SOUTH CHINA SEA TURMOIL \'Cold War\' heats-up as Obama declares to assert against China

By: SYYED MANSOOR AGHA

In the light of US President Barack Obama's bid to assert against China, SYYED MANSOOR AGHA observes that China's present attitude towards its small neighbors is bound to give excuse to external forces to meddle in the region.

President Barack Obama has set a course for confrontation with Beijing when he declared his intentions to send military aircraft and up to 2,500 Marines to "protect American interests" and to expand U.S. influence in the Asia-Pacific region. He declared in the Australian Parliament in Canberra on Thursday (Nov 17), "The United States is a Pacific power, and we are here to stay," and "to deter threats to peace" in that part of the world.

Obama's declaration surprised many as the U.S. is facing economic slowdown forced to wind up its war in Afghanistan and Iraq. In an unmistakable message to China he said, "Let there be no doubt: In the Asia Pacific in the 21st century, the United States of America is all in."

Certainly, China has invited U.S. ire by threatening its small neighboring countries. China even threatened Indian navy ships in South China International waters.

For Obama, Asia represents both a security challenge and an economic opportunity. The region is a conduit for more than one-third of the world's seaborne trade and half its traffic in oil and gas, and major petroleum deposits are believed to lie below the seabed. The West Philippines Sea (South China Sea) region also matters importance because here the competing interests of the US and China overlap in Asia.

China reacted sharply to the U.S. assertion as Premier Wen Jiabao on Nov 18, warned against interference by "external forces" in the region. Beijing sees the initiatives as intruding into its own sphere of influence. "The dispute on the South China Sea is a matter that has been going on for years. It should be resolved by the relevant sovereign states through friendly consultation and discussion directly," Wen said in his address in ASEAN summit.

"External forces should not use any excuses to interfere," he added. "China will never seek hegemony and we are against any hegemonic behavior."

 THE DISPUTE

Real cause of fissures in the region is China's claim over the strategic sea extending for more than 1,000km (621 miles) off its southern coast and reaching into what Vietnam, the Philippines, Malaysia and Brunei see as their own waters. Beijing says it does want a peaceful solution but continues hard postures. Vietnam and the Philippines say Chinese ships have stepped up harassment of vessels involved in oil exploration and fishing.

China's increasingly assertive behavior over its claimed huge U-shaped maritime area has alarmed its neighbors. They are keen to negotiate with China as a bloc – but China prefers to tackle the issue through bilateral negotiations, and it does not want the US involved at all.

 ON INDIAN INTERESTS

The dispute has also bearing on Indian interest as most of their trades to American Continents are routed through this sea. Beijing also raised objections over oil exploration in two Vietnamese blocks by India's ONGC Videsh Ltd (OVL). These blocks are well in maritime limits of Vietnam. In another incident, an Indian Navy warship was also warned by an unknown source over radio transmission set to move out of the West Philippines Sea (South China Sea).

Recently speaking in a seminar in New Delhi, Navy chief of India Admiral Nirmal Verma mentioned, "We are seeing edginess in relations between countries of this region. The potential for conflict in West Philippines Sea (South China Sea) and instability in Korean Peninsula have heightened awareness of analysts to region's shortcomings in terms of institutional arrangements to resolve potential crises. The South China Sea is an area of significant concern."

"Developments in the West Philippines Sea (South China Sea) and the outcomes will have major implications not only for countries in the region but for the world at large, as many nations have considerable economic interests in the region," he said.

 WHAT IRKED AMERICA

Immediate cause of U.S. reflex is obviously rooted in Chinese warning to an American oil company ExxonMobil. The company discovered hydrocarbons in August in a well drilled off the coast of central Vietnam under a license from the Vietnamese government to explore offshore blocks 117, 118 and 119; an area within Vietnam's 200-mile exclusive economic zone under international maritime law.

"Any foreign company shall not engage in oil and gas activities in waters under Chinese jurisdiction. This position is clear and consistent," Chinese foreign ministry spokesman Hong Lei warned on Oct 31.

It is estimated that the South China Sea may hold 213 billion barrels of oil (80 per cent of Saudi Arabia's reserves) and 2 quadrillion cubic feet of natural gas. That's more than five times the 350.8 trillion cubic feet of gas held in North America as cited in 2008 by the U.S. Energy Information Agency. China, the world's second-largest economy, claims "indisputable sovereignty" over most of the these reserves, including blocks off Vietnam that Exxon Mobil Corp. and Russia's Gazprom OAO and ONGC of India are exploring. How can America let this black gold go inclusively in the hands of its biggest rival?

INDIAN STAND

Prime Minister Manmohan Singh discussed the issue with Chinese Premier Wen Jiabao on Friday (Nov 18), on the sidelines of the ASEAN Summit in Bali and asserted India's right to explore oil in the South China Sea, which China claims as its exclusive domain. "This matter [South China Sea] did come up in the context of East Asia Summit (EAS) and the PM observed that the issues of sovereignty must be resolved according to international law and practice. And he also mentioned that exploration of oil and gas in South China Sea is purely a commercial activity," Ministry of External Affairs (MEA) spokespersons told reporters.

During their 55 minutes long meeting, Premier Wen Jiabao said he valued the role India displayed in EAS, the MEA said. Wen reportedly said, "India and China must work hand-in-hand to ensure that the 21st century belongs to Asia (and not to Europe and U.S.A.)." Singh told Wen that the two must work together and cooperate with each other as the two biggest economies of Asia.

In the backdrop of heightened tensions by Obama's assertion, India and China maintained that there was enough space for both to flourish. During their exchange of views on important issues, Wen reminded Dr. Singh of his comment that there was enough space for the two countries to grow. To that he added that there "were enough areas in the world where China and India can enhance cooperation".

"It is important for our two countries, the most populous in the world, to achieve modernization and work hand in hand," the Chinese leader said, adding that he was "fully confident that that kind of world will arrive."

It seems that India has resolved the issue with China during the meeting as in New Delhi, it was officially stated that ONGC Videsh Ltd. will continue its activity in the region.

INDIA'S LOOK EAST POLICY

After neglecting the East Asia region for a long time, India has now awakened and started pursuing it "Look East" Policy vigorously. Prime Minister Singh's presence in Bali summit underlines rediscovered importance of the region. U.S. intervention is detrimental for both emerging economic powers of Asia – India and China. That is why both have agreed to work together in the region.

Before this Summit, "India hosted the leaders of Myanmar and Vietnam in early October, underscoring the seriousness with which it is pursuing its Look East policy as it forges close economic and security ties with the two to counter China's penetration. India's policy was explicitly designed to initiate New Delhi's re-engagement with East Asia. This is a time of great turmoil in the Asian strategic landscape and India is trying to make itself relevant to the region's members, observed The Japan Times in a detailed commentary.

"With its political and economic rise, Beijing has started dictating to its neighbors creating tensions. The U S and its allies are re-assessing their regional strategies to counterbalance China's growing power. It is in this broader context that the recent visits by Myanmar and Vietnam's presidents to India assume significance," the Japan Times further said.

RESOLUTION OF DISPUTE

Leaders of Communist Parties of Vietnam and China are engaged in solving this dispute. Two countries also signed a six-point agreement on basic principles to settle maritime issues last month after bilateral talks in Beijing. However, "China is becoming much more confident in the region and there are signs it is becoming giddy with success. It has become much more influential, much more quickly than it expected," says Dr Kerry Brown of the Asia Program at Chatham House in London.

Vietnam and the Philippines in recent months have seen the snarl of a resurgent regional power that is fast losing patience with the gripes of smaller neighbors over maritime borders.

"If these countries do not want to change their ways with China, they will need to prepare for the sound of cannons. It may be the only way for the dispute in the sea to be resolved," said the state run newspaper, the Global Times, in a recent editorial.

"The growth of Chinese military spending is beginning to translate it into hard power," says John Hemmings, an analyst at the Royal United Services Institute.

Only magnanimity will help China to infuse confidence in small neighboring countries. Its present attitude is bound to give excuse to external forces to meddle in the region.

[The writer is Gen.Sec, Forum for Civil Rights, email: syyedagha@hotmail.com]

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South Korea Beefs Up Steps to Fight Chinese Illegal Fishing in the Sea

South Korea on Monday (December 26, 2011) said it will bolster efforts to counter illegal Chinese fishing in its waters, including issuing more firearms to coast guard officers and raising penalties against offenders.

The move comes after a South Korean coast guard officer died when he was stabbed by a Chinese fishing-boat captain earlier this month.

Seoul has been under domestic pressure to make a robust response to the incident, which came amid a rise in fishing by Chinese boats in South Korean territorial waters this year. Chinese fishing crews, seeking richer catches outside their regular fishing grounds, have become a flash point in broader territorial tensions involving China and its neighbors.

As well as clashing with countries such as Indonesia, the Philippines, Taiwan and Vietnam over sovereignty in the West Philippines Sea (South China Sea) in resource-related disputes, China was drawn into a diplomatic spat with Japan when a Chinese fishing boat and a Japanese coast-guard vessel collided in the East China Sea last year.

The Korean government says between 2,000 and 3,000 Chinese fishing boats operate illegally in Korean territory each day during peak season. Between January and November this year, 497 ships were caught, compared with 370 last year. A spokesman for China's Foreign Ministry said he couldn't immediately comment late Monday.

Korean coast guard officers cite increasingly aggressive behavior by Chinese fishermen trying to avoid arrest. Officers boarding Chinese ships have been attacked with metal pipes and knives, according to the coast guard, while Chinese boats have also been spotted banding together to thwart local authorities. In the past 10 years, 53 Korean officers have been injured while seizing Chinese ships. One officer was killed in 2008.

In its latest response, South Korea said it will start placing ex-special forces personnel into coast guard teams responsible for apprehending fishing boats, improve the coast guard's body armor and increase the number of patrol ships. The fishing equipment of repeat offenders also will be confiscated.

Officers will be allowed to use their firearms when their lives are endangered or there is no other way to subdue the perpetrators, said Yim Jong-yong, head of the South Korean prime minister's office.

Mr. Yim said Seoul will step up diplomatic efforts to get Beijing to cooperate in reining in the illegal fishing activities. Following the incident on Dec. 12 when the coast guard officer was stabbed by a Chinese fisherman, Beijing initially called for Seoul to protect the rights of the fishermen. It subsequently said it would work to educate its fishermen.

The Chinese captain involved in the Dec. 12 incident is currently in the custody of Korean prosecutors.

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Philippines Stock Exchange hits record high in 2011 rising by 13.6% in 2012

MANILA, Philippines - Capital raised in the equities market reached a record high this year, the Philippine Stock Exchange (PSE) said Thursday (December 29, 2011.

In a statement, the PSE said a total of ₱107.50 billion was raised from initial public, follow-on and stock rights offerings as well as private placements in the stock market.

Aside from being the highest generated in a single year, the amount was up 26.6% from what was raised in 2007, the previous record year.

Meanwhile, the main PSE index ended the year on a positive note, edging up 0.8% to close at 4,371.96 points on Dec. 29, the last day of trading. The PSEi was higher by 4.1% from last year's close of 4,201.14 points.

"We are glad to report that despite the uncertainties in the global market that hounded us throughout the year, your local stock market has closed 2011 with yet another set of significant milestones," PSE President & CEO Hans Sicat said.

Five companies debuted in the market in 2011, namely, Megawide Construction Corporation, Puregold Price Club Inc., Cirtek Holdings Philippines Corporation, Calapan Ventures Inc. and Touch Solutions Inc. They raised a total of ₱9.04 billion from the market.  Meanwhile, capital proceeds from private placement, stock rights offerings and follow-on offerings amounted to ₱42.85 billion, ₱40.61 billion and ₱15 billion, respectively.

Total value turnover for 2011 reached ₱1.42 trillion, 17.8% higher than the ₱1.21 billion registered in 2010. The PSE extended its trading hours to 1 p.m. in October this year as part of its efforts to increase liquidity in the market.  On January 2, 2012, trading hours will be further extended up to 3:30 p.m.

The combined market capitalization of listed issues in the PSE at year-end was ₱8.7 trillion.

Preliminary figures also show that foreign investors went into net buying territory in 2011 in the amount of ₱56.52 billion, higher than the net buying figure of ₱35.62 billion in 2009.

In terms of sectoral indices, the mining and oil index emerged as the best performer in 2011, surging 68.5%. This was followed by the holding firms' index, which grew 3.4%.

PSEi seen rising by 13.6% in 2012

Investment group CLSA Asia-Pacific Markets sees the main-share Philippine Stock Exchange index surging by about 13.6 percent to end at 4,900 next year.

This was based on expectations that corporate earnings will be aided by resilient domestic consumption, increased government spending and monetary easing.

In a research dated Dec. 9 titled "Looking Good in 2012," which was written by head of research Alfred Dy, CLSA added Robinsons Land Corp. to its list of favored stocks. Other companies in its "conviction picks" are SM Investments, Ayala Corp., Metro Pacific, Cebu Pacific, and Philippine National Bank.

"In spite of a tough global macro backdrop which is expected to continue in 2012, we remain positive on the Philippines. For one, the Philippines is one of the few countries around which has a relatively low export-to-GDP (gross domestic product) ratio of 25 percent, suggesting that the fortunes of the economy is not really that linked to what is happening in Europe and the United States," Dy said.

Dy said domestic consumption should continue to do well given favorable demographics and $3.245 billion in recurring cash inflows from overseas Filipino remittance, business process outsourcing and tourism.

The government, which has been widely criticized for the fiscal contraction in 2011, should have a better year next year in terms of infrastructure spending, privatization and monetary easing, he said.

"Sectors to watch out for are consumer, banking, infrastructure, construction, and gaming," Dy said.

More PPP projects

Dy expects a couple of public-private partnership contracts to be awarded. Aside from the ₱2-billion Daang Hari-South Luzon Expressway, he expects the awarding of the ₱17-billion Connector Road (between North and South Luzon Expressway and the Department of Education's project involving the construction of 10,000 classrooms in regions I, III and IV-A.

"Like the power privatization program in recent years, a couple of awarded contracts could snowball to more contracts in the coming years," he said.

Dy said there would likewise be a couple of property deals given renewed corporate interest in assets like the Food Terminal Inc., Cebu Airport and parcels of land in Fort Bonifacio. "Of course, increased government spending and successful PPP launch should be positive for the construction sector," he said.

Stock picks

RLC was added to CLSA's "conviction picks" given its significant presence in shopping malls, hotels, office, and residential development.

"Among the property companies in our coverage, RLC has the biggest recurring revenue base at 72 percent followed by Filinvest Land at far second at 26 percent. In terms of earnings, RLC also has the biggest recurring earnings base at 80 percent which is followed by Ayala Land at 35 percent," Dy said.

The key drivers seen for RLC's earnings in 2012 were office rentals and hotels which were expected to grow in the mid-teens followed by residential development expected to grow by 10 percent.

Upbeat on RLC

"Given its presence in the shopping mall and hotel industry, RLC is also one of the best ways to play the country's emerging tourism sector where tourist arrivals are expected to double from 3.5 million tourist in 2010 to 7 million tourists by 2017," noting that the property company's stock valuation was likewise very "compelling."

On the banking side, CLSA expects the sector to remain "buoyant" but sees loan growth moderating at 12-14 percent compared with the growth over 20 percent in 2011.  "Unlike in 2011 where we saw net interest margins (NIMs) contracting by 50bps, we expect NIMs to stabilize in 2012," Dy said.

Apart from the Philippine National Bank-Allied Bank merger finally happening by the second half of 2012, CLSA believes that Bank of the Philippine Islands (BPI) is the best positioned among the big three banks in the Philippines to do a major acquisition given its relatively high tier one and capital adequacy ratios. CLSA also noted that Banco De Oro had intimated that it was open to do "bite-size" acquisitions that could add 50 to 100 branches to its existing 750 branch network.

Outside of the banking and property sectors, we expect some M&A (merger and acquisition) action in the ports and mining sectors. For ports, we understand that ICTSI continues to be on the prowl for new ports in the Mediterranean and Africa. In mining, we understand that Philex is open to do some acquisitions," Dy said.

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