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China Takes, Others Settle

distant view of the USS Ronald Reagan on the South China Sea under a cloudy sky
The USS Ronald Reagan in the South China Sea.
Photo by Mass Communication Specialist 3rd Class Nathan Burke, courtesy the U.S. Navy.

The foundation of China’s sovereignty claims in the South China Sea, which boils down to “because we say so,” was rattled last week when the Permanent Court of Arbitration in The Hague found no legal basis for China’s position.

The international tribunal’s ruling, while not a surprise, is clearly an embarrassment for China. Now the question becomes what the likely practical effect of such a decision will be.

Although the tribunal’s ruling is inarguably a win for the Philippines, the Manila government that initially brought the case in 2013 has since been replaced by a new administration, headed by President Rodrigo Duterte. Duterte’s administration seemed more interested in trying to reset the country’s relationship with China, possibly including a negotiated settlement of the disputes over maritime shoals and fishing and mineral rights. But now that the international court has come down so firmly on the Philippine side of the dispute, Duterte may be constrained by his own country’s public opinion, which is strongly anti-China on this matter and which is not likely to favor compromise that gives Beijing more than it is entitled to get under international law.

Duterte’s softer approach may not be right as a matter of international law or domestic politics, but it is surely more practical in terms of raw power and practical benefit. China simply is not going to honor the international court, nor global diplomatic and public opinion. The Beijing regime has staked too much of its legitimacy on the expansion of China’s economic might and territorial writ. Even before the ruling was announced, President Xi Jinping made clear that China would not abide by the tribunal’s decision, since it did not recognize that it held jurisdiction in the matter. After the decision became public, China’s Foreign Ministry released a statement declaring the award “null and void” and with “no binding force.”

China’s reaction was expected, given China’s expanding claims in the South China Sea and increasingly forceful assertion of its perceived rights. The country’s so-called “nine-dash line” asserts Chinese sovereignty over more than 80 percent of the sea, sovereignty that China has exercised in ways ranging from constructing artificial islands to support its military to chasing Filipino fishermen away from areas in which they have historically worked.

The five-judge panel in The Hague found that the nine-dash line is invalid and that China had violated the U.N. Convention on the Law of the Sea through many of its actions in the area.

A possible resolution may eventually involve negotiation between China and the Philippines under the polite fiction that both parties are choosing to disregard the tribunal’s ruling. A bilateral agreement that amounts to Beijing throwing a small bone to Manila is one way to move past the issue.

Another potential result of the ruling, one that will not happen overnight, is for the world to begin acknowledging and acting on the truth that China’s policy is simply to take what wants, and certainly whatever it believes it needs: peacefully when possible, by theft or by force if necessary. Chinese leaders maintain their Communist Party’s hold on domestic power through these means. Beyond its borders, China operates in a similar fashion in areas as diverse as cyberespionage, patent infringement and exploitation of global fisheries.

This behavior will not change while China is governed under its current leadership structure. Chinese leaders have too many incentives to continue their aggressive approach to government and diplomacy. The open question becomes whether the world is ready to react to such behavior by forgoing access to China’s domestic markets, restricting its trade, limiting its role in global financial systems and fending off its extensive espionage to force China to rely primarily on its own intellectual capital.

So far, the world has been disinclined to confront the realities of how Beijing behaves. As recently as last fall, the International Monetary Fund caved to Chinese demands to make the yuan an official reserve currency. As I wrote at the time, Beijing’s opaque fiscal and monetary policies, restrictions on the flow of information and chronic interference in open markets should have ensured no reasonable person would include its currency in the elite IMF Special Drawing Rights. Yet last November, the IMF did just that.

China is and will remain a major force in the global economy and financial system, but this does not immunize it from consequences of its behavior – if the world ever decides to acknowledge and confront that behavior. But as long as the other big players keep looking the other way, China has no reason to change. It is useless to act as the U.S. State Department did, saying it “hopes and expects” China to abide by the tribunal’s ruling when the Chinese foreign minister told Secretary of State John Kerry outright that the case was a “farce.” Hopes and expectations do very little when they are not coupled with any sort of negative consequences.

By itself, the international court’s ruling on the South China Sea is unlikely to change the international community’s tendency to turn a blind eye to Beijing’s misbehavior. But there is a chance it may become one more marker on the route to a more realistic relationship with 21st century China.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us,” and Chapter 4, “The Family Business.” Larry was also among the authors of the firm’s book The High Achiever’s Guide To Wealth.

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One Response to "China Takes, Others Settle"

  • Wendell Minnick
    July 20, 2016 - 5:32 am

    Good piece. Well thought out and on the mark.

    Best regards,

    Wendell Minnick
    Asia Bureau Chief
    Defense News