CONTINUE TO MONITOR SOUTH CHINA SEA INCIDENTS FOR COUNTRY RISK

A high-level meeting last week in Tokyo, between Japanese defence officials and ASEAN leaders, appears to have resulted in the strengthening of mutual ties, due to China's increasingly aggressive territorial posture in the disputed South China Sea area. Longstanding unresolved territorial and economic claims by several countries, including Vietnam, the Philippines, Taiwan, Malaysia and Brunei, in the maritime region, conflict with recent Chinese actions in support of its position, that it has exclusive sovereignty over the territories and waters. Whether it will result in incident that degenerate into armed conflict is a concern among compliance officers charged with the assessment of country risk.

The recent Chinese warning to an Indian warship visiting Vietnam, to the effect that it was in Chinese territorial waters, is but the latest in a series of incidents that is troubling from a country risk point of view, involving Vietnam, the Philippines, Malaysia and Taiwan.

Japan and the Philippines have reportedly entered into a strategic partnership agreement involving security matters. The United States has also become involved, partially to insure freedom of  navigation in this strategic maritime route to Northeast Asia, and China has indicated that it is displeased with American involvement.

The most disturbing development last week was the publication, last week, of an opinion article appearing in the government-sanctioned publication Global Times, entitled "Time to Teach Those around South China Sea a Lesson*,"  written by a strategic analyst, Long Tao. The article states that it is a good time for China to take military action against Vietnam and the Philippines, alleged to be the most vocal critics of China's recent actions in the South China Sea, and states that the United States is too preoccupied with the Middle East to respond. It cites the American failure to respond to Russian military intervention in the Republic of Georgia in 2006 as authority for that belief.

Whilst the Chinese Government has distanced itself from the article, which is also critical of Australia, Japan and India for upgrades in military capabilities, it is in line with a number of statements coming from other quarters in China, notably some of its retired senior military officers.

It is suggested that compliance officers at international banks whose clients, or the bank itself, have financial exposure in Vietnam and the Philippines pay close attention to unfolding developments in the South China Sea. It could also serve as a pretext for action against Taiwan, who claims many of the islands in the region. Monitor all incidents if you have an interest in the countries bordering the South China Sea.
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* Filed on September 29, 2011. http://www.globaltimes.cn/