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

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.

Shipping lanes used by international marine carriers including Neptune Orient Lines (NOL:Singapore) and Maersk Line (MAERSK-B:Copenhagen) will not be any more affected now than before. Six governments claim all or parts of the ocean, but usually focus on tracts where they have material holdings such as oil contracts or military bases rather than interfering with passing traffic.

Because the Philippines knows it's militarily weaker than China -- ranked 37th vs. third in conventional military might -- it will not get into scuffles at sea, says Eduardo Araral, professor at the Lee Kuan Yew School of Public Policy under the National University of Singapore. But Manila may take up Beijing's offer for two-way talks on the sea dispute, Araral says.

Growing ties with China's fellow superpower the U.S., plus the request for UN arbitration, would strengthen its bargaining position. The U.S. state department quickly expressed support for Manila's filing for UN dispute resolution, a move likely to irk fellow superpower China.

"I'm sure China will do something symbolic to squeeze the Philippines, and I'm sure the Philippines has factored in that cost already, but in the future of course the relationship will further go south unless the Philippine government does something more," Araral says.

"The next move is for the Philippines to have a formal talk with Beijing," he says. "[President Benigno] Aquino has got a few good chips with him so he can directly talk to the Chinese."

At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

At the time of publication, the author held no positions in any of the stocks mentioned.

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