China: Guidelines welcome foreign money

Government officials and experts said the new guidelines are in keeping with proposals contained in China’s 12th Five-Year Plan (2011-2015), which seeks to lay the foundations for a more innovative and greener economy. [Photo / China Daily]

 Updated: 2011-12-30 09:03
By Ding Qingfen and Lan Lan (China Daily)

Ministry opens more industries to investment from overseas

BEIJING – China will encourage foreign companies to invest more in domestic industries to further make good on the country’s commitment to open its economy, according to guidelines released on Thursday.

In a new version of the Foreign Direct Investment Industry Guidelines (2011), the Chinese government is encouraging foreign investors to put money into advanced manufacturing, the service industry and certain business concerned with energy conservation, advanced technology, renewable sources of energy, new materials and advanced-equipment manufacturing.

Government officials and experts said the new guidelines are in keeping with proposals contained in China’s 12th Five-Year Plan (2011-2015), which seeks to lay the foundation for a more innovative and greener economy.

On Thursday, the Ministry of Commerce and the National Development and Reform Commission (NDRC) issued the guidelines, which will replace a previous version of the rules that was published in 2007. They are expected to come into force on January 30.

Compared with the 2007 version, the new guidelines encourage foreign companies to invest in a greater number of industries and reduce the number of industries that are off limits to such investment.

“The new version indicates China’s strong commitment to opening its market wider,” said Wang Zhile, director of the ministry’s research center for transnational cooperation. “It’s absolutely a positive signal.”

In the new guidelines, the Chinese government will encourage foreign enterprises to invest in new technology and equipment for the textile, chemicals and machinery-manufacturing industries.

The guidelines also call for the encouragement of investment into nine service industries. Among them are those concerned with charging electric vehicles and swapping their batteries, protecting intellectual property rights, cleaning up offshore oil pollution and vocational training.

China will also allow foreign companies to invest in medical institutes and various other industries that were previously off limits to them.

Dirk Moens, secretary general of the European Union Chamber of Commerce in China, said foreign investors are likely to take heed of the government’s investment guidelines.

This “will indeed facilitate decision-making for foreign investors thinking of coming to China”, Moens said.

Kong Linglong, director-general of the National Development and Reform Commission’s department of foreign capital and overseas investment, had similar thoughts.

“Looking at the changes in the new version, we can tell the way in which the Chinese government would like to transform its industrial structure,” Kong said.

“And another message is that China is now placing more value on the quality of foreign investments rather than their scale.”

The government will also prevent foreign companies from building or operating refineries that have the capacity to distill fewer than 200,000 barrels of crude oil a day. That is up from the previous limit of 160,000 barrels a day.

China, meanwhile, has removed industries from the list of those it encourages foreign companies to invest in. No longer part of that group are automakers, large coal-to-chemical operations and manufacturers of polycrystalline silicon.

“The restrictions generally apply to industries that have excessively large capacities and that pollute the environment,” said Zhang Xiaoji, senior researcher at State Council’s development research center.

“But they will probably be a source of their (foreign companies’) complaints about transparency in China’s market for foreign investment. To alleviate their concerns, China should try to provide detailed information about what will be restricted.”

China issued the first version of its guidelines governing foreign direct investment in 1995. They are now amended every four years.

China released a draft version of the new guidelines in early April, seeking the public’s suggestions and comments.

“We have made reasonable changes in response to foreign companies’ opinions,” Kong said. For instance, the draft version said foreign investors could take no more than a 50-percent stake in joint ventures that produce all of the chief components needed in new-energy vehicles, a proposal that led to heated discussions in the auto industry.

The final version changed the stipulation about “all chief components” to one that only concerns “fuel cell batteries”.

Giving a keynote speech in December at a celebration ceremony for the 10th anniversary of China’s entry into the World Trade Organization, President Hu Jintao said China will continuously open its economy to the world. He said that is especially true for industries concerned with advanced manufacturing, strategic emerging industries, services, agriculture and modern culture.

In April, China issued a directive that encouraged more investment in the high-tech, renewable energy and service industries, and for more attention to be paid to the country’s western and central regions. The directive marked a turning point in China’s policies concerning foreign direct investment.

China is now the second-largest destination for such investment in the world and the largest among developing economies. In 2010, the value of foreign direct investment into China hit a record high, increasing to $105.74 billion, a rise of 17.4 percent from the year before. In 2009, it decreased by 2.6 percent.

From January to November, the value of China’s foreign direct investment increased by 13.15 percent from the same period the year before, reaching $103.77 billion.

Source

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As It Pivots Toward Asia, America Brings an Undefined Era to a Close

Anindya Novyan Bakrie | December 19, 2011

At the beginning of the 21st century, the Indo-Pacific region, consisting of the Asia Pacific and South Asia, existed in an interregnum. The Cold War and the period that followed had passed into history, and it was time for a new era to begin.

What began, instead, was the Age of Terror, inaugurated by the 9/11 attacks in the United States. However, unless terrorism wins, it cannot define an era, no matter how terrible its tactics and how atrocious its results. This is because neither terrorism nor the war against it can settle the great issues of the day.

Thus, the war on terror could not and did not define the relationship between the great powers of the region, primarily the United States, China, Japan and India. It did not, because it could not, decide the balance of power among these nations on the basis of their economic, political, military and cultural strengths. Terrorism merely postponed the inevitable rebalancing of power in the Indo-Pacific region. The region lived in an interregnum for the first decade following 9/11.

Now, in the closing months of 2011, the United States has terminated the interregnum and initiated a new era. It has decided to pivot to the region in two ways: by expanding the Trans-Pacific Partnership free-trade agreement and by deciding to station its troops in the Australian city of Darwin, in a move that could alter the security contours of the Indo-Pacific. No country in the region will be immune to the effects of these changes.

The TPP sends out an economic message that the United States is thinking big. At the Asia-Pacific Economic Cooperation forum in Honolulu last month, US President Barack Obama unveiled the framework of a Pacific-wide free trade agreement involving nine countries.

What had begun in 2005 as an agreement among Brunei, Chile, New Zealand and Singapore took on larger-than-life proportions with the inclusion of Australia, Malaysia, Peru, the United States and Vietnam. Japan announced that it, too, would join the grouping.

Covering 505 million people in an economically exciting part of the world who enjoy a gross domestic product of $16.97 trillion and a GDP per capita of $33,546, the TPP is a super-league FTA in the making.

The United States, with the largest economy in the world, has joined hands with Japan, the third largest economy, and several other vibrant economies in a move that could set the cat among free-trading pigeons, including the European Union.

On the strategic front, the message is the same: the Americans are thinking big. The pivot has taken the form of a US agreement with Australia for the eventual deployment of up to 2,500 Marines on rotational missions in Darwin. These numbers are not big in themselves. What is big is the strategic intention behind them. At one go, America has inserted itself in the swiftly-changing scenario in the Indo-Pacific theater created by the military rise of China and manifested in its assertiveness in the South China Sea.

Are the TPP and the coming Darwin deployment attempts to exclude, encircle and contain China? They do not have to be.

China, the world’s second largest economy, is welcome to join the TPP and make it the apex FTA of the future. In the process, Beijing would become enmeshed in the emerging economic architecture of the Indo-Pacific. True, this would mean concessions on its part and agreement to play by the rules of TPP, but then the same rules would bind the other players as well, all of whom would have to make concessions. This is not containment, unless Beijing decides to see it that way.

As for the Darwin deployment, it is an American signal to the Chinese to moderate their naval assertiveness. China’s military build-up leaves no one in any doubt of its desire to protect its national interests in the Taiwan Strait. China seeks to be in a position to deal effectively with the eventuality of American (or other) intervention should Taiwan declare independence and seek foreign help.

But the South China Sea is another matter: It is contested maritime territory. For Beijing to elevate it to a “core interest,” on par with Taiwan’s and Tibet’s place in China’s territorial integrity, cannot but make the other claimants look for support from another great power. America provided diplomatic support to Southeast Asian countries worried about China, particularly Vietnam and the Philippines, by reasserting Washington’s commitment to freedom of navigation in the international waterways.

The Darwin deployment reinforces Washington’s military resolve not to let Chinese assertiveness in the South China Sea carry the day by default. It is now up to China to recalculate its options. This is not containment — unless Beijing chooses to see it that way.

Indonesia has not been vocal on these game-changing events and developments, but it has a role to play in them for obvious reasons. Even before American strategic thinking recognized Indonesia’s position as a pivotal power in the Indo-Pacific, geography had assigned it that role.

The Indonesian archipelago forms a crossroad between the Indian and the Pacific oceans, and it is a bridge between the continents of Asia and Australia. Indonesia is the largest archipelago in the world to form a single state and Southeast Asia’s largest country. With a GDP of more than $700 billion, its economy is the biggest in Southeast Asia and has won it membership of the Group of 20.

Whether Indonesia wishes to join the TPP will depend on a calculus of costs and benefits that must take into account the fact that, for all the nation’s achievements, it remains a developing country. At the moment, what is crucial is that Indonesia contributes to the viability of the Asean Economic Community, whether or not that vision is achieved by 2015.

On the strategic front, Indonesia is not, and will not be, a part of any attempt to contain China. At the same time, however, Indonesia cannot have its options constrained in dealing with the United States, Japan, India or any other country.

This is true not only of Indonesia but of Asean in general. No country in Asean wants to be forced by either the United States or China to choose between the two. Indonesia, as Southeast Asia’s pivotal country, must continue to pursue a free and independent foreign policy that welcomes extra-regional powers without becoming a part of any exclusive agenda they might have.

All in all, these are interesting times in which Indonesia must remain relevant. Or should I say that these are pivotal times?

Anindya Novyan Bakrie is chairman of VIVA Media Group, chief executive of Bakrie Telecom, vice chairman of the Indonesian Chamber of Commerce and Industry (Kadin), and a presidentially-appointed representative for the APEC Business Advisory Council.

Source

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India unease as China debates naval base in Seychelles

China’s ministry of defence said the Seychelles would allow naval vessels to take on supplies in anti-piracy campaigns, but initiative is likely to viewed with unease in India.

Daniel Bardsley (Foreign Correspondent) and Suryatapa Bhattacharya

BEIJING // China is considering an offer from the Seychelles to set up a supply base for its naval ships, in a move to be closely watched by India.

Details of Beijing‘s tie with the Indian Ocean archipelago come as the Chinese navy holds sea trials for its first aircraft carrier and continues making double-digit defence spending increases that are strengthening the country’s naval power.

China’s naval ambitions are a concern for many of its neighbours, especially given the assertiveness Beijing has shown in recent maritime disputes with Japan in the East China Sea, and Vietnam and the Philippines over the South China Sea.

State media quoted the defence ministry as saying that the port in the Seychelles was still under consideration, while the Chinese authorities reaffirmed the country’s policy of not stationing troops overseas.

“China’s position is clear. China has never set up military bases in other countries,” said the foreign ministry spokesman, Liu Weimin.

China’s ministry of defence said the Seychelles would allow naval vessels to take on supplies, while Chinese ships were assigned to anti-piracy patrols in the Gulf of Aden.

The Chinese navy has previously taken on supplies in Oman, Yemen and Djibouti when carrying out missions against pirates from Somalia, Reuters reported yesterday.

“According to escort needs and the needs of other long-distance missions, China will consider taking supplies or recuperating at appropriate ports in the Seychelles and other countries,” said a defence ministry statement. But Joseph Cheng, a regional political analyst at the City University of Hong Kong, said it was “to be expected” that China would develop more advanced centres to support its growing navy.

He added that initially these would simply be supply bases of the kind proposed in the Seychelles but repair facilities would likely be developed later.

The issue of Chinese naval activity in the Indian Ocean is of particular interest to India, which has long-standing border disputes with China and is deeply suspicious of the country’s close ties with its archrival, Pakistan.

There was no official reaction from India’s government yesterday, but The Times of India said China’s initiative “was bound to create a degree of unease in New Delhi”.

Retired Brigadier Rumel Dahiya, the deputy director general of the Institute for Defence Studies and Analyses in New Delhi, said the move would go beyond a piracy-related issue.

“This is clearly a case of China trying to establish a greater base in the Indian Ocean. They are expanding their reach,” he said.

Christian Le Mière, a research fellow for naval forces and maritime security at the International Institute for Strategic Studies, said India may view any agreement with the Seychelles as “indicative of Chinese naval expansionism into India’s back yard”.

“It is not necessarily a direct threat to India, in much the same way that Diego Garcia [a US navy base] is not a direct threat to India currently. Arguably Chinese counter-piracy efforts are beneficial for global trade and hence for Indian interests as well,” he added.

The China Daily newspaper said the invitation from the Seychelles was issued during a visit by Liang Guanglie, the defence minister, earlier this month. It was the first time a Chinese defence minister has visited in 35 years. The Chinese navy has grown in recent years from a coastal protection force to one spanning the globe, sending ships as far as the Caribbean on goodwill missions and into the Mediterranean to escort vessels evacuating Chinese citizens from the fighting in Libya.

Meanwhile, Sri Lanka said yesterday it was “true friends” with China because of the military assistance Beijing provided during the island’s bloody civil war.

China’s influence in Sri Lanka, Pakistan, Nepal and other surrounding countries is also a sensitive subject with India.

Also yesterday, US officials were investigating an American military drone that crashed at an airport on the Seychelles. It is used to target Al Qaeda-linked militants in Somalia.

Source

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Is War in the South China Sea Inevitable?

If China is not actually preparing for conflict in the South China Sea over disputed archipelagos and islets and their rich offshore resources, from fish to hydrocarbons, then consider the comments made on 6 December by Chinese President Hu Jintao to the Central Military Commission, as reported by Xinhua. Hu said that China’s navy should “make extended preparations for warfare,” adding that the navy should “accelerate its transformation and modernization in a sturdy way, and make extended preparations for military combat in order to make greater contributions to safeguard national security. Our work must closely encircle the main theme of national defense and military building.”

Is Beijing’s big nautical stick about to be deployed against other Southeast Asian nations contesting China’s South Sea sovereignty claims?

At issue are the Spratly islands’ 750 islands, islets, atolls and cays, which China, along with the Philippines, Taiwan, Vietnam, Malaysia and Brunei, are claimed by all. While there are no native Spratly islanders, about 45 archipelago’s islands are now occupied by Vietnamese, Chinese, Taiwanese, Malaysian and Filipino forces, hardly a recipe for concord.

Whatever China’s intentions, what is beyond doubt is the exponential growth of the Chinese navy, which can now field 66 submarines, an undersea arsenal the Chinese government is intending to increase to 78 by 2020 as planned, putting it roughly equivalent to the U.S. Navy’s submarine forces in numbers, if not in quality. Furthermore, China’s defense budget is growing nearly 10 percent annually and China’s first aircraft carrier, a renovated Soviet vessel, has begun its second set of sea trials from its Yellow Sea port in Dalian in northeastern China. The 990-foot-long former Soviet Kuznetsov-class carrier, originally called the Varyag and now apparently renamed the Shi Lang, was completely overhauled and is currently based in China’s northeast Dalian port. It is perhaps not coincidental that “Shi Lang” was a famous 17th century Chinese admiral who conquered Taiwan.

China is applying some not so subtle gunboat diplomacy to advertise its new maritime capabilities. Last month a delegation composed of 42 military attaches from 37 countries including the United States, Canada, Britain and Germany make a two-day-long goodwill visit to the North China Sea Fleet of the Navy of the Chinese People’s Liberation Army, visiting a ship-borne aircraft regiment of the aviation force under the North China Sea Fleet.

Their Chinese hosts demonstrated a number of capabilities, including platform-based flying and overland rescue. Lest the attaches be in any doubt about the Chinese Navy’s new capabilities, they also visited the Shenyang guided-missile destroyer.

But at least one contestant in the South China Sea is rising to the challenge. Later this month the Philippine Navy will deploy its biggest and most modern warship, the BRP Gregorio Del Pilar, to the South China Sea, which Manila labels the West Philippine Sea.

Regional diplomats are still trying to defuse the situation. Indonesia’s Foreign Affairs Minister Marty Natalegawa said that the Bali Concord III, signed last month, could serve as a guide for East Asian countries in dealing with the dynamic situation in the South China Sea, commenting, “We are aware of the dynamic situation in the South China Sea. However, we must remember that now we have the Bali Concord III that was signed by the heads of state/government during the East Asia Summit last November 19.”

Washington’s take on the squabble? Pentagon spokesman George Little said, “They (China) have a right to develop military capabilities and to plan, just as we do.”

Translation for Manila, Ho Chi Minh City, Taipei, Kuala Lumpur and Bandar Seri Begawan – you’re on your own. It’s worth remembering that the People’s Republic of China fought two brief but savage border wars with both India (1962) and Vietnam (1979.)

For those with a sense of history, today is the 70th anniversary of the Japanese attack on Pearl Harbor, which occurred prior to a declaration of war. For those with a greater sense of history, Dalian is close to the Chinese port of Lushunkou. Previously known as Port Arthur, it was the major base of the Russian Navy Pacific Fleet and attacked on 8 February 1904 by the Imperial Japanese Navy.

Without a formal declaration of war.

By. John C.K. Daly of Oilprice.com

Source – Oilprice.com

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China getting ready for war, alerts Navy

Posted by Mohan Ramraj on December 9, 2011

Beijing, Dec 8 (TruthDive): Chinese President Hu Jintao has asked the Chinese navy to get ready for war as regional tensions over maritime disputes were on the increase in recent times. His call also came in the wake of a campaign portraying U.S as a Pacific power.

The Navy should “accelerate its transformation and modernization in a sturdy way, and make extended preparations for military combat in order to make greater contributions to safeguard national security,” he said.

In an address to the Central Military Commission, Hu said: “Our work must closely encircle the main theme of national defense and military building.”

His comments, which were posted in a statement on a government website, come as the United States and Beijing’s neighbors have expressed concerns over its naval ambitions, particularly in the South China Sea.

The whole of the fight is for the South China Sea, which accounts for one-third of the global sea-trade, also believed to have huge oil and gas reserves. Many countries accused China’s move to build tension over there.

The country’s official news agency quoted the President as saying China’s Navy should “make extended preparations for warfare.”

The U.S carefully responded acknowledging its right to develop its military and called for transparency.

“They have a right to develop military capabilities and to plan, just as we do,” said Pentagon spokesman George Little, but he added, “We have repeatedly called for transparency from the Chinese and that’s part of the relationship we’re continuing to build with the Chinese military.”

“Nobody’s looking for a scrap here,” insisted another spokesman, Admiral John Kirby. “Certainly we wouldn’t begrudge any other nation the opportunity, the right to develop naval forces to be ready.Our naval forces are ready and they’ll stay ready.”

State Department spokesman Mark Toner said: “We want to see stronger military-to-military ties with China and we want to see greater transparency. That helps answer questions we might have about Chinese intentions.”

It is very obvious that the Chinese Premier’s call came in the wake of several American top officials’ visit to Asian countries including President Barack Obama, Defense Secretary Leon Panetta and Secretary of State Hillary Clinton.

Source

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Washington’s Clumsy China Containment Policy

by Ted Galen Carpenter

Although U.S. officials have insisted for years that they do not regard China’s rise to great-power status as a threatening development, Washington’s statements and actions increasingly belie those assurances. Any doubt on that point disappeared following President Obama’s November 17 speech in Canberra, Australia. In his address to the Australian parliament, Obama boldly asserted that “the United States is a Pacific power, and we are here to stay.” Observers in Australia and throughout the region interpreted that comment as sending a message to China that the United States was not about to quietly relinquish its hegemony in East Asia and let the PRC become the leading power.

The Canberra speech was not the only measure that suggested that Washington was adopting a harder line toward Beijing on security issues. Just hours before his address to parliament, Obama announced that the United States would send military aircraft and as many as 2,500 Marines to northern Australia over the next few years to develop a training hub to assist allies and protect American interests throughout the region.

The next day, while attending an East Asian economic summit in Bali, the president went out of his way to emphasize the importance of the U.S. defense alliance with the Philippines and pledged to strengthen that relationship. His comment followed a blunt statement from Secretary of State Hillary Clinton regarding the ongoing dispute between China and several of its neighbors (including the Philippines) over territorial claims in the South China Sea. “Any nation with a claim has a right to exert it,” Clinton stated during a visit to Manila on November 16, “but they do not have a right to pursue it through intimidation or coercion.” She added that “the United States will always be in the corner of the Philippines and we will stand and fight with you.” Although the latter remark could be interpreted merely as a restatement of the rationale for the six-decade-old mutual-defense treaty, given the secretary’s comments about the South China Sea dispute Beijing could certainly view her statement as a specific warning regarding that issue.

Those moves, along with previous efforts to strengthen cooperative military ties with other traditional allies such as South Korea and Japan and one-time U.S. adversaries such as Vietnam, have all the earmarks of a rather unsubtle containment policy directed against China. It is a foolish strategy that will complicate and perhaps permanently damage the crucial U.S.-China relationship. Perhaps even worse, it is a containment strategy that is long on symbolism and short on substance, thereby managing to be simultaneously provocative and ineffectual.

Take the U.S. decision to send 2,500 Marines to Australia. It is hard to imagine a scenario in which such a small deployment would be militarily useful. If there is a security contingency somewhere in East Asia, it is likely to be decided by air and naval power, not a meager force of Marines. Yet, while militarily useless, such a deployment conveys a hostile message to Beijing, thereby managing to antagonize the Chinese.

A similar conclusion is warranted with regard to the Obama administration’s transparent effort to revitalize the nearly moribund alliance with the Philippines. That chronically misgoverned, third-rate military power would hardly make a good security partner in any crisis. Yet by siding with a country that is deeply embroiled with China over territorial claims in the South China Sea, the United States once again appears to be going out of its way to antagonize Beijing.

That would be an ill-advised approach under the best of circumstances. But to embrace a containment policy—especially one that is primarily bluster and symbolism—when Washington badly needs China to continue funding the seemingly endless flow of U.S. Treasury debt verges on being dim-witted. It’s never a good idea to anger one’s banker. And one can assume that Beijing is watching U.S. actions, not just the pro-forma assurances that the United States wants good relations and does not regard China as a threat. Those assurances ring increasingly hollow, and one can assume that Chinese leaders will react accordingly. That does not bode well for the future of the U.S.-China relationship.

Source

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The Coalition Against Chinese Hegemony

To resist Beijing’s maritime claims, Asean members will have to compromise and form a common front.

By PHILIP BOWRING

Manila

Ownership of the islands, seabed resources and navigation rights in the South China Sea is now very much on the international agenda. The Association of Southeast Asian Nations is more united on this issue than it has been for about a decade, and the U.S. is turning more attention diplomatically and militarily to the Pacific. Nevertheless, sustaining the coalition of interests disputing China’s claimed hegemony over the sea will not be easy.

In fact, the wonder is that the Chinese leadership managed to get itself into this predicament by so clumsily arousing neighboring countries’ fears. Having suffered constant Chinese provocations over the preceding few years, Hanoi used its chairmanship of the Association of Southeast Asian Nations in 2010 to first bring the issue of Chinese aggression to the table. Vietnam and the Philippines encouraged the U.S. to make clear its own interest in freedom of navigation and settlement of territorial disputes according to international principles.

At that point Beijing could have backed off and allowed the subject to fade from view. Instead, the People’s Liberation Army tried to punish Vietnam and the Philippines by harassing their exploration ships. Under the confident new administration of President Benigno Aquino, Manila responded with unprecedented vigor, carrying on exploration and offering new blocks for drilling.

Even this has not given China’s nationalists second thoughts. Recently the Global Times newspaper, owned by the People’s Daily, warned those who dispute Chinese claims to be “mentally prepared for the sound of cannons,” a threat that was noted around the world.

There is a sense that China’s provocations have been driven by the military, probably against the advice of its diplomats. If wiser heads among Beijing’s civilian leadership can reassert control, they will re-adopt Deng Xiaoping‘s maxim about keeping a low profile. If so, China will tone down its rhetoric and offer economic benefits on a larger scale to increase its neighbors’ dependence. It will likely quietly offer bilateral exploration deals which would divide the Asean claimants who are just starting to work together.

China has tried this before and nearly succeeded with Manila. Although the Philippines has relatively little reliance on China trade, its need for investment and pervasive corruption are vulnerabilities. The preoccupation of its armed forces—who are anyway poorly equipped—with insurgencies at home limits its ability to police the seas and protect exploration.

However, democracy can be a powerful force when it comes to protecting national interests. The Philippine public’s determination to stand up to bullying can be stronger than that of elites with business deals with China or autocracies reliant on good relations.

Vietnam’s nationalistic instincts are sure enough but Vietnam is still a relatively small and weak nation quite dependent on trade with China and likely to become more so. Good ties with India, Japan and Russia and emerging ones with the U.S. are an offset but China’s threats have already deterred some exploration on the continental shelf.

China’s efforts to divide the littoral states by pressing for bilateral negotiations have so far not met with success. But they could do so if Vietnam, the Philippines, Malaysia and Brunei do not resolve their own differences. Significantly, China has refrained from overt threats against Malaysia even though oil and gas wells off Borneo are within its claimed territory. Malaysia in return has urged caution and cooperation with China. If Vietnam and the wider Malay world do not hang together they will surely be hung separately.

The difficulty lies in sacrificing some overlapping claims to form a united front. Vietnam claims all the Spratlys, the Philippines most but not all of them, Malaysia just a few, and Brunei only a couple of banks. Many of the islets, rocks and reefs lie outside their 200-mile exclusive economic zones and none qualifies for its own EEZ as none is capable of independently supporting permanent habitation.

Vietnam’s claim is as successor to its French colonial rulers as well as Vietnamese imperial assertions and the legacy of the Cham trading kingdom which flourished in central Vietnam until about 1500. The U.S. never claimed the Spratlys but an independent Philippines did so on the basis of proximity and as part of the Philippine archipelago. Malaysia and Brunei make claims based on rights to the continental shelf off Borneo.

Compromise among these four countries, who together own two-thirds of the coastline, is essential to prevent China from establishing hegemony over Southeast Asia. If the Asean nations cannot agree among themselves they could ask the International Court of Justice for a ruling, as did Malaysia, Singapore and Indonesia in previous island disputes. The court could also be asked to adjudicate the EEZ boundaries. China would object, but that would only underline its unwillingness to agree to arbitration based on the U.N. Law of the Sea Convention.

In the end, only leadership from Indonesia, the largest Malay state and the cornerstone of Asean, can resolve this conflict. It can do more to refute China’s history-based claims, which ignore centuries of Malay trading across the sea a thousand years before the Chinese. And Jakarta can be the honest broker in finding a compromise to share resources that lie outside the EEZs of the claimants.

Vietnam, the Philippines and the other smaller states are never going to be able to remove China from the Spratly Islands that it now occupies, let alone the Paracels that it seized from Vietnam in 1974. But if they can maintain a common front with backing from Indonesia, they should be able to defend their interests in the South China Sea and their future sovereignty.

Source

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Soc Gen Says China May Look for US LNG Deals in Future

China may look to buy US LNG volumes in the future as an alternative to buying more gas from Russia, one European gas analyst said.

Soc Gen analyst Thierry Bros said in a report Tuesday that, with US Gulf Coast LNG expected to materialize in 2016, China will likely first look into a potential US LNG deal before signing a gas supply agreement with Gazprom.

The bank estimates the minimum breakeven cost for US Gulf Coast LNG delivered into China, taking shipping into account, would work out at around $11.6/MMBtu. This allows plenty of room for negotiations between companies selling US LNG and the Chinese from $13.50/MMBtu — which would allow a minimum of 15% return on investment — and $22/MMBtu — which takes into account full oil indexation — Societe Generale added.

“The $13.5 to $22/MMBtu negotiation range translates into a price of oil between $77/b and $133/b, or an oil-indexation formula with a slope between 0.10 and 0.17. This is large enough to match a Russian pipe-gas oil-index price,” Bros said.

As a result, Societe Generale believes China will prefer to look further into US LNG rather than rely on securing an agreement with Gazprom, which could further delay negotiations between Russia and China.

“Judging by the seeming lack of any progress in the gas pricing issue during [Russian Prime Minister Vladimir] Putin’s recent visit to China, it seems Beijing is in no particular hurry to sign the contract,” Bros said.

In 2006, Moscow and Beijing signed an initial agreement on gas supplies, when they agreed to construct two pipelines to transport a total of 68 billion cubic meters/year of gas from Russia to China over 30 years. Gazprom and China’s state-owned CNPC in 2010 subsequently signed a legally binding agreement on the supply of up to 30 Bcm/year.

Negotiations since then have not gone as smoothly and have been bogged down by pricing disagreements. Putin’s recent visit to Beijing in October didn’t resolve any of those issues although he said the parties were “on their way to the final stage of negotiations.”

The report published by Societe Generale comes in response to the latest agreement between Cheniere Energy Partners’ Sabine Pass Liquefaction unit in the US and Gas Natural Fenosa announced on Monday.

Under the LNG-sale-and purchase agreement, Gas Natural Fenosa would buy as much as 3.5 million mt/year of LNG. The deal is expected to help facilitate the construction of the first two liquefaction trains at the site, which would produce 9 million mt/year of LNG in the first phase. Construction of the two trains at Sabine Pass is estimated to begin in 2012.

(platts)

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