China Miscalculates with its Drill Rig

What has China achieved by sending its deepwater drilling rig into the waters off the Paracel Islands?

In one single act it has managed to rupture relations with its brother communists in Vietnam, incensed Vietnamese popular opinion, generated gigabytes of critical international media coverage, revived the “China Threat” discourse in Southeast Asia and unified ASEAN behind a statement critical of its actions. At least 3,000 Chinese have been forced to flee Vietnam ahead of furious mobs who set fire to scores of factories, not discriminating between Taiwanese Chinese and Chinese Chinese. And for what?

There is always a chance that the rig might strike oil, but the chances are slim. It’s possible that CNOOC may have access to seismic surveys of the area but it seems more likely that the drill-site was chosen for geopolitical rather than geophysical reasons. No other oilfields have yet been discovered near the Paracels.

According to Yenling Song of Platts Energy in Singapore, industry estimates suggest CNOOC is paying US$328,000 a day to keep the rig on site. Although CNOOC is flush with cash it can’t leave the rig in position forever without making a find. The rig will eventually have to leave and, once it departs, the sea will be empty again. All of the trouble caused over the past two weeks days will have been for no economic reward.

If profit wasn’t the reason for CNOOC to drill off the Paracels then we have to assume that other factors influenced decision-makers in Beijing. However, as we look at each one in turn, it seems hard to see how the current stand-off will advance China’s overall interests. In fact, it seems more likely that they will be harmed.

It may be that Beijing thought that drilling for oil would be a clear assertion of sovereignty on China’s part: an act that would support the country’s territorial claim. Predictably, however, Vietnam has made an equally assertive response. An international tribunal won’t treat the current standoff as supporting either side’s claim to the islands and surrounding waters. If bolstering Beijing’s legal position was the reason for the operation, it has failed.

Splitting ASEAN?

The move may have been an attempt to split the Association of Asian Nations and isolate Vietnam. Perhaps Beijing was hoping to repeat its success at the ASEAN Foreign Ministers’ meeting in Phnom Penh in July 2012. That meeting followed China’s successful occupation of the Scarborough Shoal, a reef well within the Philippines’ Economic Exclusion Zone, and also an announcement by CNOOC offering for tender oil exploration blocks within Vietnam’s EEZ. (Those blocks were well to the south of the current dispute site.)

At the Phnom Penh meeting, the Philippines and Vietnam demanded a statement of support from their ASEAN colleagues. Their efforts were thwarted by the actions of the host, Cambodia, which vetoed any statement mentioning the incidents. Multiple reports at the time suggested it did so under the strong influence of Chinese foreign aid and diplomacy. ASEAN was left divided and wounded.

Perhaps China hoped to repeat its success this time by moving against Vietnam just days before the ASEAN summit. Perhaps its diplomats were confident that they could prevail upon Cambodia and perhaps Myanmar, Thailand or Laos to veto a joint statement, leaving Vietnam isolated and ASEAN split. It did not happen. ASEAN issued a special statement criticising events in the South China Sea.

Some observers have suggested that because the statement didn’t explicitly mention China, that Vietnam had failed to get backing from ASEAN. But ASEAN does not work like that. As far back as ASEAN’s first ever statement on the South China Sea in 1992, after Beijing had granted an American company an oil concession off the southern Vietnamese coast, and 1995, when Beijing occupied Mischief Reef within the Philippines’ EEZ – it has always expressed its concerns with restraint and equanimity. Anyone expecting ASEAN to impose economic sanctions on China, or send a naval task force to see off CNOOC’s oilrig needs to learn a little more about Southeast Asia.

If Beijing was hoping to isolate Vietnam and split ASEAN, however, it failed. ASEAN has emerged from the crisis united and warier than ever of China’s intentions.

Pressuring Vietnam?

In December 2000 China and Vietnam agreed the line of their shared maritime boundary within the Gulf of Tonkin. The line ran from the Chinese border on the mainland coast southeast as far as Hainan Island. Despite nearly 14 years of talks since, the two sides have been unable to agree where the line should go next. The sticking point is the dispute over the ownership of the Paracels. They lie outside the mouth of the Gulf and without a resolution to that dispute, no boundary line can be agreed.

Last October, China’s Premier Li Keqiang visited Vietnam and the two governments agreed the creation of a “maritime work group”. Despite Li’s urging, however, there was no progress on drawing the boundary. In this light, the deployment of the oilrig could be read as Beijing’s attempt to up the ante, to try to show Vietnam that Beijing is serious about pushing ahead with developing the resources of the sea regardless of whether Hanoi agrees.

However, this grand gesture is unlikely to be effective. It appears improbable that the rig will discover commercial deposits of oil or gas. Even if it does, the difficulty of laying a pipeline or maintaining a fleet of floating collection barges in the face of Vietnamese opposition will be considerable. Vietnam can simply call China’s bluff. There will be no serious joint development of the area without its consent.

Pressuring ASEAN

In a similar vein, the latest moves could be read as China pressuring Vietnam and the other members of ASEAN to agree the details of a new Code of Conduct for the South China Sea. ASEAN hopes the Code would prevent disputes in the sea but China has been in no hurry to bring it to fruition. The talks, or more often talks about talks, have dragged on for years. The latest standoff seems almost guaranteed to make ASEAN demand a tougher Code of Conduct to prevent similar events re-occurring. This is not what Beijing wants. Once again the rig’s deployment seems to have harmed China’s long-term interests.

Tactical diversion

The most likely explanation for the deployment of the rig, and the only one that suggests Beijing will get what it wants, is the recent revelation that Chinese forces are engaged in a large-scale civil engineering project on Johnson Reef. This is a sandbar, underwater at high tide, which Chinese forces seized in 1988, a move that provoked a battle in which dozens of Vietnamese troops were mown down by Chinese machine guns. (There is a video of the slaughter on YouTube.) There is speculation that China intends to turn the reef into an airbase. By diverting global attention and Vietnam’s coastguard and naval ships to the Paracels, China may have given itself the necessary space to get construction started without interference.

Why?

One day we may discover exactly why the Chinese side decided to deploy the rig and its accompanying flotilla to this place at this time. We know very little about how such decisions are made. Beijing-based observers argue that the Ministry of Foreign Affairs is relatively powerless in the Chinese system. One analyst told the International Crisis Group in 2012 that it ranked somewhere between 40th and 50th in the institutional pecking order.

Much more important are the military, massive state-owned income generators such as CNOOC and provinces such as Hainan and Guangdong. It may well be that these were the actors that pushed for the Paracels operation. The Foreign Ministry may have been unable to resist their combined pressure.

Foreigners have tended to characterise Chinese foreign policy-making in two ways. Firstly as “China Omnipotent” – the actions of a relentlessly emerging power bent on dominating East Asia, threatening its neighbors and undermining American interests in the region.

Sometimes there’s a tendency to defer to orientalist stereotypes about wily, all-knowing mandarins hiding their true intentions behind a mask of inscrutability. We might call this “China Omniscient.”

But the latest standoff provides evidence for a third interpretation. Beijing has failed to make progress in any of its wider aims in the region: quite the reverse. It has annoyed, alienated and worried its neighbors and given them new reason to embrace the US pivot to Asia. Both Malaysia and Indonesia are talking ever more openly about their concerns. Perhaps we should regard this episode as a case of “China Incompetent” on the basis that its foreign policy-making isn’t actually very good.

Bill Hayton is the author of Vietnam: rising dragon (Yale 2010) and The South China Sea and the struggle for power in Asia to be published by Yale in September.