Cool Heads Quietly Dominate Heated South China Sea Dispute

(Corrects story originally published May 12 to say China accused Vietnam of ramming its ships.)

TAIPEI (TheStreet) -- It looks like Southeast Asia is prepping for war.

On Thursday China accused Vietnam of ramming its ships after water cannons had forced them back in a flap over the bigger country's oil rig on the smaller one's continental shelf. China had demanded earlier in the week that the Philippines return 11 of its fishermen who were arrested on suspicion of poaching sea turtles in what Manila considers an exclusive economic zone.

The two Southeast Asian governments hardly accept what Beijing says about the latest upsets in a 40-year-old contest over rights to the strategic, resource-packed South China Sea. Both found backing from the Association of Southeast Asian Nations meeting Sunday and lean increasingly on the United States for support. The Philippines is also pressing for United Nations action against China, but Beijing says it won't go there.

No one, however, will go to war. Everyone needs everyone else. China wants Southeast Asia's markets and economic cooperation. Southeast Asia looks to China as an export destination. The United States backs Asia ex-China only to check Beijing's growing power but otherwise prizes its stable relations with the world's No. 2 economy.

Flaps last week over the ocean tract south of Hong Kong show China is standing up for its perceived rights to drill and fish. They prove that the smaller South China Sea claimants, at least two out of five, are sick of China's maritime expansion. That's all.

"For China, a two-pronged strategy is still on track, although the hard hand has gone up a little," says Lin Chong-pin, retired strategic studies professor in Taiwan, noting that Beijing also wants economic relations with neighbors to the south.

"The United States wants those neighbors to challenge Beijing, but no war, just to consume China's energy or time by encouraging Vietnam and other countries," he says.

That means China's state-owned oil giant CNOOC Ltd. (CEO) can keep drilling in the 3.5 million square-kilometer ocean without a serious fight. The Philippines can go ahead with awarding oil and natural gas exploration contracts, potentially to foreign bidders. Speaking of which, Exxon Mobil (XOM) started working a natural gas tract in the same ocean just over a year ago, a joint venture with Malaysia. The ocean is estimated to hold 7.5 billion barrels worth of oil.

Ocean shippers such as Evergreen Marine (2603.TW) and American President Lines, part of Neptune Orient Lines (NO3.SI), can still use the South China Sea's lanes, about half the world's total.

Showing their softer side, Chinese leaders made valuable trade and economic cooperation offers to Vietnam last year on a swing through Southeast Asia that coincided with President Barack Obama's cancellation of the same because of a partial U.S. government shutdown.

Beijing wants to be seen as a good neighbor as its top multinationals, from soon-to-be-listed Alibaba to ZTE (ZTCOF), rely increasingly on growing markets in consumption-crazy Southeast Asia.

The United States hardly wants strife with China, its second-biggest trading partner after Canada, especially as Obama faces criticism at home over his foreign policies on Syria last year and Ukraine this year.

Obama's wife made a goodwill trip to China in March ahead of the president's April 23 travels to other Asian countries for security discussions. That was a sign that Obama's visits to countries leery of China didn't mean an end to the tense but enduring Sino-Chinese relations.

Vietnam has learned a love-hate, give-take symbiosis with its northern neighbor China for 1,000 years. Today both gain from disputes with other countries by using state-run media to marshal popular support for their Communist governments.

Philippine President Benigno Aquino III is also using China to rally sentiment among his people who are peeved by corruption and struggles against poverty.

"China is trying to beat down on the Philippines' authority by seeking special treatment," says Manila-based political commentator Ramon Casiple, referring to China's demand that the 11 fisherman be sent back rather than tried in court, where they're headed this week. "The image of China as a bully is almost a knee-jerk reaction."

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.

>>Read more: Big Coal Is Downsizing in China, and Stock Investors Like It

More from Emerging Markets

Wall Street Looks To Extends Gains After Goldman Earnings Beat, China Data

Wall Street Looks To Extends Gains After Goldman Earnings Beat, China Data

China's President Xi Jinping Tells Boao Forum He Supports Opening Markets

China's President Xi Jinping Tells Boao Forum He Supports Opening Markets

U.S. Stock Futures Steady; Asia Stocks Mostly Lower

U.S. Stock Futures Steady; Asia Stocks Mostly Lower

Jim Cramer: There Are Plenty of Shorts in Constellation Brands

Jim Cramer: There Are Plenty of Shorts in Constellation Brands

Renault Shares Hit 10-Year High on Nissan Merger Report

Renault Shares Hit 10-Year High on Nissan Merger Report