China should stop making noise in the South China Sea. It isn’t good for peace. It isn’t good for trade. And it isn’t good for financial markets of the region.
China claims the South China Sea as its own sea. All of it, the sea surface, the resources beneath, and the airspace above. “From China’s perspective, the South China Sea is their home territory and they do not want any outsiders there,” says Jean-Francois Fiorina, Vice Dean, Grenoble Ecole de Management. “This is due to both military and strategic factors, and they must protect and secure maritime roads, which allow for the exportation of Chinese products.”
That’s why Beijing wants to write its own navigation rules. And that’s why Beijing makes noise any time American and ally ships navigate what they consider international waters.
Like an incident last week in which a Chinese ship came “within yards” of a US destroyer.
This kind of noise is bad for peace in the region. It pits China against its neighbors — the Philippines, Brunei, Malaysia, Taiwan, and Vietnam. And against the navies of US, Japan, France, the UK, and Australia. These navies seek to enforce the freedom of navigation in the vast trade waterway. And that raises the risk of an accident with unpredictable consequences.
“Perhaps the next war will spark in the South China Sea region,” adds Fiorina. “Many countries are therefore worried about the future geopolitical climate.”
Meanwhile, China’s hard stance on the South China Sea raises nationalism at home, pushing Beijing into a corner in case such an accident happens.
China’s noise is bad for trade, too. Beijing and Washington are already in a trade war, and fighting over who will write the navigation rules in a vast trade waterway adds fuel to it.
The stakes are high — close to $5 trillion in merchandise moves through every year.
Then there are financial markets that react negatively to geopolitical events. The Philippines equity market, for instance, missed the emerging market rally a couple of years ago, following President Duterte’s flip-flops on a South China Sea dispute with China. When China lost a United Nations-linked tribunal international arbitration to the Philippines on the South China Sea disputes a couple of years ago, Beijing took a couple of steps to ensure that Duterte wouldn’t try to enforce it.
Like threatening the Philippines with war should Duterte enforce the arbitration ruling. And the promise of a generous investment to help the Philippines deal with its many problems.