By seizing a serendipitous moment with the election of anti-American Rodrigo Duterte as President, China has carroted and sticked the Philippines out of the US orbit into a more neutral position between the two. But its greatly improved relations with the Philippines – – and indeed its momentum toward such with much of Southeast Asia – – may hinge on whether or not it reaches a petroleum joint development agreement with the Philippines.
China claims a large portion of the Philippines’ 200 nautical mile Exclusive Economic Zone including Reed Bank which is known to contain petroleum resources. China and the Philippines have been discussing joint development of oil and gas including in that area. If they reach agreement and its implementation is politically and economically successful, it could create a precedent for negotiations with China’s other rival claimants – – Brunei, Indonesia, Malaysia and Vietnam.
According to President Duterte, China’s President Xi Jinping told him “Set aside the arbitral ruling – set aside your claim _ _ if there is something, we will be gracious enough to give you 60%, only 40% will be theirs (Chinese companies).”
If Xi means that China will accept a 40% share in a commercial arrangement with a contractor for the Philippines government, this would satisfy the Philippines constitutional requirement of at least a 60:40 split in the Philippines favor. It would also imply Philippine sovereignty over the resource. This could be critical to the success or failure of the negotiations.
But the devil is in the details. The Philippines insists that China’s nine dash line historic claim to much of the South China Sea is illegal. It has been ruled as such by an international arbitration panel that heard the Philippines legal challenge to China’s claim. But China has long imbued its populace with the notion that the area has been a part of “the motherland” since ‘time immemorial’. It maintains that it — like Taiwan, Macau and Hong Kong– were taken from it by imperialists and their successors–and thus rightfully belong to China. Underscoring this revanchist position, Xi Jinping – – in his speech commemorating the 90th anniversary of the People’s Liberation Army– vowed that China “will never allow any people, organization or political party to split any part of Chinese territory out of the country at any time, in any form.”
Clearly explicit mutual recognition by either one that the other has a legitimate basis for its claim is nigh politically impossible. Even implicit recognition of such by either will be difficult. To finesse an agreement with the Philippines, China’s leadership would have to distinguish between its territorial claims to Spratly features – which are as strong or as weak as that of other claimants – – and its maritime jurisdictional claims—and then explain the difference in a manner acceptable to its public. In other words, it has to implicitly compromise on its historic nine-dash line claim to sea, seabed and resources within it—if that is indeed what it claims. The question is whether it is able and willing to do so.
If Xi means a 60/40 split only in areas outside China’s historic claim, then negotiations for joint development in the disputed area will not be successful and trust may collapse. But if joint development in the area disputed with the Philippines –at favorable terms to the Philippines –is politically and economically successful, it will create a precedent for other rival claimants to follow. Just the possibility of “progress” itself – with no major backsliding – – may be enough to keep ASEAN- China relations in the comfort zone.
But China may be on the verge of making a major mistake that would undermine its great gains in soft power in Southeast Asia. It has recently stepped up its kinetic pressure on several of its rival claimants in the South China Sea, including Vietnam, Malaysia, and –the Philippines. For the Philippines, this pressure includes continuing control of the Philippines claimed Scarborough Shoal, its massing of fishing boats near contested features occupied by the Philippines, and its attempts to block Philippines resupply of its soldiers based on Second Thomas Shoal.
If China goes too far, it could empower Duterte’s increasingly vocal opposition which wants him to change his friendly policy towards China. China’s actions are already embarrassing him and angering his administration. According to Philippines Secretary of Foreign Affairs Teodoro Locsin, “China is pretty close to exceeding” the limits that come with its ties with the Philippine government.”
If China’s aggressive demands and actions push Duterte into a domestic political corner, it could not only ‘lose’ the Philippines but also much of the political ground it has gained with the other claimants and Southeast Asia as a whole. China must play its cards carefully. If it does not, the main beneficiary will be its rival for regional dominance – – the U.S. In these circumstances, a joint development agreement with the Philippines would go a long way towards preventing a policy failure for China.