China and the South China Sea Resource Grab

By Michael Fabinyi

February 22, 2015

Maritime disputes in the region have more than just legal and military dimensions. 

Much recent political commentary has focused on the dispute between China and the Philippines in the South China Sea. There is widespread recognition that a key driver of the dispute is competition over the region’s natural resources. This has led prominent commentators such as Robert Kaplan to warn of the likelihood of “Finlandization.” Yet, despite ongoing legal arguments, China currently has access to important natural resources in the Philippines. While international actors debate the legal status of Chinese and Philippine claims, China is continuing to “change the facts on the ground” in terms of access to resources. It does this through conventional rhetorical pressure and military means in the South China Sea, and by other modes of access to resources, including favorable trade arrangements and poaching. While attention does obviously need to be paid to legal developments and conventional military pressure in the South China Sea, policymakers need to focus also on how contests over natural resources are currently unfolding in other contexts.

A conceptual focus on “access,” as opposed to the narrower view of “property,” is important in understanding these natural resource contests. In their seminal article on access, Jesse C. Ribot and Nancy Lee Peluso argue for a broader understanding of how people are able to obtain the benefits of resources. While formal and legitimate property rights are one mode of access, access in practice can include a far wider variety of mechanisms. These are not necessarily always perceived as legitimate, and can include social processes such as trade relations, social relations, and power.

Oil and gas are the most valuable natural resources in the South China Sea, and thus the most high-profile. But fisheries resources constitute an insufficiently recognized economic and symbolic element of the dispute between China and the Philippines. Fisheries resources in this region not only represent current economic value, but also see fishermen forming the “human front line” of the dispute between China and the Philippines. They are used as pawns by governments in their efforts to legitimize their claims: in the court of international public opinion, fishermen are easier to defend than naval boats. They form a fundamental part of what Robert Haddick influentially described as China’s “salami-slicing strategy,” which involves “the slow accumulation of small actions, none of which is a casus belli, but which add up over time to a major strategic change.”

The dispute between China and the Philippines has simmered for many years, but has become particularly intense since July 2012, when a Chinese naval frigate ran aground at Half-Moon Shoal. This shoal lies 60 nautical miles off the coast of Palawan province, the westernmost province of the Philippines that faces the South China Sea. In May 2014, eleven Chinese fishermen were apprehended at Half-Moon Shoal; nine of them were eventually sentenced with fines of $102,000 in November. In 2013, the Philippines submitted a case to the International Tribunal for the Law of the Sea (ITLOS). Through this action the Philippines has adopted a strategy of appealing to external actors and institutions (such as the U.S. and international law) in order to try and gain legitimacy for its claims of property.

China has been blunt and intimidatory in response. Instead of engaging in debate about the legitimacy of property claims, China has obtained de facto access to the fisheries resources of the Philippines. China employs three important mechanisms to achieve this access: the conventional assertion of sovereignty backed up by military threats in the South China Sea; trade; and poaching.

Sovereignty and Force

Throughout recent disputes with the Philippines, China has refused to engage in debate about the potential legitimacy of the claims. Instead, it has relied on repeated assertions of sovereignty within the area of the nine-dash-line. China labeled the apprehension of Chinese fishermen in Half-Moon Shoal in 2014 as a “provocative” and “premeditated” act that “severely violates China’s sovereignty and maritime rights.” China has refused to participate in the arbitration process launched by the Philippines, arguing in a December 2014 position paper that the goal of the process was simply to put political pressure on China.

China has built up its military capability in the region through a program of land reclamation on several reefs. Analysts Janes has called this “the most significant change to the South China Sea dispute since the 1988 Battle of Johnson South Reef.” According to satellite imagery, since August 2014 China has been reclaiming land at Fiery Cross Reef, large enough for a 3,000-metre airstrip. The reef had previously been underwater, and the only habitable structure had been a platform constructed by the Chinese PLA. According to Janes, “this facility appears purpose-built to coerce other claimants into relinquishing their claims and possessions, or at least provide China with a much stronger negotiating position if talks over the dispute were ever held.” China responded to this analysis with the assertion that the construction was for “search and rescue” and “intelligence gathering.”

The two recent incidents at Half-Moon Shoal, and debate over the legal details of the dispute, have drawn attention away from the broader context in which China is already obtaining access to many resources in the South China Sea and the Philippines. Trade in high-value fisheries resources is particularly prominent here.

High-Value Fisheries Trade

Trade patterns provide an important illustration of how China has obtained access to Philippine fisheries resources, but in a way that is unsustainable and unregulated and provides limited economic benefit to the Philippines.

Philippine exports of fisheries products to China and the Hong Kong SAR have grown rapidly over the past five years, from $49 million in 2009 to almost $129 million in 2013 – an average annual growth rate of 33 percent. However, in 2013 the Philippines imported only $60 million worth of fisheries products from China. The Philippines thus exports more than twice as much as it imports when measured by value. Hong Kong SAR alone accounted for around 16 percent of the value of total fish exported from the Philippines in 2011 (much of the high-value seafood imported into mainland China is trans-shipped via Hong Kong). While the quantity of fish by weight imported into the Philippines from China is significant, the Philippines exports far more high-value fish. Indeed, of all the countries of the Coral Triangle region, the Philippines has the largest difference between exports and imports when measured by value: exports have an average value of $3,000 per ton, while imports average less than $1,000 per ton.

This fisheries trade structure is exemplified by tropical reef fish, which are exported live to China. This live reef-fish trade is an important fishery in the region, worth approximately $1-2 billion. It has a notorious reputation because of its environmental and social impacts. The targeted species in the trade are long-lived, slow-growing species of fish at the top of the food chain that are particularly vulnerable to pressure of overfishing. Several species are now listed as threatened or endangered as a direct result of the trade. Cyanide is commonly used to catch the fish, which not only increases fishing pressure but also destroys corals. The trade is thus closely linked to the overfishing of tropical reef fish, and the widespread degradation of coral reefs in the Philippines.

Fisheries exports to China constitute an important economic activity for the Philippines, but the structures of the trade benefit Chinese traders far more than Philippine fishermen. The tropical reef-fish trade is largely financed by Hong Kong- or China-based traders, who invest capital all the way along the commodity chain to fishermen in remote islands. A recent value-chain analysis of leopard coral grouper from Palawan province by the Asian Development Bank suggested that because of the patterns of investment from Hong Kong-based traders, fishermen, and the Philippines as a whole only captured 20 percent of the value along the entire chain, and that prices were largely determined in Hong Kong and China. While the trade structures of high-value fish mean that fishermen obtain the smallest proportion of benefits from the fishery, they will bear the greater proportion of the long-term costs of the trade resulting from overfishing and environmental degradation.

Poaching

Governance of fisheries resources in the Philippines is weak, characterized by low capacity and high levels of corruption. This allows China (and other actors) to utilize an even more direct mode of access to fisheries resources: poaching.

Poaching in Philippine waters by Chinese fishing vessels is a common occurrence. Between March 1995 and May 2014 in the province of Palawan, 95 vessels were held, of which 42 were Chinese, and 1,164 people were detained, of whom 640 were Chinese. While poaching may be viewed as unimportant in terms of scale, it highlights Chinese access to exceptionally high-value and endangered species. For example, one high-profile case involving the Chinese vessel Hoi Wan in late 2006 involved more than 300 live Napoleon wrasse, a fish that sells for more than $600/kg in Beijing restaurants. This species of fish is endangered and declines rapidly wherever it is fished. Other common products poached are turtles, corals and shark fins, the trade in all of which is prohibited in the Philippines. Common poaching zones include important turtle breeding grounds and some of the richest coral reefs in the world. Indeed, most of the poaching occurs in waters that do not lie in the disputed zones of the South China Sea, but are well within the Philippines – such as the world-renowned diving destination Tubbataha Reef National Marine Park.

A weak judicial system in the Philippines and political pressure from the Chinese often thwarts successful prosecution of poachers. Environmental groups have long protested against pressure from the Chinese authorities in these cases, despite some recent successful high-profile prosecutions. Indeed, the vast number of poaching incidents in the waters around Palawan and the Philippines do not usually reach this stage, and go formally undocumented.

Weaknesses in Philippine governance thus effectively create the conditions for what economist Mancur Olson described as “roving bandits” to thrive. As marine scientist Fikret Berkes and others have influentially theorized, increasing demand for fisheries resources has resulted in resource exploitation patterns that overwhelm the capacity of local institutions to respond. Chinese fisheries trade patterns and poaching exemplify this process.

Trends

Natural resources are a major driver of the dispute between China and the Philippines in the South China Sea. Fisheries represent a particularly important resource, for both their economic and symbolic value.

International commentators are rightly paying much attention to the legal and military elements of the dispute over the South China Sea. But unfortunately this focus means that little attention has been paid to the full range of mechanisms used by China to access natural resources. China is increasing access to resources not only through the more conventional means of assertions of sovereignty, but also through unequal trading patterns and poaching. China’s mode of access to Philippine fisheries resources is unregulated and unsustainable. While legal and military confrontations may dominate the headlines, the broader context of natural resource contestation is more fundamental. A conceptual focus on access, as opposed to property, helps us to understand these trends.

In arguing for attention to be directed to China’s access to natural resources in the Philippines, it is important not to generalize. China’s relationship with the Philippines is far more negative than that with many other countries with whom it trades for natural resources. As a recent report by the Lowy Institute also highlights, generalizing about a generic “Chinese” strategy in the South China Sea is complicated by the diverse range of Chinese actors that operate here.

However, there are important indications that the trends in resource access outlined above will only intensify in coming years. First, the increasing openness of the Philippine economy to trade with China – supported by the China–ASEAN Free Trade Agreement that came into effect in 2010 – suggests that unequal trade arrangements will continue and broaden to other sectors. Governance in the Philippines remains weak, and is incapable of dealing with “roving bandits.” Second, while the focus here has been on how fisheries resources are targeted by China, oil and gas remain up for grabs, and in purely economic terms are far more valuable. Finally, and perhaps most significantly, as Elizabeth Economy notes in her recent Foreign Affairs article, President Xi Jinping has stoked nationalism in China. Because of the strong links between the Philippines and the U.S., nationalism directed against the Philippines and Filipinos is of a particularly intense nature. As the Chinese economy slows in coming years, nationalism will likely only grow as the regime seeks to displace public frustration to external sources.

All these factors suggest a need for attention to be directed not only to the legal and military aspects of disputes in the South China Sea, but also to the broader context in which China actually accesses natural resources.

Dr. Michael Fabinyi obtained his PhD at the Research School of Pacific and Asian Studies at the Australian National University (ANU) in 2009. He is currently employed as a Branco Weiss – Society in Science Fellow at the Australian Research Council Centre of Excellence for Coral Reef Studies, James Cook University. He has conducted more than eighteen months of ethnographic fieldwork in Philippine fishing villages, and since 2012 has been based in Beijing, undertaking research at Chinese seafood markets and restaurants.