement activities. In addition, Vice Chair of China’s Central Military Commission Fan Changlong met visiting Vietnamese Defense Minister Ngo Xuan Lich. The two military leaders agreed to expand pragmatic cooperation through more high-level military-to-military contacts and exchanges, personnel training, and joint border patrol and control. Premier Li Keqiang also met Trong, and the two sides agreed to expand bilateral trade and regional economic integration through the China-ASEAN trade agreements, the Lancang-Mekong Cooperation Mechanism, China’s “Belt and Road Initiative,” and Vietnam’s “Two Corridors and One Economic Circle” plan.

Myanmar-China relations

Border stability and deepening economic relations between China and Myanmar remained high priorities for the two countries. In February, Chinese Vice Foreign Minister Liu Zhenmin and the Deputy Chief of the Joint Staff Department of the Central Military Commission Shao Yuanming co-chaired a round of diplomatic and defense consultations in Kunming with counterparts from the Myanmar government. Beijing has been calling on both the Myanmar military and the ethnic armed groups in Myanmar’s Shan State to exercise restraint and agree on a ceasefire. Shortly after the meeting concluded, armed clashes ensued in early March 2017 in the Kokang region in Shan State. A Chinese national and teacher living and working in Kokang was killed as exchanges escalated between the Myanmar military and the Myanmar National Democratic Alliance Army, an ethnic armed group operating in the region. China’s Ministry of Foreign Affairs condemned the attacks and issued renewed calls for restraint and an immediate ceasefire to restore stability along the China-Myanmar border, adding that China had settled and offered humanitarian assistance to over 20,000 border-area residents, many of whom are Myanmar nationals with Chinese ethnicity, who fled Myanmar seeking shelter.

Continued concerns over border instability were balanced with China’s attempt to consolidate and deepen its economic partnership with Myanmar. The border issue was part of the discussion during Myanmar President Htin Kyaw’s week-long state visit to China in early April 2017. In a joint communiqué, China indicated its support for Myanmar’s national reconciliation efforts, and that it would play a constructive role in working with Nay Pyi Taw to ensure domestic peace and stability in Myanmar. The Chinese government, however, has been cautious about interfering in Myanmar’s internal affairs. While Beijing supports Myanmar’s reconciliation efforts and the ongoing ceasefire negotiations with ethnic armed groups, it withheld support for a UN resolution calling for the Human Rights Council to investigate the human rights situation, specifically in western Myanmar’s Rakhine State. Instead, it supported Myanmar and said that more focus should be placed on the country’s democratic transition and the progress it has made in national reconciliation.

The statement was welcomed by the Myanmar government, with China keen to strengthen economic ties with Myanmar. During the state visit, Xi Jinping and Htin Kyaw agreed to start operation of a major oil pipeline that will transport crude oil from the Bay of Bengal through Myanmar to China’s Yunnan Province. The $1.5 billion pipeline project will carry up to 22 million tons of oil per year, roughly 6 percent of China’s total oil imports in 2016, and will provide a more direct route than using tankers via the Strait of Malacca and the South China Sea. The pipeline’s operation is an important part of Xi’s “Belt and Road” initiative, connecting its southern provinces to Southeast and South Asia and beyond. An extensive report in the New York Times in early April indicated that China is keen to activate and reap the benefits of other large scale economic and infrastructure projects in Myanmar, some of which have been stalled during the democratic transition period in Myanmar. The $3.6 billion Myitsone Dam, for instance, is still pending. The dam project was met with stiff resistance from local communities and the Thein Sein government halted the project. The Myanmar government subsequently commissioned a feasibility study of the dam project and could provide Nay Pyi Taw the political cover to cancel the project or increase its leverage to secure more favorable and sustainable infrastructure investments from China.