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TheStreet Open House

South China Sea Flare-Up Pits China Against the Philippines Over Oil, Shipping Lanes

Stocks in this article: MPEL

TAIPEI (TheStreet) -- China lashed out Monday against the Philippines as the smaller Asian nation took its giant maritime neighbor to a UN tribunal over rights to a disputed ocean tract. But this South China Sea flap is not expected to make big waves economically.

Beijing vented through its official Xinhua News Agency against Manila's decision to sue under the UN Convention on the Law of the Sea over rights to an ocean area that supports half the world's marine shipping traffic and is believed rich in oil and gas reserves.

China wants two-way talks instead of a UN hearing and may eventually get that wish instead of an economically or militarily risky fight. 

Manila formally asked the UN tribunal Sunday to reject a "nine-dash line" that China uses on maps to justify its claims to the disputed ocean. China says its dispute with the Philippines over the 3.5 million-square-kilometer tract of tropical sea doesn't apply to the UN convention.

For now, eyes are on the UN convention as the Philippines enjoys military backing from its old ally the United States, as well as the sympathies of three other smaller South China Sea disputants which are UN members.

"Beijing has a legitimate right under international law to reject the call for such arbitration, which renders Manila's legal attack futile," Xinhua says in a Monday commentary.

"The legal ploy, though carefully designed, is doomed to failure," the commentary says. "By portraying itself as a victim 'bullied' by China and crying for legal remedies, Manila's ulterior motive is to gain international sympathy for its groundless claim over the South China Sea issue."

China may follow up its ire with economic sanctions as it did in 2012, when the two nations entered a naval standoff over the Scarborough Shoal west of Luzon Island. That would hurt the Philippines' prized tourism industry, which looks to China as its fourth-largest market at 312,395 arrivals last year as of Dec. 5.

A slate of new casinos in Manila, including Melco Crown Entertainment (MPEL) Belle Grande and Leisure & Resorts World's (LR:Philippines) Resorts World Bayshore, may be hit particularly hard. Philippine authorities had expected Chinese customers as primary players at the casinos.

Tour agencies in China pulled back in 2012 during the Scarborough Shoal standoff, which began when the Philippines detained eight Chinese fishing vessels. China also added restrictions that year on Philippine fruit imports, another major industry. But the 2012 measures eased as the dispute ended, and China is seen making only symbolic reprisals this time.

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