The Shark of the South China Sea

Andrew Stiles

During the summer of 1977, a new Chinese leader emerged who would bring China forward into the modern age. His name was Deng Xaioping, and with all of the Communist Party leadership finally unified under his control, he would open China’s markets up to the world. Almost 40 years later, China is now among the front-runners of world power. Another Chinese Communist Party president, Xi Jinping, has once again solidified absolute rule over his party, and is directing his country’s hunger for expansion toward the South China Sea.

In recent months, China has asserted its claims over the nearly 300 islands and reefs scattered throughout the South China Sea. Many of these are submerged and barely qualify as islands, but what China is doing to them would give the EPA a collective heart-attack; China is building naval fortresses on these islands to gain military control over the region. Technically, many other Asian nations have claims to these same waters. Taiwan, Malaysia, Vietnam, the Philippines, and other nations all have conflicting territorial claims - but when the world’s largest military is building bases in your backyard, complaining is unwise.

Many are asking: what can China gain from owning the South China Sea (SCS) besides military territory and salt water? The answer is: a lot.

For starters, the SCS has subsea crude oil reserves of over 11 billion barrels. It also has natural gas reserves of over 190 trillion square feet - think about that number for a moment. Most of China’s giant onshore oil fields including the famous Daqing reserve have reached their productive peaks, and are declining as the country continues to grow. The South China Sea holds the fuel to sustain this growth, which is the key to all economic, political, and military doors.

Oil doesn’t just come out of the SCS, it moves through it; 50% of the world’s natural gas and roughly 30% of the world's crude oil are transported through the SCS via tankers. Additionally, many manufactured products such as clothing, electronics, and other goods are transported through this global shipping artery. China is Malaysia’s largest and most profitable trading partner, and is a prominent consumer of goods for other Asian nations. All of India’s goods must travel from the Persian Gulf through the Straight of Malacca, which brings traffic right into Singapore – just on the edge of the SCS. The country that controls the SCS just as well controls water-borne shipping for all of Asia.

 

Source: U.S. Energy Information Administration

Source: U.S. Energy Information Administration

The third (but by no means the last) major industry that China stands to dominate upon occupying the SCS is commercial fishing. Over the last few decades, China’s middle class boom has catalyzed fish consumption to skyrocket, while China’s fish yields have fallen in the East China Sea. The South China Sea produces roughly 10 percent of the world’s yearly catch, and controlling these waters is vital to feed the nation’s ever growing fish consumption.

As China continues to expand into the SCS, they are claiming valuable resources that many other Asian nations need, which will likely aggravate existing political and economic tension with Taiwan, other Asian countries, and even their western allies. In other words, there will be blood.

Full Speed Ahead for India

Henry Whipple

As turmoil continues in China’s economic markets, their position in the center of the global economy is fading, and producers in China’s once booming manufacturing industry are seeking other countries in which to operate - namely India due to its surging economic growth.

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In fact, much of India’s recent success is due to China’s shortcomings across a variety of sectors. While China’s foreign direct investment has decreased by 1.3% from 2014 through 2015, India’s soared upwards by 46% over that same period. Additionally, wages for blue-collar workers in China have skyrocketed over the past decade, and the government’s military displays of force throughout the fall of 2015 have led to concerns that it is too risky a location for business. In contrast, India currently offers both significantly lower wages (a much more attractive prospect for manufacturing companies) as well as a seemingly stable democracy.

Citing the Reserve Bank of India’s policy rate cut last year, PricewaterhouseCooper (PwC) is already forecasting India’s growth for 2016 at 7.7% for the second consecutive year. Increased household consumption and recovering investment across many South Asian nations has helped spur similar progress, as well as falling levels of inflation due to the drop in gasoline prices. Such forecasts along with the competitiveness of these emerging markets have prompted many analysts to consider the possibility of India becoming the world’s next economic power of the 21st century. 

Despite the optimism surrounding India’s robust economic growth in the manufacturing sector, some components of its economy give cause for hesitation. In late 2014 current Prime Minister Narendra Modi launched his “Make in India” campaign, an initiative that focused on almost exclusively on improving infrastructure and creating attractive opportunities for foreign investors and manufacturers. Yet, since that time, little progress has been made outside of major corporations, leaving many inadequate roads, rail lines, and ports unfixed. The country is also dealing with levels of urban air pollution that surpass even those of China, and they will only increase with the continued increase in manufacturing growth.

There are still positive signs for investors and manufacturers looking to operate in India. With Indian officials’ emphasis on the importance of manufacturing in their country, as of late 2015 there are around ten million young workers joining the labor force each year, and the median worker’s age is nearly ten years below that in the United States or China. Both figures suggest that even if India’s soaring economic growth is unsustainable, the nation’s working population will help to put it in a better position. Ultimately, India’s fate might solely depend upon China’s ability to recover from its economic downward spiral. Analysts don’t expect China to relinquish its market share easily, but without a sooner-than-expected recovery, China will have difficulty putting India’s success on hold.