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Aquino Warns Big-Brother China on Trade Fallout Over Sea Spat

Philippine President Benigno Aquino said China may harm relations with its trading partners if it fails to respect a United Nations-backed arbitration ruling over its claims in disputed waters with oil and gas reserves.

“Hopefully they will see that it is in their interest to be fair,” Aquino said in an interview in Manila yesterday, when asked about the chances China would comply with an international ruling. “Continued growth on their part means access to markets and resources. When you become fearful of relationships with them, access to both becomes hampered.”

The Philippines asked the United Nations in January to rule on its maritime disputes with China. A five-member arbitral tribunal was appointed last month and will decide by July if it has jurisdiction, Foreign Affairs Secretary Albert del Rosario said on April 26.

Aquino has struggled to deter China from asserting its claims to disputed territory and has bolstered ties with the U.S., a treaty ally, and countries such as Japan and Vietnam that also are mired in territorial disputes with the Chinese government.

China has “effective occupation” of Scarborough Shoal, where three of its ships remain, one year after a standoff between Philippine and Chinese ships, Del Rosario said on April 26. The land feature is about three times closer to the Philippines than to China, the Philippines said in an arbitration note.

“We are being shooed away from our fishing grounds,” Aquino said, referring to the Scarborough Shoal area. “You have one big brother who is not too benevolent at the present time so hopefully the arbitration will lead to a clear delineation of everybody’s rights and everybody’s responsibilities.”

China’s Dominance

Southeast Asia is growing more reliant on trade with China, which is a gateway for shipments to advanced economies, the Organization for Economic Cooperation and Development said in a November report. Sixteen Asian nations including China plan to start talks on a regional trade agreement this month.

Japan’s purchase last year of islands known as Senkaku in Japan and Diaoyu in China, led to Chinese protests and roiled trade ties between Asia’s two biggest economies. Anti-Japan demonstrations reduced China sales at Toyota Motor Corp. (7203), Nissan Motor (7201) Co. and Honda Motor Co.

China last month unveiled plans to build more aircraft carriers after commissioning its first last year. It sent a naval patrol in March to the southernmost area of its nine-dash map, which incorporates most of the South China Sea, to “safeguard the country’s sovereignty,” according to the official Xinhua News Agency.

Sea Map

“I don’t want to sound racist, but there seems to be a bit of inscrutability in trying to understand the Chinese intentions,” Aquino said. He has Chinese roots and visited the hometown of his ancestors in Fujian province in 2011.

The Philippines and Vietnam reject China’s map of the sea, first published in the 1940s, as a basis for joint exploration of oil and gas. China claims “indisputable sovereignty” over more than 100 islets, atolls and reefs that form the Paracel and Spratly Islands, and jurisdiction over the seabed and subsoil.

China has said the tribunal has no grounds to accept the Philippines case, and that it prefers to resolve the dispute through direct negotiation. The Philippines is illegally occupying China’s islands in the waters, Foreign Ministry spokeswoman Hua Chunying told reporters in Beijing on April 26.

Economic ties have strengthened in the past few years between Asian countries even as territorial disputes have increased, Li Mingjiang, associate professor at the S. Rajaratnam School of International Studies in Singapore, said by phone.

Cables Cut

“Unless China appears to be prepared to use military force anytime soon in these disputes, we don’t see any clear sign that there is an economic containment policy against China in the region,” he said.

China National Offshore Oil Corp. estimates the South China Sea may hold about five times more undiscovered natural gas than the country’s current proved reserves, according to the U.S. Energy Information Administration. China surpassed the U.S. as the world’s largest energy user in 2010.

China has cut the cables of survey ships working for Vietnam, chased away an exploration vessel operating off the Philippine coastline and sent its first deep-water drilling rig to the region. Last year, Cnooc invited foreign oil firms to bid in areas that Vietnam already awarded to companies including Exxon Mobil Corp. (XOM) and OAO Gazprom. (GAZP)

Aquino’s predecessor, Gloria Arroyo, signed an agreement in 2005 with China and Vietnam on joint seismic surveys in disputed waters. That accord was abandoned on concerns over corruption and whether it complied with the constitution.

“The first step has to be, finish the arbitration procedure and then have it clearcut,” said Aquino. “To be realistic about it, how does one push around a superpower?”

To contact the reporters on this story: Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net; Joel Guinto in Manila at jguinto1@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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