Narration: There are three major components to China’s global ambitions: The Belt and Road Initiative, 5G, and the South China Sea.
Simone Gao: I mean in the history of the world, very few power or no power has been able to dominate both land and sea, you know, at the same time. But China, through belt and road initiative is trying to do that.
Mr. Sitilides: you can plan out what your objectives are and then order your corporations, your banks, your lending institutions, your industrial leaders to undertake the policies you need to achieve the goals under a command economy.
Narration: Huawei has secured 5G contracts with over 60 countries around the world, many of which are U.S. allies, despite American warnings over cybersecurity concerns.
Mr. Sitilides: China probably has its single most effective lobbying operation in Brussels, than anywhere else in the world.
Narration: With one third of the world’s international commerce traversing the South China sea, it is one of the world’s most important regional waterways.
Ms. Gao: What do you think China’s final goal is in the South China sea and what is America’s plan on China?
Mr. Sitilides: They’ve been very open about this. It is to ultimately manage Asia’s commerce by controlling the South China sea and deciding what economic activities take place in the South China sea and to be able to use control over the South China sea to potentially thwart economic activities or political activities that are made or conducted by Japan, South Korea or Taiwan, that China feels are against its interests.
Narration: At the height of the grand conflict between the U.S. and China, a discussion with John Sitilides, geopolitical strategist at Trilogy Advisors. What are China’s global ambitions? How are they executed and most importantly what do they mean to the world
Host: I am Simone Gao and you are watching Zooming In.
Narration: The South China Sea is a marginal sea that is part of the Pacific Ocean, encompassing an area from the Karimata and Malacca straits to the Strait of Taiwan of around 1,400,000 sq mi.
From December 2013 to October 2015, China built artificial islands with a total area of close to 3,000 acres on seven coral reefs it occupies in the Spratly Islands in the southern part of the South China Sea.
China also constructed fighter-sized hangars, fixed-weapons positions and other military-related infrastructure on these man-made islands.
Simone Gao: South China sea. So first of all, tell me what’s the strategic importance of South China sea to China and to the US
John Sitilides: The South China sea by itself, is maybe the first or second most important regional waterway in the world, right? Along with the Indian ocean connecting the Persian Gulf to the Straits of Malacca. One third of the world’s international commerce traverses the South China sea annually. And this is in terms of natural resources, finished consumer products and energy supplies, all crossing the South China sea every year. So about five to $6 trillion worth of goods. It also sits a top, maybe 10 to 12% of the world’s oil and natural gas reserves, right? And also possesses one of the world’s largest fisheries to provide a very important high protein, nutritious diet for millions, tens of millions of people who are escaping poverty every year and want a higher protein based diet around the world. So the South China sea is also where China is able to access ports, natural resources and markets for its finished goods as well as the oil and natural gas it needs to import to sustain its vast and growing economy.
So it’s of absolute geopolitical importance to China. It’s also of vast geopolitical importance to Japan, to South Korea, to Taiwan, and to a number of economies in Southeast Asia that also are dependent on these routes for oil and natural gas and for access to markets as well as for natural resources to be imported for production purposes. For the United States, it’s more important as a principle of free and open navigational freedom and shipping lanes that provide sort of the circulatory system for the global commercial network. And this is because if we had left the status quo as it was maybe five or six years ago, there really would be no issue for the United States in the South China sea. But China has become a revisionist power that is looking to change the status quo in the South China sea and declared this vast waterway of global importance as essentially a sovereign Chinese sea in complete violation of almost every understanding of international law, international agreements and the UN convention and the Law of the Sea treaty.
So what do we have now? We have about 200 to 250 geological features in the South China sea. Corals reefs, shoals. About 40 of these are above the surface year-round, the others above or below the surface based on tidal cycles. Of the 40 that are above the surface, China has unlawfully and unilaterally dredged and reclaimed these seven features and declared them to be newly established sovereign Chinese islands, hundreds of miles from the coast of China inside the exclusive economic zones of countries such as Vietnam, the Philippines, Borneo, Malaysia,in ways, again, that not only are in contravention of international law and international agreements, but will probably greatly destabilize the South China sea and could provoke conflict in the region. Because the United States is really the only power that can protect operational freedom in international waters and international airspace, most of which comprises the South China sea.
So we have now a fundamental clash of interpretations. China says this entire sea is Chinese and nobody can undertake any activities outside of their territorial waters without the permission of Beijing. And the United States says, no, this is not Chinese. It’s almost all international waters. There are agreements for extracting oil and natural gas and minerals from the seabed beneath the South China sea under the guise of exclusive economic zones. And there are international arrangements for that so that countries can negotiate and delineate their exclusive economic zones. But you don’t unilaterally declare it at the expense of another country’s sovereignty or rights, which is what China has done. So we have now a fundamental difference of perspective and of understanding of legal rights in the South China sea. So I think we’re going to face an increasingly dangerous situation where the U S military, working with our British and our French allies…you may see the Australians, the Indians, and potentially even the Japanese coming in and exercising freedom of navigation operations, what we call in Washington FONOPS and the Chinese military, and increasingly the Chinese fishing boats and merchant Marine that are going to make it more and more difficult for the U.S. and other militaries to operate in international waters and that very delicate and important part of the world.
Ms. Gao: Yeah, I was going to ask you this question. What do you think China’s final goal is in the South China sea and what is America’s plan on China?
Mr. Sitilides: Honestly I have to believe from all of the public pronouncements coming out of China…again, this is not a hidden agenda. They’ve been very open about this. It is to ultimately manage Asia’s commerce by controlling the South China sea and deciding what economic activities take place in the South China sea and to be able to use control over the South China sea to potentially thwart economic activities or political activities that are made or conducted by Japan, South Korea or Taiwan, that China feels are against its interests. So I think that’s the ultimate goal from a legal framework. And then militarily, it’s to push the United States out of the South China sea and send a message to all of the countries that border the South China sea. Anything you want out of the sea, you come to Beijing for, right? Because historically, if we go back 5,000 years to the beginning of Chinese civilization, China has been the middle kingdom in the Asian continent and all of these other societies have served really as tributaries to the Chinese dynasties. And so this was the case until what, the early 1800s, when China went into rapid decline. So for from a Chinese perspective, they are looking to simply reassert their dominant role in the Asian continent and to have all of these other countries, in this case in the Southeast Asian region around the South China sea, serve as political tributaries, asking the permission of Beijing to conduct activities in their own sovereign territory and waterways in that region.
Ms. Gao: So what is American’s plan on China? Will the U.S. go to war with China over the South China sea?
Mr. Sitilides: I don’t think anyone wants to go to war over the South China sea. I’ll be very clear about that. I think the U S strategy for the foreseeable future will be to preserve what has been a status quo of operational freedom in international waterways and in international skies, that has not only been beneficial to the entire international economy, but it’s really the reason that China has been able to come from a complete economic backwater, right? From its first decades under communist rule through Mao Zedong, to become the world’s second largest economy. It’s this system that has been protected through U S leadership working with allies around the world for free and open shipping, that’s given China the opportunity to enjoy this level of economic power that it’s attained. So that status quo is one that benefits all countries. Everyone should be able to access free and open shipping.
And so the U S I think is going to remain determined to protect free and open shipping in this part of the world. And if anything were to unfortunately occur, it would be at China’s instigation, not that of the United States. So we’re looking to preserve the status quo. China is looking to rewrite the legal framework, the legal arrangements for the South China sea. And I think we remain determined to maintain as robust a presence in the South China seas and international waterways as possible and to work with allies and partners who are like minded about protecting this legal framework, whether it’s Japan, whether it’s Vietnam, whether it’s the Philippines, whether it’s Indonesia, whether it’s Australia and India, the British and the French, working with international partners to send a very clear message to China. Do not attempt to change the legal framework in this very important waterway. Let’s abide by international laws and international treaties and your country will continue to benefit from the system that has brought you from economic backwardness to economic power. Let’s all work together to sustain the system. And I think that’s going to be the U S strategy going forward.
Ms. Gao: Militarily, do you think the U.S. will be more aggressive? Will the The Trump administration will be much more aggressive on South China sea than the previous administrations?
Mr. Sitilides: I don’t see Simone a matter of being aggressive here. I think it’s more a matter of determination. That these are the rights of the shipping fleets and the navies of any country in the world, in international waters. I mean, this is just a historical phenomenon. We operate in international waters freely and openly as long as we are not acting in a provocative manner against a neighboring country,to the degree that we’re able to continue to do that, yes, we will do that. And one might argue that the Trump administration has taken that determination an extra step forward. So under the prior administration,we had military operations, Naval operations, that operated outside of the declared territorial waters of these fake Chinese islands. Right? The Trump administration has sent our navies inside of the territorial waters of these fake Chinese islands, as if to send a very clear message to Beijing, we do not recognize your declared sovereignty where you don’t have any legal right to sovereignty. Where you do have the legal right to sovereignty, we fully respect your rights, where you don’t have sovereignty, you don’t have sovereignty. So the Trump administration has I believe, demonstrated greater resolve, greater determination, greater political will to push back against what it sees as completely unlawful, illegitimate, and illegal Chinese declarations of sovereignty, where none exist.
Ms. Gao: Let’s talk about Taiwan a little bit. Do you think with this big migration of supply chain out of China, that this is a great opportunity for Taiwan? To replace China?
Mr. Sitilides: To replace China. No, I don’t see any single market being able to replace China simply because of the sheer size of the Chinese economy. Right. A 1.4 billion population. I mean there is no one else that can compete except India and we can touch on India potentially. But I think Taiwan has a tremendous opportunity to take advantage of what I think is going to be an increasingly systematic withdrawal of supply chains from China, given again, as we said earlier in our discussion, all of the internal dynamics and tensions and problems that are coming to the fore inside of China. Higher labor costs, higher taxes, the kinds of problems that the Chinese economy will face because of demography and the like. And so I think there are supply chains that are looking to be moved out of China to neighboring countries. Taiwan has its own problems however.
I mean Taiwan has many benefits to offer, but I think the degree to which there is still a nearly sclerotic bureaucracy that has to be reformed, there is still the high costs of starting and operating businesses in Taiwan and they have to improve corporate governance there. But they’re moving in that direction. So I think the future is a bright one for Taiwan. But Taiwan is going to be competing with countries such as Vietnam and Indonesia and Indonesia has a vast consumer market that even Vietnam doesn’t have. Vietnam has proximity to China, but it doesn’t have the vast consumer market that Indonesia does or the labor force. India I think is going to be the great challenge going forward in terms of global supply chains. But India itself has so many internal obstacles that are thwarting that strategy. But I think by sheer size, India is probably the most realistic, next great world’s factory floor.
But I think India needs to work at a number of its own political, economic and bureaucratic problems. So that may still be 10 to 15 years away. And then there’s Africa. Africa’s not a unified political entity, but there is now a massive free trade zone that that entails most African countries. And it’s also where you’ve had vast economic development projects largely financed by China over the last 10 years that make Africa, with very low labor costs, potentially another factory floor option. So there may not be a single country or a single market that fills the void as some of these supply chains are exiting China, but you may see them scattered depending on the particular conditions of the sectors in the markets that are fleeing China.
Ms. Gao: If you were to advise the current and next president of Taiwan, against this backdrop of the grand conflict between us and China, what suggestions would you give them?
Mr. Sitilides: Taiwan is in a very precarious situation. President Xi Jinping, Chinese communist party general secretary Xi Jinping, declared in a speech in January of this year, 10 months ago, that by 2049, Taiwan will be unified with China, ideally through peaceable means unfortunately perhaps through military force if necessary. That was the essential message that Xi Jinping declared openly for the world to hear, including Taiwan. And I think Taiwan is in a very delicate situation because on the one hand, they enjoy a very robust US defense cooperation arrangement. I think $10 billion in arms sales to Taiwan since 2010. Two billion alone in a deal underway now with the Trump administration. But I think also politically, look where we are right now in the United States with president Trump denouncing what he calls stupid or endless Wars in the middle East and South Asia. And even in 2016 people forget that Hillary Clinton and most democratic party candidates then and even now are for a U S disengagement militarily for many parts of the world.
So in a future scenario, how does a US president convince the American people that it’s worth sending American men and women to go to war to defend Taiwan against China? So I think from a realistic perspective, unless we have a slow building crisis where there’s a debate in the United States about US commitment to Taiwan’s defense, I think what we want to do more than anything else, so we’re not talking about a US military conflict in the Western Pacific over Taiwan, is that we build up Taiwan’s defenses to such a robust level that it would be so extraordinarily painful for China to even contemplate an invasion, an offensive against Taiwan that they simply don’t do it. So what we have instead is kind of like the South China sea, a continuation of a status quo situation where Taiwan has complete political autonomy, the freedom to operate within its borders and the freedom to trade freely around the world. But unfortunately, as long as there’s a Chinese communist party that’s ruling in Beijing, (Taiwan) does not have the ability to explore or to achieve flourishing, diplomatic relations around the world because of the one China policy that most countries are now adopting. So I think maintaining a status quo for the foreseeable future is probably the best way to proceed. Independence would be extraordinarily dangerous. And I don’t know that the U S or any of the country could credibly come to Taiwan’s defense if they were a Chinese military response to an independence movement in Taiwan.