China and the Sea

In a scathing editorial, published on Tuesday, a state-run Chinese daily has termed India’s plans to conduct oil exploration off Vietnam coast in the South China Sea as “illegal”. According to the editorial in China Daily, the Indian government’s decision to conduct oil exploration in the South China Sea (SCS), through its subsidiary Oil and Natural Gas Corporation (ONGC), is “unwise” and that it may “sabotage” positive momentum in ties between Beijing and New Delhi. About India’s response to such criticism in the past that it is an economic activity that has no bearing on the dispute, the daily said, “New Delhi may deem its oil exploration activities in the South China Sea purely economic in nature. But, considering the already existing tensions in the South China Sea, New Delhi’s move will only aggravate the situation.” 

In an interesting aside, the daily also cast aspersions on the United States, stating that interference by the Western superpower has “already disrupted regional efforts to resolve them peacefully”. Significantly, though, the editorial defended Beijing’s plans to build an economic corridor with Pakistan through Pakistan Occupied Kashmir (PoK), as a commercial activity aimed at “improving” people’s livelihoods. All rhetoric aside, the editorial could be in line with Beijing’s concerns after the recent crash of the Chinese economy. Global crude oil prices have fallen further in the recent weeks due to the slowdown in demand from the Chinese economy. 

However, according to the World Street Journal, China is expected to surpass the U.S. as the world’s largest oil importer in 2015 on an annual basis. Moreover, Chinaoil, the trading arm of state-run China National Petroleum Corp, bought record volumes of crude oil from the Dubai spot market. The actions of the Beijing-owned company caused a momentary spike in prices and created uncertainty among both seller and buyers. Immaterial of what the Chinese government hoped to achieve through its purchase of such vast quantities, the fact remains that China needs the oil. Its position against India on the South China Sea is, therefore, in line with China’s demand and control over oil resources. 

China’s objection to the Indian government-backed ONGC’s desire to participate in oil exploration projects in the disputed waters of the South China Sea does not hold water. ONGC has been awarded oil exploration contracts by Vietnam.  China claims sovereignty over almost all of SCS which was contested by Vietnam, the Philippines, Malaysia, Brunei, and Taiwan. Therefore Beijing’s assertion that its projects in Pakistan-Occupied Kashmir are merely for the “livelihood of people” seems insincere at best. The Line of Control with Pakistan continues to be a temporary arrangement between both sides. The region, experts argue, continues to fall under the realm of “disputed territory”. With the constant flow of Pakistan-sponsored militants from that side of the border, Beijing’s assertion that its projects in the region are not “political” is clearly misplaced.

After assuming office in May 2014, Indian Prime Minister Narendra Modi made immediate attempts to reach out to Beijing. With its large reserves of foreign exchange, Modi has always seen China as a potential partner in India’s development story. However, the trade balance between the two nations remains lopsided. China exports three times as much as it imports and India is merely a burgeoning market for its products besides a source of key raw materials. In light of the recent market crash in China, Modi must find a way to address this inescapable imbalance, while maintaining cash-rich China as an important partner in its development push. The fundamental challenge for Modi is to establish a close balance between India’s economic and strategic interests, vis-à-vis China. Recent events off the coast of Vietnam will prove  a stern test of Modi’s diplomatic acumen.