The limits of soft power in the South China Sea

Forecast

• Southeast Asia's economic potential and efforts to improve trade integration will make regional states less reliant on Chinese investment, reducing Beijing’s influence.

• Regional states will become more open to outside security partners, namely the United States and Japan, and will try to exploit the competition between China and the West.

• The South China Sea will become more crowded and unstable, though trade will help limit the potential for conflict.

Analysis

A year and a half since China began rapidly building and militarizing artificial islands in the contested, resource-rich waters of the South China Sea, the states most threatened by Chinese expansion are looking for ways to push back more forcefully. But a series of summits in Southeast Asia this week will illustrate two key dynamics still playing to China's favor: the region’s reliance on Chinese investment and the divides inherent to Southeast Asia that will continue to prevent alliances from unifying against China. In Manila on Nov. 17-18, at the annual Asia-Pacific Economic Cooperation (APEC) forum, Beijing will promote its vision of a China-led order in which trade on its terms underpins stability and security in the Western Pacific. Later in the week, at the Association of Southeast Asian Nations (ASEAN) summit in Malaysia, the Southeast Asian bloc will once again fail to unify even rhetorically against China’s regional assertiveness.

Still, Southeast Asian countries are becoming more sensitive to the broader regional competition developing as China seeks to reshape the security status quo and the United States demonstrates its commitment to freedom of navigation in the waters. The summits will also take place in the context of Japan’s growing involvement with regional security affairs after more than 70 years of self-imposed passivity. Though Manila has promised Beijing that South China Sea tension will not be on the official APEC agenda, the maritime row will surely be the elephant in the room. A day before the summit, in fact, the White House announced $259 million in maritime security assistance for regional littoral states. As much as China would like to keep everyone focused on trade, it realizes that stakeholders will inevitably have other considerations on their minds.

China woos, stares down a divided Southeast Asia

Beijing's intent in the South China Sea is not to trigger conflict but rather to slowly change the regional landscape to expand its maritime buffer, secure its trade routes, and chip away at US naval dominance.

To prevent ASEAN states from banding together in response — or from embracing outside powers too heartily — China deploys a divide-and-conquer strategy to disrupt cohesion and atomize resistance. In practice, this often involves leveraging its economic heft and strategic investment capacity to keep Southeast Asia divided between claimant and non-claimant states, as well as exploiting the internal divides of claimant states. Beijing also eschews multilateral negotiations and seeks to undermine US dominance in established trade blocs while touting the benefits of a China-led order through its own initiatives. Beijing hopes the incentives it offers, along with the widening gulf between its force projection capabilities and those of even the most powerful Southeast Asian militaries, will compel regional states to accept Chinese regional dominance as inevitable.

Most members are wary of China’s island building. Yet, the 10-member bloc has long struggled to speak cohesively on the issue at its semiannual gatherings, much less to organize any sort of mechanism for punishing Chinese assertiveness. At the last ASEAN summit in May, the bloc issued its strongest statement of disapproval to date — with a milquetoast message that did not mention China by name (though it provoked a hearty denunciation from Beijing anyway). Three weeks ago, a summit of ASEAN defense ministers concluded without any joint statement at all.

While China’s economic rise brings with it a proliferation of capital across Southeast Asia and has created a voracious consumer market, and while regional states will in many ways gain by playing interested outside powers off each other, the benefits will be felt unevenly across the bloc. Meanwhile, the level of threat posed by China’s security posture varies widely. Some ASEAN powers, Thailand for example, have no overlapping territorial claims with China and have, in fact, numerous shared security interests, particularly regarding non-state threats in the Mekong River basin. These countries are not Chinese client states, and they will thus be receptive to US-led initiatives such as the Trans-Pacific Partnership and outside military assistance. No state can afford to exclusively rely on Chinese trade and investment, as has been made clear by the regionwide ripples of China’s economic slowdown. Still, regional powers have little reason to antagonize China with high-risk, low-reward summit statements.

Beijing can also exploit the needs and divides within South China Sea claimant states themselves, particularly the Philippines and in Vietnam. Both countries stand to suffer materially from a more assertive Chinese presence off their coasts, but both are highly constrained by common economic and political factors, as well as yawning military imbalances.

Vietnam’s overwhelming dependence on Chinese investment and trade means that powerful stakeholders in Hanoi will be wary of taking decisive action against China. In 2014, for example, China’s trade surplus with Vietnam approached $25 billion, and low-priced raw materials and machinery from China are critical to Vietnamese exports. During Chinese President Xi Jinping's first-ever visit to Hanoi on Nov. 5 — a visit that Beijing reportedly had threatened to cancel if Hanoi did not tamp down on its criticism of China’s island-building — the Chinese president pledged funding for a high-speed railway project, among other enticements. Vietnam has long been attempting to diversify its economy, and it stands to reap export windfalls from foreign trade agreements such as the TPP. But Vietnam cannot isolate itself from Chinese markets and suppliers.

Trade is comparatively less of a factor between China and the Philippines. Two years ago, the Philippines — known until recently as "the sick man of Asia" — received the second-lowest total Chinese investment among ASEAN members, and China was only its third-largest trading partner. But the Philippine economy has surged anyway, with foreign direct investment jumping around 66 percent in 2014 alone via a range of partners, most prominently the United States, Singapore and Japan. Its economic growth was the second fastest in Asia last year, and it is projected to average double-digit growth over the next four years. Earlier this year, Manila expelled Chinese experts helping develop the national power grid partly because of security concerns, demonstrating its willingness to sacrifice economic interests for security considerations. Nonetheless, the Philippines is more isolated from regional markets than other South China Sea claimants, and there remains a healthy appetite for Chinese investment.

As the Philippines enters the campaign season for its 2016 presidential election, the country's political divides give China additional room to cultivate influence. Current President Benigno Aquino III has generally taken a hard line on the maritime dispute. But Vice President Jejomar Binay, considered a leading contender to replace Aquino, has evidently found it politically advantageous to change course, pledging to place economic considerations at the center of the country’s China policy and even arguing that Manila and Beijing should jointly develop contested areas of the South China Sea.

The risk of a (very slow) backlash

As China’s island-construction efforts have come into focus over the past year, the limits of what has come to be known as China’s charm offensive have become more apparent. China’s economic heft and global investment reach mean that Southeast Asia will inevitably need it more than it needs Southeast Asia. Nonetheless, Beijing does need the region for investments that further its strategic goals, such as its "One Belt, One Road" initiative. Moreover, ASEAN as a bloc is drawing substantial investment from all corners, and in 2014 more capital flowed into Singapore, Indonesia, Malaysia, the Philippines, Thailand and Vietnam combined than into China itself. Intra-ASEAN investment reached nearly 18 percent of the bloc’s total foreign direct investment inflows in 2014, and the coming launch of the ASEAN Economic Community common market initiative in 2016 will further boost regional trade. Thus, regional states have some room to maneuver.

Though ASEAN itself may never serve as a vehicle for countering Chinese assertiveness, China’s regional posture is spurring member states to strengthen military ties with each other and with outside powers, namely the United States and Japan. Since the beginning of the year, several bilateral security ventures have been announced among various Southeast Asian states. These have primarily involved Vietnam and the Philippines, but also Malaysia, Indonesia (two states with more limited overlapping claims that Beijing works hard to keep on the sidelines) and Singapore. China is also compelling domestic naval and coast guard buildups, to varying degrees.

Vietnam’s buildup has been particularly pronounced. Its defense spending increased by nearly 60 percent between 2010 and 2014, and it has developed sophisticated maritime and missile capabilities. Washington partially lifted its 40-year ban on lethal arms sales to Vietnam in October 2014, and Communist Party General Secretary Nguyen Phu Trong made a historic visit to Washington earlier this year. But since the buildup still pales in comparison to China’s military modernization drive, the shift in Hanoi’s strategic outlook is more concerning to Beijing.

The Vietnamese political process prioritizes consensus in decision-making, and Hanoi’s senior leaders are split on China in a way that historically has hindered decisive action. However, the China National Offshore Oil Corp. oil rig standoff in 2014 and China’s land reclamation activities have unified the strategic outlook in Hanoi somewhat — as evidenced by Vietnam’s tentative but increasing outreach to Washington, as well as its eager participation in the TPP. A draft report released ahead

of the upcoming 12th Communist Party Congress focuses on economic integration with the West. A younger generation of generally pro-West leaders is set to take over following the party plenum, and the relatively pro-China Nguyen Phu Trong may soon be replaced by Prime Minister Nguyen Tan Dung, who took a hard line against China during the 2014 dispute.

This shift toward the West was illustrated during Xi's recent visit to Vietnam – the first such trip by a Chinese president in 10 years. At the same time that Xi was pledging peace to Vietnam's National Assembly, Hanoi was welcoming Japanese Defense Minister Gen Nakatani for discussions on a subsequently announced Japanese visit to the South China Sea naval base at Cam Ranh Bay next year. Notably, Vietnam has agreed to construct new port facilities ahead of the visit, heralding long-term cooperation between the two. Tokyo has also pledged to Hanoi hundreds of millions of dollars in investment and maritime assistance. Where South China Sea states have difficulty trusting commitments by the geographically distant United States, Japan's economic dependence on freedom of navigation through the waters makes it perceived as more likely to remain engaged.

The Philippines has likewise been receiving greater attention from Japan, negotiating toward a visiting forces agreement. At APEC, in fact, Tokyo and Manila are expected to nail down a framework deal allowing Japan to donate used military equipment to the Philippines – the first deal of its kind for Tokyo. Vietnam and the Philippines also signed a strategic partnership agreement on naval cooperation Nov. 17 ahead of the APEC summit. Most significant will be the Supreme Court decision on the Enhanced Defense Cooperation Agreement (EDCA), currently expected in December. If approved, the deal would expand access for US troops and equipment on a rotational basis, unlock US security assistance, kick off construction of new facilities, and institutionalize bilateral cooperation with the Philippines before the 2016 presidential elections in both countries complicate matters. Even without the deal, bilateral military cooperation has been inching forward; in April, the United States held its largest exercises with the Philippines in 15 years.

EDCA approval would not be a game-changer for the region, as the aforementioned political ambivalence in the country will still prevent a return to the level of US-Philippine cooperation that the United States enjoyed before it was expelled from the Subic Bay Naval Base in 1991. Memories of past US and Japanese occupations still linger, after all. Similarly, in Vietnam, Hanoi's doctrine of balancing outside powers against each other will – along with pressure from Russia, still Vietnam's foremost security patron – ultimately limit its embrace of Japan and the United States.

Trade considerations, too, will shape the regional landscape and give most stakeholders pause before escalating matters. This is an overriding goal of both APEC and the TPP: to reduce trade barriers and boost the rule of law as a means of underpinning regional security. But the historical status quo, in which Southeast Asian states preferred leaving competing claims largely unresolved in the interest of economic growth, is no longer viable. Going forward, with the South China Sea more crowded and militarized, regional leaders will face more tempestuous waters.