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The Economics of South China Sea, Can India Pivot into a Global Superpower?

South China Sea Issue

The South China Sea, it’s a name which conjures a slew of complex territorial disputes that have been the reason behind conflict and tension in the region and across the Indo-Pacific has a long history that stretches from Japan’s occupation of the South China Sea Islands after World War II to present-day speculation that it could spark a global conflict.

The Contest

This begs the question of why it is the world’s most heavily contested stretch of sea. In any case, according to United Nations Conference on Trade and Development (UNCTAD), maritime transport accounts from roughly 80% of global trade volume and 70% of global trade value. Sixty percent of that tonnage is transported by water, with the South-China Sea carrying an estimated one-thirds of global trade. With all of this, it is believed to move of $3.37 Trillion in trade each year, making this length the second busiest sea-lane. Not only that, but the region possesses proven oil reserves of approximately 7.7 billion barrels, with an estimated total of 28 billion barrels.

The overall amount of natural gas reserves is expected to be roughly 266 trillion cubic feet. Because of all these economic benefits, the water corridors of the South China Sea are incredibly essential for China, Taiwan, Japan, and South Korea, Malaysia, The Philippines, Brunei, and others as they all rely on the Malacca Strat which connects the South China Sea and by extension the Pacific and Indian oceans. Additionally, the regional power which can project martial power in the area will have economic advantages as well, turning the area into a geopolitical pivot for dominating the Asia.

The Military Perspective

China lays ever larger claim to South China Sea - Asia Times

Because of how strategically important the sea is, an age old adage can be squarely applied to explain the situation at hand.

Great things come at a great price

Given the sort of political and economic advantages this stretch of ocean affords to its master, it is unsurprising that the region is a source of massive global strife. This brings us to the discussion concerning the military activities in the region. The United Nations Convention on the Law of the Sea which was formalised expanded marine resources claims in International Laws as enacted and signed in 1982. Six states have staked their claim to the disputed Paracel and Spratly Islands in the time for that reason.

Since then, governments wanting to secure expanded marine resource zones have been gradually militarising the oceans. Vietnam, for instance, resumed regaining territory around 48 tiny islands it had controlled since the 1970s in 2009. This resulted in China undertaking far greater reclamation projects on submerged features that it had occupied since the 1980s. By 2016 however, these reclamations have yielded three military-grade, mid-ocean airfields, causing global outrage, owing in part to China’s own promise to not militarise the islands.

The Claims

Territorial disputes in the South China Sea - Wikipedia

When it comes to the ever-important topic of claims, the most powerful player in this 3.6 million sqkm sea, People’s Republic of China or PRC asserts that its rights are based on both the Law of the Sea Convention and the so called “nine-dash” line. This is a border stretching over 2,000 Km from China’s mainland, covering more than half of the sea. In a dispute initiated by the Philippines, an international tribunal in the The Hague ruled against part of China’s maritime claims in a landmark judgement in 2016. PRC has questioned the tribunal’s authority and its decision in the case. The tribunal determined that South China Sea is a “semi-enclosed sea” as defined by the Law of the Sae Convention, which is a body of water that is tightly or partially confined by land features.

The Great Wall of Sand

China Has Trademarked the Entire South China Sea — Radio Free Asia

The current assertion by PRC lies in transforming uninhabited islands into artificial islands since 2010 in order to comply with UNCLOS such as places like Haven Reef, Johnson South Reef, and Fiery Cross Reef. Apart from this, by altering the physical land characteristics of the reefs, PRC has been able to change their size and structure. It has also built airstrips on the islands of Paracel and Spratly Islands.

Chinese fishing fleets in the same breath, have been involved in state-sponsored paramilitary operations rather than commercial fishing. The US, understandably is strongly opposed to China’s construction of artificial islands, describing it as erecting a “great wall of sand.”

Such contradictory allegations have created fresh complications with US and Australia both rejecting substantial portions of China’s maritime claims in the South China Sea area as well as territorial claims by the state to underwater reefs. However, this now brings us to the point of concern. India’s place in the matter.

India’s Boat in South China Sea

INS Teg Reaches Seychelles: To Carry Out EEZ Surveillance and Represent India during National Day celebrations

So, let’s talk about India’s position on the South China Sea and how important it is for India. India says that it is not a party to the SCS issue and that India’s presence in the region is to protect its own economic interests, particularly for its energy security needs. However, China’s growing power to determine and expand its involvement in the SCS has prompted India to reconsider its foreign policy on the matter. As part of the Act East Policy, India has been internationalising issues in the Indo-Pacific area in order to counter China’s threatening actions in the region.

Additionally, India is leveraging its Buddhist heritage to strengthen ties with SE Asia. In the South China Sea, India too has deployed its Naval assets to guard Sea of Lines Communication (SLOC), denying PRC’s position to impose itself. India is also a lynchpin of the Indo-Pacifici storey and a member of the quad effort consisting of India, US, Japan, and Australia. PRC, however, sees these activities as a containment effort.

Apart from this, India is not a participant in the high stakes battle for control over the seas. However, it would scarcely be an unaffected observer if the power structure in the region changes dramatically. Nearly $200 Billion in Indian trade passes through the South China Sea, thousands of Indian citizen study, work, and are otherwise heavily invested in the Association of Southeast Asian Nations (ASEAN) countries, China, Japan, and the Republic of Korea, thus it is an area of strategic importance for India and if PRC gets unrivalled control over these waterways, it will upend a significant portion of the current commercial and geopolitical order.

Access to Southeast Asia’s key waterways, as well as the need to enhance capacity in ASEAN member nations, are crucial considerations for Indian policymakers. Both are essential components of New Delhi’s Indo-Pacific strategy. In order words, Delhi must figure out how to play its cards with tact so that it can use these contest seas to hold Beijing’s top brass accountable for their flagrant border violations and crimes against humanity for years to come.

About the author

Sayon Bhattacharya

A student, Quant Dev, Finance & Capital Market Enthusiast, and now a blogger on The Indian Wire living in the Financial Capital of India, Mumbai. Sayon is a multi faceted individual with limitless enthusiasm to enlighten the uninitiated in the realm of Finance and Business. He enjoys sharing his knowledge and understanding of current and core happenings in these domains with startling simplicity and ease of understanding. Stay tuned to know more about the latest happenings and be up to date with the market.

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