A US naval vessel in the South China Sea. Photo: Facebook
A US naval vessel in the South China Sea in a file photo. Photo: Facebook

MANILA – America’s move to punish Chinese entities and individuals reputedly responsible for militarizing the South China Sea has sparked divisions among rival regional claimants that may ultimately blunt the targeted sanctions’ impact.

Last week, the US Commerce Department placed 24 state-owned Chinese enterprises under sanctions, including China Electronics Technology Group Corporation, which posted over US$10 billion in revenues last year.

The US State Department, meanwhile, announced targeted sanctions including travel bans against specific Chinese officials, business executives and potentially their family members for alleged involvement in arming up China’s reclaimed islands in the disputed waters.

Analysts have hinted that targeted financial sanctions could follow. The punitive move comes amid intensifying saber-rattling in the strategic waterway, with both the US and China conducting major provocative drills in recent weeks.

In July, US Secretary of State Mike Pompeo announced a significant shift in America’s posture on the sea disputes by claiming China’s wide-ranging claims under its nine-dash line were “illegal.” He has since accused China of “bullying” rival Southeast Asian claimants.

The contested sea is increasingly viewed as a crucial theater in a budding new Cold War, where Southeast Asian nations find themselves in the precarious middle and under certain pressure to choose superpower sides.

But while the Philippines, Vietnam, Malaysia and to a lesser extent Indonesia all have gripes with China’s recent assertiveness in the disputed sea, it’s not clear any intend to impose their own sanctions due to concerns Beijing would retaliate through trade, aid and investment reprisals.

The US Commerce Department sanctions “restrict the export, re-export, and transfer (in-country) of items” by targeted Chinese companies, which are “reasonably believed to be involved, or to pose a significant risk of becoming involved, in activities contrary to the national security or foreign policy interests of the United States”

“The United States, China’s neighbors, and the international community have rebuked the CCP’s [Chinese Communist Party’s] sovereignty claims to the South China Sea and have condemned the building of artificial islands for the Chinese military,” said Commerce Secretary Wilbur Ross in announcing the sanctions.

The sanctioned companies include China’s largest shipbuilding conglomerates, including the new merger of China Shipbuilding Industry Company and China State Shipbuilding Corporation. China Communications Construction Company Dredging Group Co Ltd, China Communications Construction Company Shanghai Waterway Bureau, and China Communications Construction Company Guangzhou Waterway Bureau are also on the list. 

Although likewise perturbed by China’s moves to militarize adjacent waters, key Southeast Asian states including Indonesia and Singapore have kept a healthy distance from Washington’s more belligerent rhetoric and confrontational policies towards Beijing.

A satellite image of the militarized Fiery Cross Reef in the South China Sea. Photo: Planet Labs

Vietnam has painstakingly pushed for a tougher regional consensus against China, but as the current chairman of the Association of Southeast Asian Nations (ASEAN) it has grappled with staunch Beijing allies such as Cambodia which prefer a softer diplomatic approach.

But the Philippines, a US mutual defense treaty ally, stands out for increasingly public disagreements among top officials, with some siding with the US and others with China.

Over the past week, the Philippines Foreign Affairs Secretary Teodoro Locsin Jr has “strongly” recommended slapping sanctions on specific Chinese companies, while President Rodrigo Duterte has adamantly stood by his Beijing-friendly diplomacy.

Locsin has urged the government to follow the US’ lead by terminating any contracts the Philippines has with the 24 companies placed on the US blacklist. He has also advocated for a tougher and coordinated response against China.

“If I find that any of those companies are doing business with us, then I would strongly recommend that we terminate the relationship with that company,” Locsin said in an interview  on August 28 with Philippine media.

US Secretary of State Mike Pompeo (R) and Philippines’ Foreign Secretary Teodoro Locsin Jr had different takes on their talks. Photo: AFP/Andrew Harnik

The outspoken Filipino diplomat, who has repeatedly emphasized the invalidity of China’s expansive claims to the sea under international law, has zeroed in on Chinese companies which “in any way [have been] involved in the reclamation then it becomes consistent on our part to terminate any contract with them.”

“Of course, since the contract was already entered into they could sue us on that but…I’m very careful about validating anything that China does by inaction,” Locsin added. He has since acknowledged the need to coordinate with other government agencies before taking any decisive action.

For instance, the China Airport Construction Corporation (CACC), a subsidiary of one of the US’ backlisted Chinese companies, is a key partner in the prospective $10 billion Sangley international airport project in the Philippines.

Troubled by Manila’s toughening stance in the South China Sea, Chinese Ambassador to the Philippines Huang Xilian defended Chinese contracts and reiterated his country’s pledge to assist the Philippines’ infrastructure development initiative.

“The pragmatic cooperation between China and the Philippines has always been based on mutual respect, mutual benefit and win-win results, and all projects are all conducted in compliance with the existing laws and regulations,” the Chinese diplomat said in a radio interview.

He accused Washington of “grossly” interfering in China’s internal affairs as well as driving “a wedge between China and regional countries.”

“I believe that any attempt to undermine the normal economic cooperation between China and the Philippines will never succeed,” warned the Chinese diplomat.

Chinese President Xi Jinping (L) and Philippine President Rodrigo Duterte (R) toast during a state banquet at the Malacanang Presidential Palace in Manila, November 20, 2018. Photo: AFP/Pool/Mark R Cristino

Duterte has so far opposed his own top diplomat’s recommendations.

Presidential spokesman Harry Roque made it clear on September 1 that “the Americans can blacklist Chinese companies in their territories in America and maybe in their military bases under their jurisdiction”, but that Duterte “will not follow the directives of Americans because we are a free and independent nation and we need those investments from China.”

“We are not a vassal state of any foreign power,” the Duterte spokesman added, turning the issue into a reassertion of Philippine independence from its closest strategic ally the US.