De La Salle University

College of Liberal Arts

Political Science Department

The China Choice:

Economic Interdependence or Territorial Disputes

By:

SERAPIO, Stephanie A.
UY, Matthew C.

Adviser:
Mr. Glenn Teh

Reader:
Mr. Danilo delos Santos
The China Choice: Economic Interdependence or Territorial Disputes

Stephanie A. Serapio *
Matthew C. Uy **

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 Political Science Department, De La Salle University, Taft Avenue Manila 1004, Philippines

The post-cold war period marked a new era wherein the whole world witnessed a shift in the interests
of states. Economic issues emerged as the primary global agenda and countries started to determine
their foreign policy and international position in terms of their economic, rather than military,
prowess. These economic issues have led to an interdependence between states that is strong enough
to prevent war. This paper seeks to analyze specific cases of territorial dispute between China and
four other states namely: Japan, South Korea, Malaysia, and the Philippines. Specifically, this paper
seeks to test the validity and relevance of the liberal hypothesis and ascertain exactly how effective is
economic interdependence in preventing conflict amid China’s territorial disputes with its
neighboring countries. This paper will study their economic ties by measuring the level and frequency
of bilateral trades and investments of each respective country vis-a-vis China. Afterwards, the
economic interdependence between states will be analogized with their respective territorial disputes.
As mentioned earlier, this study will only focus on the China’s disputes with Japan, South Korea,
Malaysia, and the Philippines and the events that have transpired over the last five years.

Keywords: China-Japan relations, China-South Korea relations, China-Philippines relations, China-

Malaysia relations, conflict prevention, economic interdependence, territorial disputes

Introduction
An article in 2002 for the Foreign Affairs featured Joseph Nye Jr. purport the status of the United
States of America as an undisputed global hegemon in the international arena by stating that
‘’[America] is too powerful to be challenged by others but not powerful enough to achieve its
goals alone.’’ He goes on to say that America’s hegemonic status is fueled by its unprecedented
military and economic power especially after the fall of the European powers and Imperial Japan
at the end of the Second World War and with the collapse of the Soviet Union after the Cold War.
However, due to Washington’s inability to prevent political catastrophes from happening all over
the world over the past years, this once undisputed hegemonic status became questionable.
Not accepting the West as the only superpower, China started to hasten its game. For the
past decade or so, many regarded China as the new rising power that can balance or even surpass
the United States, given the country’s current military strength and the unprecedented growth of
its economy. Also known for its charm-offensive, it started engaging different countries,
especially its neighbors in the Northeast East and Southeast Asia into different trade agreements
that transformed Beijing as an ‘’indispensable economic partner’’ (Heydarian, 2015), in spite of
the latter’s territorial aggressiveness and reclamation activities in the maritime areas of the two
aforementioned regions.
In response to the said reclamation activities, Japan has decided to refurbish its post-
Second World War military policy with the May 14, 2015 endorsement of international peace
support bill and peace and security legislation development bill that will allow members of
Japan’s Self-Defense Forces to engage and assist in collective security operations despite the
limitations imposed by Article 9 of the Japanese Constitution (Lai & Lingwall, 2015). Likewise,
South Korea, a country which considers both China and United States as equally important
political allies and trading partners, is now pressured to stand up against the territorial
aggressiveness of China but still refuses to give in to this pressure and is more inclined toward
settlement as of the writing of this paper.
Concurrently, despite viewing China’s territorial and maritime reclamation as a ‘’threat
to peace, security stability in the South China Sea and the region’’, Southeast Asian nations have

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done little to stop these activities. Malaysia, a strategic partner of China, has only expressed a
verbal condemnation against the said reclamation. By contrast, the Philippines, through
international arbitration, has taken the path of diplomacy while asking for assistance from the
international community, specifically the United States and members of ASEAN.
Given the different stakes and interests of the countries involved in these territorial and
maritime disputes, what then prevents these disputes from escalating? Adopting a liberal and
neoliberal perspective, this paper argues that economic interdependence is the primarily reason
why states do not consider war as the first recourse of action. Considering the fact that China is
the largest market in the region and rival claimants Malaysia, South Korea value both its political
and economic relationship with the regional hegemon, do it necessarily imply that both Kuala
Lumpur and Seoul will just take two steps backward and permit China to take over the disputed
islands in the region? For countries like Japan and the Philippines who are less dependent on
Beijing but still recognize their status as the economic regional hegemon, what other active
means of preventing conflict can they employ or adapt in order to resolve these conflicts or at
least prevent the further escalation of war? Moreover, for a country like China who wishes to
maintain social stability and full development and yet cannot do this alone, what could be the
reason/s behind their continued aggressiveness in the disputed areas of the region? Is it because
they simply do not value their relationship with the rival claimants or are there any other factor/s
that fuel these aggression? Lastly, what other mechanisms or strategies can these states use in
order to prevent a militarized conflict and war?
In an attempt to shed light and provide answers for these questions, the researchers have
employed both quantitative and qualitative methods with a much more emphasis on the latter.
First, in order to measure economic interdependence of rival-claimant (x) to China and vice-
versa, the researchers have utilized various statistics on trade and investment, with specific focus
on values of imports, exports and inward and outward foreign direct investment of the given
country-cases. These values will be taken from the following: Japan External Trade
Organization, Korean Statistical Information Office, Organization for Economic Cooperation,
Department of Statistics-Malaysia, United Nations Conference on Trade and Development and
Bangko Sentral ng Pilipinas. The aforementioned sources are recognized by the host countries.
The differences in values between China’s relationship with one state to another will be
analyzed carefully for it will help ascertain how strongly or how weakly two states are
economically interdependent with each other. Aside from statistics, the paper will look at
individual cases of dispute between China and other states. It will delve into the factors and the
specifics of each case by looking into academic journals and conducting interviews with foreign
policy experts. The researchers will also keep track of the latest developments with respect to
China’s relationship with any country included in this study by closely monitoring both the local
and international media such as Aljazeera, Foreign Affairs, Foreign Policy, National Interest,
among others.
After obtaining all the data needed, the researchers will then analyze the relationship
between the country cases bilaterally (China-country x) and regionally (China-Northeast Asia;
China-Southeast Asia). The researchers will probe for relevant patterns and correlate them, if
possible, so as to verify the previous claim that despite how high the actors’ stakes are in the said
territorial disputes, it is economic interdependence that prevents them from choosing war or
militarized conflicts as the first recourse of action.

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The need to study the relationship of economic interdependence and territorial disputes
For the past two centuries, Asians have played the role of spectators in the dominance of the
West. However, the tables have turned and, after being colonized by the West; after being
devastated because of the several wars; and after enduring the Asian financial crisis, Asia has
once again taken the spotlight with East and Southeast Asia serving as the focal points
(Mahbubani, 2008). East Asia was once seen as a region of poverty and stagnation, but was able
to transform itself into the ‘’growth center’’ of the world. (Fujita, et.al, 2011). In the same
manner, Southeast Asia, one of the balkanized region in the world, is now considered as one of
the ‘’most dynamic regions in the world’’ (Chaisse and Gugler, 2010) and has experienced
commendable economic dynamism.
Several international organization and think tanks such as Asian Development Bank,
World Bank and Powerhouse Coopers among others, envision that by the year 2050, Asia would
be able to regain the preeminent economic position it held long before the industrial
revolution. Eight countries from the two regions (Northeast and Southeast Asia) will be part of
the top 25 major economies, with China sitting on the 1 spot, overtaking US, Indonesia at 4,
Japan at 7, South Korea at 17 followed by Philippines, Thailand, Vietnam, and Malaysia at 20,
21, 22, and 24, respectively. (See Figure 2). In line with this, Asia must realize that regional
cooperation (including integration) is critical and vital in its quest towards development and
prosperity. (Asian Development Bank, 2015)

Figure 1: Asia’s share of global GDP, 1700-2050

Source: Asian Development Bank’s Realizing the Asian Century
Retrieved
from:

http://adb.org/sites/default/files/asia2050-executive-summary.pdf

However, in spite of the projected economic status the region could share in, China has
been asserting its dominance in the region by reclaiming some of the disputed islands and
maritime areas. Given its current military and economic power, it is highly capable of engaging
in militarized conflicts with the other rival claimant countries. Chinese president Xi Jinping has
reiterated that the country ‘’will not stir any trouble but is not afraid of it either.’’ It is simply
awaiting provocation from any of the other countries in order to respond with tremendous forces.

Figure 2: GDP at PPP rankings

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 Source: Powerhouse Cooper’s The World in 2050 Will the shift in global economic power continue?
Retrieved from: https://www.pwc.com/gx/en/issues/the-economy/assets/world-in-2050\-february-2015.pd

This study is important as it provides the international community a glimpse into how
China, as a power rivaling the United States, relates with its neighboring countries. As the world
is well aware of how the standing power of the United States deals with international issues, this
study indirectly serves as a way of stipulating how China would respond to international issues,
especially the territorial disputes. More directly, these disputes amongst China and the chosen
country cases are an adequate way of studying all of their respective behaviours when their
economic interests are at stake. Likewise, this study will discover just how strong economic
interdependence is in its role of preventing conflict between states in dispute. Regarding the

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limits of this paper, it will only look into the cases of South Korea, Japan, Malaysia and the
Philippines.The first three all have strong economic relationships with China whereas the latter
does not. In addition to this, the subject matter at hand is dynamic and still developing so the
inclusion of data will be limited upon those that have transpired in the time period wherein the
researchers are writing this paper.
In what follows, this paper is subdivided into four sections. Part I reviews the existing
literature on the relationship between economic interdependence and territorial disputes. Part II
provides the conceptual and theoretical framework of this study. Part III features the discussion
of findings from both quantitative and qualitative data. Part IV clarifies China’s position in terms
of the disputes and economic interdependence. Lastly, Part V reiterates the results and the
conclusion of the study.

Part I: Economic-Security Relationship

The international system is characterized by its anarchic nature. Anarchy at its core simply
means that ‘’there is no superior power within a system that would be able to enforce rules.’’
(Bode et.al, 2011). In his book Leviathan, Thomas Hobbes argues that this anarchic situation
breeds fear, and the state of nature is like a state of war wherein ‘’every man, is against every
man’’. (Hobbes, 1968 in Chiaruzzi, 2012, 38). For realists, humans are selfish and often pursue
their own interests. This view was rejected by John Locke, who, on the contrary, believes that the
state of nature is not Hobbesian state of all against all but more importantly, humans are rational
and risk-averse actors, thus making cooperation possible. The ideas of Hobbes and Locke
influenced realism and liberalism, respectively. The two being the dominant paradigms in the
study of international relations.

Realism and Steps to war thesis

The anarchic nature of the international system encourages actors to rely on power to guarantee
their survival. Adopting a Hobbesian perspective, realists believe that states act based on self-
interest and will always do so, regardless of anything else, and this will result to inevitable
conflict and clashes between states. Apropos to this is the steps to war theory developed by John
Vasquez.
The theory postulates that the main root of modern warfare is the presence of territorial
disputes. (Vasquez 1993, 1996; Senese and Vasquez 2003 in Colaresi and Thompson, 2005).
Further escalation is induced by other factors such as rivalry, militarized disputes/crises,
alliances, military buildups, complex rigidities and domestic political positions, among others
that affect the decision-making processes of the countries. An increase in any of these factors
will prompt states to seek and form new alliances in order to augment their relative capabilities.
As stated by Lee (2015), the rationale behind this formation of alliances and enhancing of
military capabilities is because of the perception that ‘’the only way to deter revision-minded
states is by pursuing aggressive policy actions.’’ The authors also reiterated the fact that
territorial disputes are harder to solve because of the involvement of tangible factors such as
population, natural resources and strategic values and intangible ones like cultural and historical
importance. (Senese & Vasquez 2008, p.13.) With regards to the territorial disputes that will be
used a units of analyses in this study, two dominant factors emerge: the presence of natural
resources and the strategic value of the disputed islands. Mahan (1890) states that “by maritime
commerce and naval supremacy, means predominant influence in the world; because, however
great the wealth product of the land, nothing facilitates the necessary exchanges as does the

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sea.” And this partially explains why China is stepping up with its reclamation process in
disputed islands. (The Economist, 2015).
The steps-to-war theory developed by Senese and Vasquez is one of the more important
pieces of literature when it comes to causes of war. The model, which was supported by
empirical evidences stretching from 1915-1995, was successful in linking all the aforementioned
factors and developing a model of interstate escalatory dynamics. However, the theory failed to
consider one important factor that may influence decision-making processes of the states,
especially with the advent of globalization- economic ties and interdependence.

The Shift of Global Interests and Paradigm

For the past decades, the world has witnessed a shift in the primary global agenda and
countries started to determine their foreign policy and international position in terms of their
economic, rather than military prowess. (Bergsten, 1990). Economic growth became the most
important thing for states and nations that breeds a situation wherein “increased economic
interdependence renders the possibility of war obsolete.’’ (Wilson, 2001, vii). This is a by-
product of the emergence of a new paradigm called liberalism.
Liberals like Andrew Moravcsik argues that the ‘’relationship between states and state-
society relations shape state behavior by influencing the social purposes underlying state
preferences.’’ (Moravcsik, 1997) This implies that since states are rational and risk-averse actors,
interstate cooperation and economic interdependence will be the defining factors of international
relations. With the advent of globalization, and the shift of focal point of power from military to
economy, what states want, which in this case are economic development and prosperity, will be
the primary determinant of what they do. Papayoanou (1997) stressed out that it is an imperative
for states to be cognizant of the fact that direct domestic economic consequences such as effects
on market prices and employment make it harder to steer away or break economic ties.
In relation with such is the liberal peace theory; itself an extension of the democratic
peace theory. The latter holds that democratic states, by nature, are less likely to be involved in
conflict with each other as opposed to non-democratic states (Pugh, 2005). Oneal and Russett
(1997) state that the liberal peace theory adds in the element of economic interdependence
alongside the other assumptions of the democratic peace theory. Specifically, liberal peace
assumes that “trade and foreign investment, as well as institutions and practices of democratic
governance, reduce the incidence of militarized conflict between countries.” Expanding from
Immanuel Kant’s writing (1795), which mentioned economic interdependence as the third of
three complementary influences of peace, Oneal and Russett (1997) claim that “economic
interdependence reinforces structural constraints and liberal norms by creating transnational
ties that encourage accommodation rather than conflict.” The argument is that with trade
between states their economies become interlinked with, and therefore dependent on, each other.
With a relationship wherein each state has an interest in the economy of the other, militarized
disputes are avoided as conflict would rob both states of a source of supply. Given this, economic
interdependence facilitates the creation of a “security community” (Oneal and Russett, 1997)
wherein conflict is considered unimaginable.

Part II: Theoretical/Conceptual Framework

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 Diplom
atic DEPEND
Trade INDEPEND approa ENT
volumes ENT ch VARIABL
VARIABLE determines E

Economic Respons
Foreign
interdepend e to
Direct
ence Territorial
Investme Militariz
ed disputes
nt
conflicts

The
theoretical framework used in this study will employ the ideas of Andrew Moravcsik, a major
proponent of liberalism. He argues that economic links such as trade and foreign direct
investments among states can alter state’s incentives to prefer cooperation , thus their actions and
interactions. Moreover, the commercial-liberal thesis claims that high economic interdependence
drives states to peaceful solutions. By contrast, low economic interdependence between rival
claimant states might result to higher levels of aggression that can eventually lead to militarized
conflicts.
In application to our study, this theory holds that economic interdependence, as the
independent variable, is determined by trade volumes and level of foreign investments . This
economic interdependence is then what influences the dependent variable or the response to
territorial disputes which for this case will be either militarized conflicts or diplomatic approach.

The independent variable: Economic interdependence

Keohane and Nye (1977, 8) defined interdependence as “situations characterized by

reciprocal effects among countries or among actors in different countries.’’ It challenges the
realist notion that states are autonomous actors and impoverishes the importance of military
capabilities for states now have to consider other factors such as economic relations, among
others. Analogous to this, economic interdependence is construed by Professor Richard
Heydarian, author of Asia’s New Battlefield, as ’a condition in which two or more economies are
so interlinked with each other, that one cannot hurt the other without hurting itself and in any
case of war or conflict, economic devastation will be mutually assured for both countries’’
(Personal Communication, 2016). Moreover, one of the leading Filipino scholars when it comes
to maritime issues and territorial disputes, Atty. Jay Batongbacal, emphasized that ‘’this
interdependence can be measured through the degree of trade that countries conduct with one
another or by the level of integration of business investments between the country-cases’’
(Personal Communication, 2016). For this reason, the level of trade and foreign direct
investments will be treated as determinants of the independent variable which is economic
interdependence.

Trade Intensity
One of the key tenets of liberalism is that reason is the primary factor that guides the actions and
decisions of individuals. It asserts that since humans fully understand their interests and are
rational, all their decisions will be based on cost-benefit calculations wherein they will choose
the case that will yield more benefits and produce lower costs, all at the lowest possible risks.

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Applying this into the international perspective, states have to base their decisions on cost-
benefit calculations. And one factor that is significant in these cost-benefit calculations is the
level of trades between two countries.
Trade serves as an important point of connection between two separate states. It does so
in the same way that a bridge connects lands and peoples. It is defined as the exchange of goods
and services between countries. Figure 3 features the import and export values of the countries -
its two main components - with respect to China. The import refers to the ‘’goods that are
brought into the country either directly or into bonded warehouses, irrespective of whether such
goods are for consumption, to be processed, use in manufacturing or subsequent re-exports to
other countries’’ while the export pertains to ‘’goods that are taken out to another country’’.
(Department of Statistics- Malaysia, 2015) Exporting and importing activities are vital to the
economy of one’s country wherein the goal is to have an economy that has net exports instead of
net imports. While it is true that imports are good for the individual consumers, high export rate
connotes a strong and dynamic domestic economy that can lead to more local production and
eventually, creation of more jobs.
Batongbacal (2016) reckons that there is no other factor that is more effective than trade
in avoiding interstate conflicts. Trades are important for they produce tangible benefits such as
jobs, money and goods. In line with this, Mansfield and Pollins (2003), stated that the ‘’the
higher the total output crossing state boundaries, the more costly it would be for countries to
disrupt or ruin their economic linkage.’’
Figure 3: Trade of Goods (Imports and Exports)
Sources: United Nations Conference on Trade and Development; Japan
External Trade Organization, Korean Statistical Information Office,
Organization for Economic Cooperation and Development, Bangko Sentral ng
Pilipinas, Department of Statistics-Malaysia, and Malaysia External Trade
Statistics

The data from Table 1.1 suggests

that Japan was the highest both in importing and exporting until South Korea overtook Japan in
terms of exporting goods to China in 2013 and 2014. Conversely, the Philippines was the least
dependent on China for its economic ties are closer to the United States and Japan.

Foreign Direct Investments

Another variable that can help measure the level of economic interdependence between
the country-cases is the value of foreign direct investment (FDI). Foreign direct investment is
defined as ‘’investment involving a long- term relationship and reflecting a lasting interest and
control by one economy (foreign direct investor) to another economy.’’ (UNCTAD, 2014, p.3)
FDI is also an important factor in this study because location decisions of investors are
essentially based on two factors: economic policies and political risks (presence of disputes)

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present in the host country. Given this, states might prefer to avoid and deter conflicts in order to
create an environment conducive for investors. (Bussman, 2010)
Figures 4 and 5:Outward Foreign Direct Investment (by China)
Sources: JETO, KOSIS, OECD
(in US$ million, no data for 2015)

Figures 6 and 7: Inward Foreign Direct Investment (to China)

Sources:UNCTAD FDI/TNC database, Bank of Japan, Ministry of Trade, Industry & Energy (MOTIE), Bank of Korea, Ministry of Commerce (MOFCOM)

(in US$ million, no data for 2015)

Between Japan and South Korea, as seen in figure 4, China has a greater investment in
Japan than it does in South Korea. This comes a surprise considering that the disputes between
China and the two states are at a greater level of tension in Japan. A similar situation is present in
figure 5, between the Philippines and Malaysia, China’s investment is greater in the former than
in the latter. Again, between the two states, the one in which China has a higher level of tension
with is the same state with a significant, and increasing, value of investment.
Featured in Figures 6 and 7 are the investment level of the country-cases to China. Again,
Japan emerged as the country with the highest level of investment in China. It is also important
to take note that the trend lines for both South Korea and Japan have been positive until 2013
Meanwhile, in Southeast Asia, we can see that it is Malaysia who has a greater amount of foreign
investments in China compared to the Philippines. Lastly, it is important to take note that
investment levels of all the country cases plunged off in 2014, the year when the world has been
increasingly alarmed of the fast and steady emergence of China.

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The dependent variable: response to territorial disputes

East and Southeast Asia can be characterized by the presence of several territorial
disputes. China’s Maritime Dispute, an infoguide presentation by Council of Foreign Relations
(2015), noted that several countries continue to assert their own individual claims on disputed
islands and rocks, such as Spratly, Senkaku/Diaonyu, Paracel, Ieodo/Suyan Reef (Page, 2012),
James Shoal/Zengmu Reef, and Scarborough Shoal among others. These countries, specifically
Japan, South Korea, Malaysia and the Philippines have been employing several means to prevent
escalation of any militarized conflict between themselves and other rival claimants.

From a perspective- Ways on how to view the current state of territorial disputes
In an interview with Atty. Jay Batongbacal, director of the University of the Philippines’
Institute of Maritime Affairs and Law of the Sea (IMLOS), he stated that there are several lenses
that can be used in order to perceive the current state of these disputes between China and the
country-cases: political, economic, diplomatic and social. Using a political lens, it is still in a
process of political positioning wherein states are still analyzing their cost-benefit calculations
and deciding what steps and actions to pursue. He described the situation as ‘’a lot more tense
than ever before.’’ (Personal Communication, 2016). In spite of all of this it can be said that
using an economic perspective, things are still stable, meaning that the disputes at sea have not
spilled over into economic warfare - trade sanctions, among other things. From a diplomatic
perspective- the way that the countries are conducting their relationships with each other, are
much more following the political side, wherein it is tense and is characterized by the increasing
loss of civility and communication between the different parties. Lastly, in terms of the
movement of people or social perspective, it can be said that it has also not manifested yet since
there have been no issuance of barriers to entry in any of the countries involved in the disputes.

Fight or Flight? - The Possible Responses to Territorial Disputes

There are several factors that are involved in a territorial dispute. These factors can be
classified as either tangible or intangible. Tangible factors include: specific area in dispute,
population, and economic gains. Intangible factors include: historic animosity, presence of a
third party such as the United States, and cultural differences betweens states. How then states
able to respond given these factors?
The positive response to a territorial dispute due to economic interdependence would be a
dialogue between two parties. Diplomacy is an official course of action that involves
negotiations and a reduction or complete lack of military build up. This can result in agreement
or compromise that mutually benefits both parties without the use of violence. An example of
this would be China’s insistence of bilateral talks between other claimant states. It has
prominently requested this course of action towards the Philippines especially in the wake of
taking the issues to international court.
On the other hand, the negative response to a territorial dispute in spite of economic
interdependence would be an escalation of tensions between two or more parties that could result
to a militarized conflict. An act of war, much like diplomacy, is an official course of action
conducted by a state. This can result as a deterioration of negotiations or as a result of a complete
lack of peaceful dialogue. This is a result that most assuredly proves the steps-to-war thesis that
argues that territorial disputes are a source of conflict. In this case, it would be a conflict wherein
economic interdependency is not even considered as a factor.

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 Part III: ASIA’S CAULDRON

Northeast Asia: Strategic Partnership albeit animosity

President Park Geun-hye of South Korea said in May 2013, “Asia suffers from what I call
‘Asia’s Paradox,’ the disconnect between growing economic interdependence on one hand, and
backward political, security cooperation on the other.” She then said, “How we manage this
paradox - this will determine the shape of a new order in Asia.” (Ministry of Foreign Affairs of
South Korea, 2014). When asked why there was a need for cooperation among states, South
Korea’s Ministry of Foreign Affairs explained in its “Northeast Asia Peace and Cooperation
Initiative” that (2014), “A lack of effective measures to address sources of conflict in the region
such as historical and territorial issues [...] are hindering the efforts to fully maximize upon the
potential for the development of the region.” Later in November of 2015, all three countries of
the Northeast Asian region - namely China, Japan and South Korea - committed to meeting
annually over strengthening economic ties. The three countries had met for the first time since
2012 and all three stressed the need for “regional peace and stability”. Despite all three’s mutual
animosity towards each other over the territorial disputes, “heighten mutual political trust” was
stressed throughout the meeting.

China and Japan: Relationship on the Rocks

Since 2010, political animosity between the two countries has once again dominated the
world headlines. The escalation of tensions between the two countries was due to a territorial
dispute involving the uninhabited islands known to Japan as Senkaku and to China as Diaoyutai.
(Bishop and Liao, 2010). This has been a long-standing issue between the two countries, with
China claiming that the ‘’islands have been under Chinese jurisdiction since ancient times”
(Metraux, 2013). On the other hand, Japan does not recognize the necessity of a dispute, stating
that ‘’The Senkaku Islands are indisputably an inherent part of the territory of Japan in light of
historical facts and based upon international law.’’ (Ministry of Foreign Affairs of Japan, 2014).
Drifte (2013) claims that there are several reasons as to why the islands are treated with a certain
level of importance but it all boils down to the issues of security concerns and economic
interests.

The dispute between China and Japan in the Senkaku Islands has its origins in the late
19th century however the dispute did not come to head again until September 7, 2010. (Ramzy,
2010) and another incident two years later on September 14 (Ramzy, 2012). On September 7,
2010, Japanese Coast Guard detained a Chinese skipper when a Chinese boat collided with
Japanese ships in disputed territory. While the crewmen were released, this sparked anti-Japanese
protests in China (Ramzy, 2010). Two years later, six Chinese patrol boats entered the disputed
territory and took pictures of the Senkaku Islands. Japan’s then Chief Cabinet Secretary Osamu
Fujimura stated that, “It is deplorable that the invasion of the territorial waters happened at this
time and we strongly request that the Chinese authorities leave our territory.” (Ramzy, 2012)

Analysis: ‘’Towards A Mutually Beneficial Relationship Based on Common Strategic Interest’’

12
 The territorial dispute affected the economic relationship between the two countries,
resulting into a sharp downturn. China’s economy in 2010 had risen by 10.3% in GDP, a
development that was faster than expected (BBC, 2011). However in two year’s time, China’s
economy declined to 7.8% (Inocencio, 2013). As a result of the 2010 incident, Chinese
consumers boycotted Japanese products. Japan’s economy, in the final quarter of 2010, declined
and was usurped by China as the world’s second-largest economy. This comes despite the fact
that Japan’s number one export destination was China (Kajimoto & Kihara, 2011).
Figures 8 and 9: Japan-China Bilateral Foreign Direct Investment and Bilateral Trade (into and from China)
Source: Japan External Trade Organization

( https://www.jetro.go.jp/en/reports/statistics/)

Japanese FDI increased steadily increased up until 2012 wherein it dropped significantly
in 2013. Trade also dropped in the early months of 2013 by 10.8% due to China’s slower growth
and anti-Japanese sentiment. FDI and trade have been on a steady decline ever since. Japanese
businesses were pulling themselves out of China and relocating to more peaceful areas. Japanese
investment into China plunged as its investment to Southeast Asian countries such as Malaysia
and the Philippines have increased. (Schuman, 2013). The sudden change in economic fortunes
resulted into a less aggressive stance on China’s part and this led to a quiet but steady economic
rapprochement between the two countries. (Sposato, 2015) Eventually, both countries realized
that the incentives for cooperation are much higher than the alternative: Japanese companies
needed Chinese consumers and Chinese producers needed Japanese technology. (Schuman,
2013) The improved relationship resulted into better trade relations resulting in a marginal bump
in 2014 despite the steady decline. This is evidenced when their trade relationship reached
US$340 billion in 2014, the third biggest in the world. Japan emerged as the second largest trade
partner of China while the latter is the largest trading partner of the former. Furthermore, the real
estate investment of China to Japan and the number of Chinese tourists visiting the latter, have
been on the rise as well. Without a doubt, it is the economic necessity that brought the two
Asian giants closer than they have ever been before - in spite of their political disputes.

China and South Korea: Strategic cooperation

Similar to the situation with Japan, the states of South Korea and China share close
economic ties amidst increased political tensions. According to Suk-hee (2012) trade between
China and South Korea has led to the two reaching $220 billion dollars in 2011. This comes in

13
spite of political clashes over disputed territory. The problems started as far back as the year
2000. South Korea and China and have had disputes over the Yellow Sea. Within the context of
this study’s time frame, multiple incidents took place in between 2010 to 2012. China has also
increased illegal fishing in disputed territories/overlapping EEZs. (Roehrig, 2012). In particular,
there is the issue of the Socotra Rock, a submerged rock that both claim to overlap in their
respective EEZs, that arose in 2012.
Figures 10 and 11: South Korea-China Bilateral Foreign Direct Investment and Bilateral Trade (into and from China)
Source: Korean Statistical Information Office (http://kosis.kr/eng/)/
and Organization for Economic Cooperation & Development (http://stats.oecd.org/)

Yet, South Korea’s primary reason for maintaining positive relations with China despite
these problems is due to the former’s growing economic dependency on the latter. Indeed it has
been stated that the “Sino-Korean economic ties are large and growing.” (Roehrig, 2012). At the
same time, South Korea recognizes the dangers that China’s growing power can pose to the
region in general and into the unification process with North Korea, specifically (Suk-hee, 2012).
Due to these circumstances, South Korea has attempted to balance relations with China and its
longtime ally the United States, its current policy is to maintain its “strategic cooperation” with
the former and its “strategic alliance” with the latter. In the past, South Korean presidents
realized the importance of maintaining relations with China that they considered neglecting its
relations with the United States.
Unlike Japan and the other states, South Korea’s dispute with China is described as “less
intractable” (Roehrig, 2012). Indeed the two states’ concerns are limited to: overlapping EEZ
claims, illegal fishing and the Ieodo/Suyan reef dispute. Despite repeated clashes between the
two their relations remain stable.

Analysis: No problems despite problems

To reiterate, the tensions are primarily due to overlapping EEZs and both states laying
claim over the Yellow Sea. The incidents ever since 2010 are: 1) Two Chinese fishermen dead in
December 2010; 2) a dead Korean coast guardsman in December 2011; 3) four wounded Korean
inspectors in April 2012; 4) and a dead Chinese fisherman in October 16, 2012 (Roehrig, 2012).
As of the October 2012 incident, South Korea arrested 23 Chinese fishermen and had seized 123
Chinese fishing boats in the first nine months of that year (Jun, 2012).

14
 Yet, despite all these incidents, trade and FDI has remained at a steady pace until 2013, a
year after the incidents took place. Bilateral trade in both areas of exports and imports has
remained relatively consistent. Indeed, it is interesting to see that values for exports peaked in
2013 before declining to a value that was still higher in the years of 2010 to 2012. It shows that
despite these incidences, exports were not drastically affected. Similarly, values for FDI from
China steadily increased per year before sinking in 2014 to a value similar to when the incidents
were taking place back in 2012. Meanwhile, while minimal, the FDI flows from Japan to China
have steadily increased despite the incidents.

Southeast Asia: On opposite paths

Over the years, Southeast Asia has been the site of political-economic ups and downs.
Since 2008, foreign direct investment has increased in both inflows and outflows. By 2014, the
value of both inflows and outflows into the region reached about $400 billion dollars. Previously
in 2008 inflows were near $230 billion dollars and outflows were near $170 billion dollars.
Projects in the region funded by FDI reached a total $77 million due to developing economies
and $114 million due to developed economies in 2013-2014.
With regards to China, as of 2013, trade between it and the countries of ASEAN resulted
in China being the largest individual trading partner. 14% of ASEAN’s total trade came from
China. According to Salidjanova & Koch-Weser (2015), co-authors of a research report to the
U.S.-China Economic and Security Review Commission, stated that, “several ASEAN members
have established integrated supply chains with both China and Northeast Asia, largely as a
function of China’s emergence as the world’s manufacturing and assembly hub.” Featured in that
same report, by 2013 the foreign investment rates of the ASEAN region and China became
inversely proportional. A “slowdown” in China’s foreign investment inflows resulted in a loss of
its net FDI with a value of $46 billion in 2006 decreasing to $11 billion in 2014. In contrast,
ASEAN’S inflows went from $300 billion in 2003 to about $1.5 trillion in 2013. Salidjanova &
Koch-Weser (2015) warn that “any benefits from trade must be weighed against tensions in the
security realm.” The report specifically cited that China was involved in five separate territorial
disputes with ASEAN member states. Two of those mentioned states were Malaysia and the
Philippines.

SPRATLYS: The islands that can launch a thousand ships

The battle for ownership of these islands has marked the history of the past century. It
was previously known to navigators as the Dangerous Ground, not until studies have shown that
the islands can contain substantial petroleum and natural deposits underneath its seabed. Due to
the possible existence of these resources and its strategic location at the West Philippine Sea or
the South China Sea, many countries treat them with high regard. Several countries in Asia have
been asserting their individual claims over these islands, resulting to possible disruption of peace
and stability in the region. This includes China, Vietnam and Taiwan, who are asserting their
historical rights over these islands and Philippines, Malaysia and Brunei who are predicating
their claims based on the UNCLOS provisions concerning geographical proximity. (Gonzales,
2014).

China’s stand: History is the supreme law.

China has been asserting their historical claims over the islands and some of the claims
antecedent as early as the Han Dynasty. (Druzek, 1996). China maintains that they were the first

15
one to discover the islands and that prior to their discovery, the islands were terra nullius.
(Cordner, 1994). Despite having its earliest formal claim at 1887 when China and Tonkin signed
the Convention Respecting the Delimitation of the Frontier of both countries, its provisions are
ambiguous. (Gonzales, 2014). Come 1951, Beijing reiterated its stance saying that
‘’In fact, the Paracel Archipelago and Spratly Island, as well as the whole Spratly
Archipelago … have always been Chinese territory. Though occupied for some time during the war
of aggression unleashed by Japanese imperialism, they were taken over by the then Chinese
government following Japan’s surrender. The Central People’s Republic of China declares
herewith: The inviolable sovereignty of the People’s Republic of China over Spratly islands and the
Paracel Archipelago will by no means be impaired, irrespective of whether the American- British
draft for a peace treaty with Japan should make any stipulations and of the nature of any such
stipulations.’’
(Furtado, 1999, p. 390).

However, with the advent of international laws such as UNCLOS Law of the Seas,
China’s claims are considered weak and incomplete. But Beijing has managed to assert its
dominance because of two reasons: their economic power and military capabilities.

China and Malaysia: Knowing their Priorities

Malaysia, projected to be the top 24th economy in the world by 2050, values its
relationship with China so much that it ‘’played down security concerns in its pursuit for closer
economic ties’’ (Grudgings, 2014). The good relationship between the two countries started at the
end of the Cold War, with Malaysia capitalizing on the rise of China’s economy, its largest trade
partner. Malaysia’s inclination towards China was fortified in the midst of the 1997 Asian
Financial Crisis, wherein China provided much needed help not just to Malaysia but to other
Asian countries by deciding not to devalue their currency and using their foreign reserves to
assist the rebuilding nations.
Despite their claims on several islands over the disputed Spratlys, Malaysia, not wanting
to strain its valuable relationship with China has decided to take the passive route. Unlike its
Southeast Asian neighbors, Philippines who filed a case at the International Tribunal Court and
Vietnam who firmly and openly opposed China’s reclamation activities, Malaysia opted to rely
solely on ASEAN and continued on befriending China. Eventually, after a recent bilateral
meeting with President Xi Jinping of China, Prime Minister Najib Razak stated that both
countries agreed that “the state of bilateral relations is at its best based on mutual trust and
friendly cooperation between the two countries as close partners.” (Tiezzi, 2015).

Analysis: Time to Rebalance?

Just like any other Southeast Asian country, Malaysia suffered tremendously under a
colonial power. In a paper for Foreign Policy Research Institute, Chang (2014) explained that
Malaysia treats external power as the ‘’biggest threat to its security.’’ and ‘’urged its regional
neighbors to stick together rather than to rely on external powers.’’ For some, it is quite
surprising that Malaysia seems like they are siding with China by playing safe, given that the
other side of the equation are its Southeast Asian neighbors and another powerful ally, the United
States. However, as the tension escalates, the non-confrontational approach of Malaysia has
repeatedly been put into a test. One significant event generated a rare official protest from Kuala
Lumpur: the James Shoal incident in 2014. China had conducted two naval exercises in the reef
which lies inside the 200 nautical miles EEZ. (Grudgings, 2014). This persistent move on the

16
part of China served as a wake-up call for Malaysia, and this eventually led to dialogues with
Philippines and Vietnam over the said issues, but still not enough for them to directly oppose
China in any way. For Malaysia, the stakes of disrupting the economic ties are too costly for
them.
Figure 12: Malaysia-China Bilateral Trade (into and from China)
Source: Malaysia External Trade
Statistics

Indeed, trade between the two has been consistent since 2010. Exports rose to their peak
at 2013 while imports heightened at 2015. Malaysia’s neutrality in the disputes have given it the
opportunity to have nothing but benefits from China. Despite the incident at James Shoal and the
rare show of disapproval, trade between the two remained stable. The value of imports from
China increased significantly in between 2013 and 2014.

It can be said that Malaysia, unlike it’s neighbor the Philippines, it has given China the
‘’benefit of the doubt’’ due to its good economic relationship with China as seen in Figure 12.
Interestingly, it was a non-dispute matter that strained their diplomatic relations in 2014. It was
the disappearance of Malaysian Airlines Flight 370 last 2014 resulted in a questioning of the
Sino-Malaysian relationship. (Iskandar, 2014). Regardless, for the past years, Malaysia treated
the protection of their claimed islands as a ‘’constabulary task rather than a military one.’’
(Changi, 2014, p.4). They recognized China’s growing dominance in the world economy and
decided not to ‘’treat the defense of their territorial claims a top priority.’’ (Changi, 2014, p.4).
Atty. Jay Batongbacal has mentioned that among Malaysia, South Korea, and Japan, the state
that is the most dependent on China is Malaysia as it is the least developed of the three. (Personal
Communication, 2016).
But the increasing territorial aggression of China, together with its diminished pace of
economic growth may cause Malaysia to reconsider their stance on this issue. Indeed, among the
four states in this study, Malaysia stance is relatively neutral. But the state is near a crossroads
wherein they can either rebalance the current relationship with former colonial powers or allow
China to reshape their ties with fellow Southeast Asian nations (Chang, 2014).

China and the Philippines: The Struggle between Diplomacy and Supremacy

The tensions between the states of the Philippines and China are unique compared to the
other three states. In response to the territorial disputes and China’s reclamation of the South

17
China Sea, the Philippines has gone to international court for arbitration. The Philippines is
concurrently building its defenses with treaties to the United States and the state of Japan. The
Philippines has far more numerous claims than the other states with over 50 features in the
Spratlys Islands, the Kalayaan Islands Group and Scarborough Shoal (International Crisis Group,
2015). Economic ties between the two have decreased ever since the clash at Scarborough Shoal
in 2012 (International Crisis Group, 2012). Thus, China is not as concerned about its relationship
to the Philippines as it is with the other three states.
The clashes began in 1995 - further back than even the clash with South Korea in 2000.
These clashes have led to the Philippines’ arbitration case which began in January 22 of 2013.
Prior to this, the previous presidency before 2010 had ensured good relations with China - one
that China was hoping to continue under president Aquino in 2010. At the time of the newly
elected president, “$1.1 billion in development aid China gave the Philippines in 2010, 12 per
cent of the overseas development funds Manila received” (International Crisis Group, 2015). But
president Aquino took to “defending what is ours [the Philippines]. The case of the Philippines is
centered on the illegality of China’s territorial claims and the subsequent reclamation attempts
occurring in the area. A year before arbitration was initiated, the Philippines had allowed its ally,
the United States, to have greater access to the country to ease the flow of their military. “Mutual
distrust” only worsened as a result (International Crisis Group, 2015).

Figure 13: Philippines-China

Source: Bangko Sentral ng Pilipinas

Atty. Jay Batongbacal has mentioned that while the Philippines is the least dependent on
China’s economy, the same cannot be say of the reverse. China requires raw material from
several of its trading partners, the Philippines is no exception to this. Exports to China contain
agricultural products, minerals, and other raw goods that are necessary for China’s
manufacturing purposes. (Personal Communication, 2016). Indeed, through the years and despite
repeated incidents in disputed territories, exports to and imports from China have remained high.
There have been several incidents between the Philippines and China that could have cost both in
trade relations. Separate incidents in early 2011, the incident at Scarborough Shoal in 2012, the
start of the Arbitration case in 2013, and other succeeding incidents in late 2014 to early 2015

18
(Fels & Vu, 2016) all occurred without any major drawbacks in terms of trade. In fact, as the
incidents escalated, the both values of exports and imports have increased per year.
The Philippines, as mentioned earlier, has employed several means to deter China’s
territorial aggression in the West Philippine Sea. The country has prioritized diplomatic means
by filing a legal case against China in the international tribunal court and has called for the
creation of an ASEAN code of conduct. China, recognizing the weak military capabilities of the
country, expressed its condemnation of this call, saying that the matter should only be between
China and the Philippines. In addition to this, China has reiterated that they will not honor any
decision from the tribunal court. In preparation for an escalation in tensions, the country has been
conducting several military trainings with countries like the US, Japan and Australia; and has
been upgrading its military arsenal.
Yet despite all these, trade between the two has remained relatively stable. While it is true
that the Philippines has the least interdependence with the Chinese economy, it still benefits
greatly from a country that it has threatened and has actually taken to international court.
Likewise, despite China’s repeated condemnation of this act, it still readily accepts imports from
the Philippines. The two are linked in a way that is unique to all studied states.

PART IV: The China Choice

Over the last century, we have witnessed the rise, the fall and the quest for supremacy
of the oldest civilization in Asia. The unprecedented and continuous growth of its economy
over the last decade allowed the country to recover and strengthen its military prowess. This
lethal combination has paved the way for the rise of nationalist sentiments and allowed
Beijing to renew its confidence as an emerging global power. As a result, they started to
reassert their dominance in the region by claiming ownership to some of the disputed islands
in both the East and South China Sea. China is very much aware of its strengths and its
ability to pursue their interests at the expense of the interests of rival or claimant states.
Nevertheless, one has to understand that China aims to put forth social stability within
the country and achieve full economic development. Beijing recognizes the fact that they
cannot achieve this alone and they need the help and support of their neighbors and that is
why they are acting with great restraint. Beijing sees these relationships as a means to and
end, with the end being the full development of China.
But both Atty. Jay Batongbacal and Prof. Heydarian, experts on China and the issues,
have stated stated their concerns over the new emerging rhetoric from China. Ahead of the
release of the arbitration ruling by The Hague, China and its president Xi JinPing have
reiterated that ‘’they will never compromise their sovereignty and that “they [China] are not
looking for trouble but they are not afraid of it”. (Personal Communication, 2016). While
China has opted to extend an olive branch by first requesting for bilateral negotiations, that
does not mean that its military is not capable of claiming what it deems to be its right in the
regions. Indeed, China has a greater military capacity than all four states.
The next question will be, what is the basis of all this territorial claims by China?
Both Prof. Heydarian and Atty. Batongbacal, agree the China is basing all its claims on what
it calls ‘’historical law’’. Since they are the oldest civilization in the region, they [China]
think that they are entitled to certain things, territories and exceptions in international law.

19
Atty. Batongbacal described it as a feeling of having‘’preemptive rights to these islands,
regardless of how the international law develops. Notwithstanding the fact that these
historical claims are based on pure interpretations only.’’ (Personal communication, 2016).
Although its entitlement is partially caused by its economic standing, it is not exclusively by
their own merit. While its growth is unprecedented and is currently at its height, China’s
economy is described by Prof. Heydarian as “not a self-sufficient economy”. He states that
because China is an export-oriented economy, it requires there to be other economies for it to
send its exports to. This in turn has made it as economically interdependent with its
neighbors as they are with it. (Personal Communication, 2016)
Given all this, how far is China willing to go in the pursuit of dominating these
disputed islands? As mentioned above, Beijing does not fear trouble. What they are doing
right now is waiting for any kind of provocation from any other rival-claimant states in order
to be able to respond with tremendous forces and justify this action.

Conclusion

Economic interdependence: double-edged sword?

The four states of Japan, South Korea, Malaysia, and the Philippines all have
economies that are interdependent with that of China’s, to various degrees. All four also have
territorial disputes with China and all have four have responded differently. For realists, there
lies the risk - indeed, a likely chance - that these territorial disputes are capable of escaping
into something worse. Realist literature warns that a war is inevitable. Yet liberals argue that
realists have not included a vital factor of international relations - economic interdependence.
Economic interdependence was measured by utilizing the values of their foreign
direct investments (FDI) and their trade values (export and import values). Using data
acquired for each state, their economic values were correlated with the years wherein certain
incidents took place. For example, several incidents occurred in the years of 2010 to 2013
which involved the Philippines yet trade values between the Philippines and China remained
stable. The same process was used on the three other states.
The results varied. On one hand, as years of incidents passed, the states of Japan and
South Korea saw a blow in their economic relationship with China. FDI and trade values
suffered when tensions reached their heights. But the cooperation initiative in Northeast Asia
has proven to be successful such that values in the following years (2014-2015) recovered to
levels that were still higher than the start of 2010. The results vary further in Southeast Asia.
The Philippines opted for an arbitration case in 2013 while Malaysia refused to say anything
regarding the territorial disputes for a majority of the time frame. Yet both countries have
consistent high exports to and high imports from China. Both seem to enjoy a questionably
stable economic relationship despite the two states having polar opposite stances when it
comes to China’s activities.
While it is shown that incidents of territorial dispute do not escalate into more violent
conflicts, it does not necessarily mean that it is economic interdependence that deters it.
Indeed, the fact that there are territorial disputes in spite of their being economic
interdependence clearly shows a lack in the liberal argument. It is true that the four states all
have a stake in China’s economy. But this relationship also goes in the opposite direction.
China’s economy, largely in manufacturing, is dependent on economies that provide it with

20
raw materials and other goods. China is just as dependent on the four states but not in the
same manner as the three states of Japan, Malaysia and South Korea are dependent on it. The
Philippines despite its economic relations with China is not that dependent on the latter’s
economy for the sole reason that it is closer to the United States and Japan.
This being established, it has not stopped China from pushing its limits in the
disputed territory and engage in reclamation activities. At the very best, economic
interdependence has given a pause to the realist argument for an escalation in conflict, not a
deterrent.

A New Dawn in China

A holistic understanding of China and the territorial disputes in this study cannot be
achieved with only the lens of economic interdependence. Because both realist and liberal
arguments are both applicable yet not entirely established in this context, a study that looks
into other factors is necessary. This paper has merely proven that economic interdependence
can give pause to the “inevitable” conflict that results from territorial disputes. The argument
that economic interdependence deters any form of conflict entirely is, as Prof. Heydarian
(2016) puts it, “increasingly being questioned in light of the recent developments in the
Western Pacific.” Economic interdependence may give the states pauses, but will never be a
guarantee to harmonious inter state relations- as seen in the case of Germany and England in
the First World War wherein the two states are top trading partners, yet went into full war
with each other. The point is economic interdependence is unquestionably important, but
there are other factors and paradigms that we can use to analyze this phenomena.
One of such factors would be the notion of identity, constructivists would argue.
China did experience certain lows in their history and they are looking to redeem its lost
identity and glory. Beijing is looking to assert itself in the global stage and be the regional
leader, just like what the United States and Russia did in its respective regions. This is why
according to Prof. Heydarian, it is quite hard to point at China and tell them that what they
are doing is entirely wrong. It would hypocritical for any state to question the reclamation
activities when those who are supposedly pushing for international law have been aggressive
and very interventionist, military power.
Another factor could be the emergence of nationalism not just in China but also to
other countries within the region. Countries are starting to feel that China cannot just trample
their territorial integrity, regardless of their interdependence and dependence with China.
This is reflected in the last year or so, wherein even the small and poor countries like
Cambodia and Laos and to lesser degree, Myanmar and key countries in the ASEAN such as
Malaysia, Indonesia and Singapore in addition to Vietnam and the Philippines are also
beginning to adopt a much more critical and diplomatic language versus China and they are
also beginning to reconfigure their strategic ties with the United States. ‘’This clearly shows
the limits that economic interdependence and the liberals have in shaping geopolitics,
especially the we are now living in a very-fast paced and unpredictable world.’’ says,
Professor Heydarian.

What Now?
So now that we have ascertained that economic interdependence only reduces and not
eliminates the possibility of an escalation to war, what other options do the claimant states
can explore in order to avoid the ‘’inevitable’? First of all, bilateral negotiations. Bilateral

21
negotiations between China and other rival claimant may help lessen the tensions between
the two countries. The problem with this, is that once a country opted to cooperate, they will
surely lose something and strong leaders are needed in order to keep things in check.
(Heydarian, 2016, Personal Communication). When both economic interdependence and
bilateral negotiation fail to prevent further escalation of events to a potential war, ASEAN
and the international law can be the ‘’emergency response mediators’’ ASEAN should issue
a joint statement expressing their condemnation of the said reclamation activities. Issuing
such statement will surely alarm China for the least thing that they want is all their neighbors
against them. (Batongbacal, 2016). The decision on the arbitration case will also be a vital
factor- states can use this in justifying increased presence of United States and other allies for
checks and balances measures.

Recommendations
The applications of this paper are uncertain in the time of this writing. The disputes are
ongoing and tensions appear to be at their heights. Due to the limited time in constructing this
paper, we would wholeheartedly recommend that individuals or groups who are experts in this
field, or those who genuinely care about what goes on in these regions of Asia, should advance
this study to include factors that we undergraduate researchers were incapable of including.
Factors that include the historical dynamic among the four states with each other and with
China; the dilemma of identity that each state faces vis-a-vis its neighbors in the region; and
including other states in the regions, specifically the other claimant states. It would be interesting
to see how non-claimant states would respond to the disputes that involve their neighbors and
how their own economic interdependence is affected. An example would be how the United
States, situated in a different continent, has a stake in what goes on in the region because it has
its own economic interests to look out for. Another factor to consider would be the role of
international institutions. Liberal institutionalism argues that international institutions are capable
of fostering cooperation in the same sense that economic interdependence is argued to do. While
the international court was mentioned in this study, it was never significantly featured other than
in the role of the Philippines. An extension of their role, and the role of international institutions
in general, in these disputes would be fascinating to explore.
Lastly, the researchers would recommend that this study be undertaken and modified by
professionals with the resources and the access to pursue a more holistic understanding of the
situation.

Acknowledgements

The authors would like to express their sincerest gratitude to Mr. Glenn Teh, for the continuous guidance
and support while the study was being conducted. The authors are also grateful to Mr. Richard Javad
Heydarian, Dr. Ador Torneo and Atty. Jay Batongbacal, who shared their valuable time and ideas that
definitely helped in shaping this research. We would also want to thank our beloved parents and friends
who rendered their encouragement and unconditional love during the course of the study. The authors
would also like to recognize the soundtrack of Hamilton: An American Musical for the motivation it
provided us. Specifically, the songs “My Shot,” “One Last Time”, and “It’s Quiet Uptown.” Lastly, the
authors are thankful to God for the strength, wisdom and patience in pursuing this endeavor.

22
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Annex A: Research Questions

GUIDE QUESTIONS FOR SRP

1. How would you define “economic interdependence”?

2. What is the current state of the territorial disputes among China and its neighbors?

26
 3. Do you believe that economic linkages are capable of preventing militarized conflicts
between the rival claimants? Why?

4. Are there other factors than economic linkages that prevent these disputes from
escalating?

5. China has economic ties/relationships with several of its Southeast Asian neighbors,
specifically with Malaysia and the Philippines, and its Northeast Asian neighbors,
specifically Japan and South Korea. Exactly how does China see these ties/relationships?
And do other countries feel the same way with regards to China?

6. Among the four states of Japan, South Korea, Malaysia, and the Philippines, who is the
most economically interconnected with China? Who is the least?

7. What basis does China have for legitimizing its claims in the South China Sea/West
Philippine Sea?

8. How far is China willing to go to assert its interests in the South China Sea/West
Philippine Sea?

9. Given the economic ties/relationships that China shares with its neighbors, are these
territorial disputes likely to escalate?

10. Has the arbitration case of the Philippines affected its economic ties/relationship with
China?

Annex B: Transcript of Interview

KEY INFORMANT INTERVIEW

Atty. Jay Batongbacal
July 1, 2016 at the IMLOS center, University of the Philippines-Diliman.

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Atty Jay Batongbacal is the current director of the Institute of Maritime Affairs and Law of the Sae of the
University of the Philippines-Diliman. He also teaches courses on Property, Obligations & Contracts, and
Law of the Sea and Natural Resources at the UP College of Law. He holds a Master’s degree in Marine
Management and a Doctorate in the Science of Law, both from Dalhousie University in Canada. His
career spans a diverse field of marine policy research. These have included marine territorial and
jurisdictional issues, international maritime boundary negotiations, high seas fisheries, seafaring,
shipping, marine environmental protection, coastal resource management, maritime security, and
archipelagic studies.He is also a member of the technical team that prepared and defended the Philippines'
claim to a continental shelf beyond 200 nautical miles in the Benham Rise Region, that was recognized in
April 2012. He currently writes for the Asia Maritime Transparency Initiative and Institute for Maritime
and Ocean Affairs among others about the on-going territorial disputes between China and other countries
from the region. He also conducted several interviews with both local and international media outlets
about the aforementioned issue of China’s maritime reclamation efforts.

Taken from: http://law.upd.edu.ph/jay-l-

batongbacal/

Interviewer: Good afternoon sir, it was our honor and privilege to meet with you despite your busy
schedule.

Atty. Jay: Yes, yes. It was my pleasure too. Sorry I was late, had to rush here from a meeting at Manila.

I: No worries sir. So just a quick run-through, this is an interview concerning how effective is economic
relationship in preventing an escalation of conflicts in the East and Southeast Asia, given the brash
reclamation activities of China, with a specific focus on South Korea, Japan, Malaysia and Philippines.
Here is the list of the guide questions, sir.

J:: Okay, that’s good. Is this for your thesis then?

I: Yes sir. But they formally call it as senior research paper.

J: Do you have anyone else in mind to interview with?

I: Actually yes sir. We’re scheduled to conduct an interview with Sir Heydarian this coming Sunday. We
also tried reaching Dr. Aileen Baviera but unfortunately, we have not received any response yet.

J: Oh. Good luck! (laughs). No, he’s a good friend of mine. You’ll need to pay for a transcriber. (laughs)
Okay, sige. So how do you want to go through with this?

I: We just ask the questions then you can say your answer po.

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J: Sige, sige.

I: First of all, how would you define economic interdependence?

J: Economic interdependence is simply mutual dependence on each other’s economy, meaning that both
of you have stakes on the other’s economy and your relationship is functioning well. And this could
happen because of either the degree of trade that you conduct with each other or the level of
integration of the different major economic sectors and businesses in each country so you could have
for example investments from one to the other and in return, the investments will return to the principal
investor, so you could have that kind of relationship, in a way it is symbiosis really but based this time on
economic relationship between the states.

I: What’s the current state of the territorial disputes among China and its neighbors?

J: That’s a rather hard question to answer because you can look at it from different aspects. If you’re
talking about the disputes in a sense that they are prone to escalation, for example, into something worse,
meaning right now it’s basically posturing a political positioning that’s going on, and that’s what it’s
like for a long time, and that’s manifesting into more concrete like activities at sea, actual clashes and
conflicts. You can say that the current state of the territorial disputes from that perspective, a political
perspective, I guess you can call it that is much more tense, much more intense than ever before.
This is, by far, the most serious series of flare-ups in the disputes in its entire history really. But if
you will look at it on economic perspective only, it’s basically stable, by far. Meaning that the disputes
at sea have not spilled over into economic warfare shall we say that it would manifest itself into trade
sanctions and similar stuff like that. So economically, it’s separate. From a diplomatic perspective, if
you’re talking about the way that the countries are conducting their relationships with each other, you
could say likewise that it is tense, following the political side. It can be seen through the increasing loss
of civility and communication between the different parties. Socially, if you’re referring to the movement
of people, it has not manifest itself yet because tourism and the exchange of people between them
have not yet been affected. Kumbaga di pa tayo bina-ban from going to China. So you don’t see much
from that aspect.

I: So sir, actually you have answered the next question already but sir you mentioned that their economies
are in symbiosis, is this in any way capable of preventing an escalation of the territorial disputes?

J; Conventional wisdom says yes. Meaning that assuming that states are entirely rational in their
behavior, and are all (unclear) calculating and measuring their interests against each other and
assuming that they value stable, a much more stable economy than say these territorial disputes, then
yes, it would prevent it. The problem there is that people are not necessarily always rational, especially
if there are historical or cultural aspects to the disputes which are not addressed by the parties, if there
has been no attempt of healing old wounds, in those cases, it could really be unpredictable, economic
interests may not just be enough, especially if what happens is incident arises that escalates
uncontrollably into a wider conflict.

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I: So, are there ways that these states can achieve a symbiosis other than economically that can prevent
these conflicts from escalating?

J: It’s hard to say. I really don’t think so. Because economic relationships through trade, through
economic cooperation, because they produce tangible benefits like money, profits, goods, those are
the ones, those kind of relationships are the ones that create actual or concrete stakes for people that
can most influence their thinking and decision-making. If it’s something abstract like race or
something like that, there’s nothing concrete so it can easily spark off uncontrollable decisions,
irrational decisions.

I: Speaking specifically of China, it has economic relationships all through out Asia, how does China see
these relationships, specifically with the four mentioned countries, Malaysia, South Korea, Japan and the
Philippines? How does it see it’s specific economic relationship to them?

J: The broader interests really are social stability in China, which is very difficult to maintain, given its
size and the diversity of people in the country, and over the long term, economic development. Now it
knows that it cannot do this alone, cannot achieve these goals alone, especially in the current
structure of the global economy. It needs its neighbors, it needs its trading partners, in order to
achieve these goals. So you could say that they have a very very pragmatic view, they see these
relationships as a mean to an end, the end being the full development of China. Other countries see
China and its development as also a possible source of contribution to their own development plans,
their own development agendas, especially the developing countries, so for them, they would also
like to cultivate good economic relationships with China, and then it’s unavoidable really because
China is the largest market in the region. So they see their economic ties to China as a means to an
end. Meaning their own objectives, their own developments by taking advantage of Chinese market,
basically. Unfortunately their economic relationships are not the only way that they can relate to China
and that is one that presents them with key challenges. For example with say, Japan, there are
historically and cultural grievances between the two that have never been resolved. With South
Korea, it’s the same thing, but it’s much closer to China than Japan, so South Korea has to take a
different path. Between Malaysia and the Philippines, Malaysia sees China, you know, it’s their
number one trading partner and it’s clear that it sees China as a principal source of trade which is
important in their own economic development goals. Notwithstanding the fact that Malaysia has
prejudice against ethnic Chinese. Philippines, on the other hand, does not have that kind of
perspective because historically and in the present times, it is tied with United States and Japan, in
terms of its economic relationships. Other than Northeast Asian neighbors, North Korea is entirely
dependent on China’s economy but China’s patience is running out.

I: So sir, despite these other issues in terms of culture and history, which one do you think is the most
economically interdependent with China?

J: I’d say probably Malaysia, because among Japan, SK and Malaysia, although it’s already developed,
among the three, it’s the least one. This will be followed by South Korea because of proximity. And
then Japan. That is because (while) Japan is invested in China, it is also invested in other countries.

30
Then the Philippines is the least. That’s for sure. We are the least economically interdependent with
China.

I: Speaking of the Philippines, it and China are currently having a very internationally looked at dispute.
What basis does China have for saying that it has legal grounds (at the West Philippine Sea) ?

J: Well China has its own interpretation of the international law. It believes that as the oldest civilization
in this region, it’s entitled to certain things and territories, basically. It’s like it has a preemptive
right to these territories regardless how the international law develops. It relies on what it calls
‘’historic facts’’, notwithstanding the fact that even historical facts are just merely interpretations.
Nonetheless, it’s how they legitimize their claims: number one, historical facts. Number two because of
these historic facts, they are entitled to special treatment in the international law. And then, in addition to
that, it would also invoke existing international law.

I: Sir, do you see how far China will go just to assert its interest (maritime hegemony) in the region
despite the economic ties it has?

J: It has stated again and again that they are willing to do whatever it takes. However they are also
willing to do this in a patient way, and preferably non-confrontational, non-violent way. So for them,
they know that they can sit and wait, they know that they have the advantage economically and
politically and even historically, I guess. They feel that they have these advantages so they can sit
back and wait until they are given provocation. And then react with overwhelming force. So they’ve
said as much. For their perspective, they have been acting with great restraint. Because they have not
chosen to use the force that is available to them to dislodge the other claimants and preferred that those
issues be resolved peacefully through bilateral negotiations. From one perspective, you could say that
it’s good. It’s good that they are not willing to use force as the first recourse. On the other hand, from
the other perspective, it’s bad because it knows that the other rival claimants cannot match its size
and power. So it’s really a challenge for them how to maintain their interests and as far as they are
concern, even that you give China the benefit of the doubt that it will never use force, they really don’t
have to. Sheer size and sheer needs for resources are actually enough to deprive other claimant-
states of their interests.

I: So sir, in a purely economic sense, is China willing to escalate the conflict, like you said that it’s
showing that they are acting with great restraint, is there a chance that they could go past that?

J: Yes. And it has also said as much. As they say, they are not looking for trouble but they are not
afraid of it either. And all they need really is something that they can use so that they can say that
they were provoked. If provoked, the conflicts, especially militarized ones, will most likely escalate.
For them, the arbitration is a provocation, so they responded by building these artificial islands. That’s the
kind of escalation that they’ve been capable of. So it’s very clear that they can do everything else.

I: So sir, specifically talking about the arbitration case, other than the reclamation activities, has it affected
China’s economic relationship with us, in any way?

31
J: That’s hard to say because at the first place, the economic relationship with China is not that significant.
Our main trading partners are still Japan and the United States and China is far third. And based on the
kind of economic relationship we have with China, we can say that we have have more direct control
because for one, it’s easier for us to find alternative markets for bananas that we export aside from China.
The thing is, the economic relationship is much more complicated and less direct than people think. So
for example, we get lots of Chinese goods, things with Chinese components but they usually go through
other parts, maybe from Singapore or Japanese manufacturers. China is actually not able to, cannot tell
these other parties not to export in the Philippines. It’s hard for them to do so. And what people are not
aware of is that as I have said, between the two, Philippines has a much more direct control over its
economic ties with China because we are the ones who exporting directly to China, raw materials,
raw goods, agricultural products, minerals, which go to China which they then need in order to
manufacture goods. So sa kanila, pag nag-manufacture sila ng goods, they have to do it in concern with
other businesses and other trading partners. Habang tayo, wala namang dinadaanang third party, we
export directly to China. If we would like to conduct economic warfare, we could be on the offensive.
We could cut off all exports to China for example.

I: So sir, it’s like saying that China needs us more than we need it?

J: If only that. The other problem is that we are not just the only source of China. We are just one of the
many sources of raw materials. It would be an inconvenience for sure, it will definitely have an impact on
them but it’s not enough. It will affect them for only a short span of time.

I: Sir, additional question, we all know that ASEAN has to issue yet a joint statement that says it
condemns the said reclamation activities for it can undermine peace and security within the region, sir, do
you think that issuing such joint statement can force China to stop its reclamation activities or can it affect
or minimize the activities?

J: It would give them pause.

I: Why sir?

J: One thing they do not want is all their neighbors allied against them. So a joint statement like that
would indicate that its neighbors are coming together against them. That’s not of their interest. So if
ASEAN would issue such statement, it would certainly alarm China and they might think twice. And they
would pause long enough to figure out what else to do, to find out other initiatives to pursue to
compensate for that kind of loss. So everytime ASEAN comes close to unity and issue such statement
against China, they act. They don’t want that to happen.

I: Sir, in relation to that, what do you think stops the ASEAN from issuing such statement?

J: Economic interdependence for one. Differences in interests and stake in both China and in the
territorial disputes as well. The ASEAN own decision-making process. And the fact that ASEAN really is
not designed for that kind of issue.

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I: So sir, in this sense, could it be said that economic interdependence can be a double-edged sword?

J: Oh yes, definitely and certainly. It’s always double-edged because economic relationships especially
interdependence will affect both countries.

I: That’s all for today sir. Thank you so much.

J: Okay then, Welcome. Sorry again for being late.

I and J: (chats)

-END-

KEY INFORMANT INTERVIEW

Prof. Richard Heydarian
July 3, 2016 via phone call

Professor Richard Heydarian is an assistant professor of Political Science and International Relations at
De La Salle University-Manila. He served as a foreign policy adviser at the House of Representatives
from 2009-2015. He is also a consultant of various international and national institutions, advising on
different issues concerning the Philippines, and the East Asia. He also writes for several major
publications including Foreign Affairs, Aljazeera, among others. He also contributes to the think tanks
like Center for Strategic and International Studies. He is the author of ‘’How Capitalism Failed the Arab

33
World: The Economic Roots and Precarious Future of the Middle East Uprisings’’ (2014) and Asia’s New
Battlefield: The US, China and the Struggle for the Western Pacific. (2015)

I: How would you define economic interdependence?

R: Well, economic interdependence is a condition in which two economies, at the very least, two or more
economies are so interlinked with each other, that one cannot hurt the other without hurting itself.
Essentially, mutually assured economic devastation if one country tries to the other country through other
means such as war or conflict, among other things. So economic interdependence essentially means that
you no longer have an economy that is completely self-sufficient and then the economy’s major sectors
are so interlinked that their whole economic welfare depends on continuous engagement through trade
with each other.

I: So sir, does that mean that China’s economy is not self-sufficient as we would like to think it is?

R: Yeah, of course, definitely, China is not a self-sufficient economy. The only country who tries to be a
self-sufficient economy would probably be North Korea. But China is an export-oriented economy, much
of its GDP and earnings comes from exports and that is a form of economic interdependence- the fact that
China’s whole economic welfare depends on its ability to have sustained and expanded access to markets
around the world- that’s interdependence. Other countries, in exchange are also relying on China’s credit
and financing in order to be able to import products from China. So that is the condition of
interdependence that we see between China and all other major economies in the world.

I: Given their state of interdependence, how would you describe the territorial disputes between China
and its neighboring countries?

R:R: Well, the territorial disputes seem to respect the fact that economic interdependence is never a
guarantee for harmonious inter-state relations, as case of first world war showed: Germany and England
were top trading partners with each other and yet they went into full-scale war during the first world war
and as mere condition, perhaps for a lot of scholars, they observed today between China and Japan and
China and the United States to a certain degree, so despite the fact that China has significant amount of
trade relations and investment relations with Japan and in the United States, it seems like that has not
prevented the eruption of territorial tensions between these countries. I think this is where neoliberal
perspectives in international relations theory seem to have a shortcoming- their emphasis on how trade
and economic dependence can create more cooperative relationships tends to be a little bit under
questioned in light of the fact that at some point, it seems like China is willing to compromise robust
economic relationships with other countries in pursuit of what it believes it belongs in and that is
essentially territorial claims in adjacent waters whether at East China Sea or South China Sea. So that
shows that just like what the constructivist theory in international relations, that issues of identity are
very important and it seems like what we see today is the reassertion of China as the main power in the
region. You can also get the impression that China is redeeming itself by reclaiming what rightfully
belongs to it. So I think these are fundamental issues of identity and factors like nationalism and renewed
confidence in itself may explain why the aggressiveness in the part of China.

34
But for the realists, they would say that China and its brewing aggressiveness in the adjacent waters in
East China Sea and South China Sea is a reflection of China’s pessimistic view of the current era of
globalization, of free trade, and robust interdependence, economic interdependence may not last for long
because at some point the United States and its allies will try to contain China if they feel that China
becomes too economically powerful so what they feel is that before that times comes, it’s important for
China to already establish a strategic and defensive perimeter in the Western Pacific from the East China
Sea up to the South China Sea. So I think this is how certain realists see the situation with China.

We also have the constructivists on the other hand, who perhaps look at the issues of national identity,
issues like nationalism, issues like we China once again is a one power veto, we have to assert our
leadership in the region. This may better explain what’s happening. To be honest, I am not yet decided on
which perspective can be a lot more convincing explanation, but clearly, the liberal hypothesis that trade
relations can dictate the direction for harmonious inter-state relationships is increasingly being under
questioned in light of the recent developments in the Western Pacific.

I: So sir, in that case, what are the other elements that prevent these territorial disputes from escalating?

R: Yeah, I think that’s where liberals are not totally wrong. Liberals are somehow [inaudible] in thinking
that economic relations or economic interdependence alone can create better mutual understanding,
create more cooperative relationships among states. Nonetheless, I think they are still correct to the point
that strong economic interdependence is giving China a pause before really pushing the button. I mean,
no matter how aggressive China in the adjacent waters, I think that trade and investment relations are
always some of the factors that are raised by some of the pragmatic within China, say that ‘’ maybe we
have to be careful about being aggressive in the pursuit of our territorial claims and how rapidly we want
to develop strategic depth and defensive perimeter in adjacent waters.’’ So I think we are reaching a
critical threshold, that China will eventually decide on whether it’s still going to pursue its territorial
claims and its quest for security from a much more pessimistic standpoint, or is it going to temper its
territorial claims and deescalate tensions in the adjacent waters in order to preserve its robust economic
interdependence with its neighbors- from Japan and South Korea to ASEAN and of course, to the West.
So I think we are not there yet but we are already approaching the moment of truth. China cannot
essentially have both. They cannot have a strong economic relationships with Japan, the US and the
ASEAN and at the same time, pushing the boundaries, and risking war with its neighbors. Tensions will
continue to rise and for sure, economic relations will suffer.

I: So sir given that China is acting in this manner, how does it see its economic relationships with other
countries, specifically with Japan, South Korea, Philippines and Malaysia?

R: Based on my reading, China, like the liberals, think that if you engage your neighbouring countries
with a more and more economic ties, it will temper their appetite to confront you with territorial issues.
For instance, we know that China has territorial disputes with South Korea, with Malaysia, countries that
have relatively stable economic ties with China and because of the strong economic relations, Seoul and
Kuala Lumpur will think twice before being more confrontational in these territorial disputes. I think that
argument was closely correct, but increasingly being reconfigured in the last year. You can see that

35
Malaysia is moving and moving closer to the Philippines’ position, Yet, Philippines compared to Malaysia
is not that economically dependent on China, but clearly we saw that having stable relationships with
China was not enough to convince the Aquino administration to stop confronting China in the South
China Sea disputes. So in short, even smaller neighbors of China have prioritizing territorial integrity over
the opportunity of having a stronger economic relation with China. This is how the issue of national
identity and realist considerations of security are overriding the liberal tendencies of ‘’let’s stick to stable
relations-economic relations’’. Countries are starting to feel that they cannot let China disrespect their
territorial integrity regardless how dependent are they with China. That is why in the last year or so, even
the small and poor countries like Cambodia and Laos and to lesser degree, Myanmar and key countries in
the ASEAN such as Malaysia, Indonesia and Singapore in addition to Vietnam and the Philippines are
also beginning to adopt a much more critical and diplomatic language versus China and they are also
beginning to reconfigure their strategic ties with the United States. That shows that liberalism really has
limits in explaining how economic interdependence can shape also geopolitical dynamics. So clearly we
see that yes, economic relations continue to be strong between China and most of its neighbors although
not necessarily in the case of the Philippines, but it has not stop China and it neighbors from developing
increasingly diplomatic if not confrontational position, so in short, money can’t buy love. Money alone
cannot buy amity, it cannot buy national pride, I think national pride, nationalism and territorial integrity
is very much alive today, and we can see that nationalism is not only strong in China but is also gaining
momentum also in China’s neighbors- from Japan to the Philippines, to Indonesia, Malaysia, especially in
the case of Vietnam, wherein nationalism, especially anti-China nationalism is very much gaining
grounds. So I think this is something that shows that liberals may be correct that economic relations may
give you a pause before thinking about going to war, or reduces the probability of war among states, but
clearly it has not eliminated the chance for war. And perhaps soon, we might know if economic
interdependence at all can prevent a war between China and its neighbors and not to mention possibly
even with the United States in over the South China Sea. So now we can see this trend whereby the
countries are trying to compartmentalize, that is to say that, yes we have strong economic relations but
that does not mean that we’ll just turn blind-eye to what you are doing in the South China Sea and East
China Sea. On the part of China, they are saying that yes, they may be reliant on strong economic
relations, importing raw materials from ASEAN or importing high-tech technology from Japan, or relying
on export market but it will not prevent China from pursuing what is rightfully belongs to it. And
essentially for China, the East and South China Sea belong to China and they have the responsibility to
reclaim them. So countries are trying to separate those issues. But I think at one point, one of them should
be sacrificed.

I: So sir, in a purely conventional and economic point of view, which of the four states of Japan, South
Korea, Malaysia and the Philippines is the most economically connected with China despite these issues
of identity and territorial disputes?

R: As I have said, economics has its own dynamics. We see whatever ASEAN and China made or Japan
and China has made, are those about how to maintain their strong economic relations but at the same
time, you see that territorial disputes are gaining grounds. At some point, states will have to choose. On
the part of China, the choice is this, are you going to continue to rank off your presence and encroachment
in the EEZ of other countries and risk meeting economic incentives in terms of your investment and
trades with other countries? The question for smaller neighbors is at one point, what will you choose

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territorial integrity or China’s economic incentives. So I think these are the unfortunate choices that states
in the region have to make in the near run. But for me, it should have not been the case. For me, it’s
plausible for us to strike a balance. Balance that seems like moving out of the picture, particularly with
China, because they believe that the time has come for them to create hegemony in Asia. And for them to
be a leader in Asia, they need to reclaim what belongs to them which is essentially East and South China
sea, and clearly this is a red line to other countries based on territorial integrity issues and in the case of
the United States, based on the calculations of the Freedom of Navigation, further military assets and also
US hegemony. So there are two possible risks and scenarios- a hegemonic war between the US and China
or a war between China and its neighbors. Cause like I said, money cannot buy love. There is a point
wherein we can have a balance and we saw that 1995 to roughly to 2007-2008, I think that period showed
that we can have strong economic relations with China while managing our territorial disputes. At 2009,
we can see that China became more and more aggressive in their territorial claims and thinking that they
have strong economic relations with other countries, they’ll try to cut us a deal. But seeing that
Philippines, Vietnam and China and gradually even Malaysia are joining in these growing constraining
movement against China.

I: But sir, what exactly does China have, legitimate basis for what it’s doing in the South China Sea?

R: Well, my point is from the perspective of China, they are now the biggest economy in China. They
would want to become the biggest economy in the world. I think a lot of people in China feel that it’s
their right to have that some kind of dominance in their immediate neighbors similar to what the United
States has been enjoying for the past years… if Russia is the natural dominant power in the Eastern
Europe and the United States in the West, why shouldn’t be China be the regional power in Asia? So the
point looking at what Russia and US have been doing their own backyard for the past century, I think it’s
hard to say that what the Chinese are doing is essentially wrong. It is hypocrisy in the part of the countries
who are supposedly pushing for the international law or order, in such that the United States has been an
aggressive, intervening military power. So, for the Chinese, their point is how dare the US tell them that
what they are doing is wrong when essentially, the US is doing the same thing.

The other way they think about it is that as time comes, China becomes the largest trading power in the
world. By being the largest trading partner, they feel that naturally, the necessity of having greater
presence in international water, greater naval capability- and that is why the naval force of China is
rapidly developing… so maybe, we can say that China is building up its military capabilities after years
of relentless economic growth. For China, we’re just being what we are, just like US and Russia. And for
them, maybe US has really have a plan to contain China. Maybe the United States down the road will
panic over the fact that China will become the largest economy in the world, so its alliances like in Japan
and in Australia and others, will try to cut off China to the global economy. Again, this may sound
nonsense or rubbish but for military planners in China, they are already preparing for worst-case
scenarios, just like in Prisoner's dilemma- just because you cannot entrust the other party, you need to
prepare to choose the nastier options even though you have no idea what the other party will choose. For
China’s neighbors they realized that China is hell bent on establishing a regional hegemony and as a result
they are preparing too for worst-case scenarios- in this case, they are becoming more and more aggressive
in pushing back against China. If the dynamics continues, we can have war. And the question is how to
stop this dynamics from escalating? Via international law? ASEAN? Bilateral negotiations? All of these

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will be important because at some point, there will be a pause. Because if China continues with all these
activities, and then we’ll have the corresponding counter-measures from the US and the neighboring
countries of China, the probability is high that we’ll have war. So at some point, China will blink before a
war breaks down. So maybe China is waiting for someone else to blink and is a case of chicken bait now.
But right now, no one is blinking and that is why the stakes are increasing. And that is why there should
be an emergency intervention diplomatically or through international law.

I: But sir, the Philippines has a unique position in all this because we have an arbitration case and how
exactly does this affect our relationship with China and how does China feel about what we’re doing?

R: Yeah we know that China has rejected and will probably reject the arbitration case, I think that the
Philippines filed a case and the verdict will be used by US, Japan and other countries to justify more
intervention in the South China Sea. But things can look weird, because the Duterte administration seems
to have a different take on this. Their idea is forget about the geopolitical complications and let’s just
benefit from China. And that changed the whole strategy of the Philippines on the legal terms, on the US
on the military part and the ASEAN on the diplomatic part, that whole strategy can fall apart entirely. My
thing is, I’m not sure what’s gonna happen next, but I sure do hope that China will not take it as a signal
that it cannot buy up other countries. Because this is dangerous, if China thinks that way. But if Duterte
administration will use the arbitration to escalate tensions and convince China not to push its parameters
and reclamation activities, then why not? Duterte’s decision on what to do will China will have a great
impact for the whole region. My fear, personally, is that the Philippines will change its path, will change
its gear, that might make the Chinese over-confident, so the Chinese will think that all they have to do is
give a little help to a certain administration or all they have to do is offer their love and money and these
countries will blink one by one. And if all our neighbors will blink, the US will have little room to justify
greater presence in the disputed maritime areas. That is why, I am a little bit worried on what will happen
in the Duterte administration, even if I see the point of trying to avoid a war with China, I’m not sure who
said it but ‘’In order to avoid war, you need to prepare for war.’’. It means that you have to increase the
stakes until China blinks. Because if we will not increase the stakes, then China will continue what it is
doing, until it is too late. Too late, in a sense that territories are lost or China will become too aggressive
and too confident that it will provoke more counter-measures from the United States and its allies. The
point is that US will also have its election. And if China becomes more and more aggressive, what if the
next American president will use that to say that we need to be more confrontational towards China. And
this is why the polar for China not to continue the dangerous gambling that its currently doing is that, I
think China has already dominated the Northern South China Sea- the Senkaku islands and the de facto
disputed territories… and has already built artificial islands in the South China Sea that is capable of
controlling the militaries of other rival claimants. So my point is, China already have what it wants, and
they can already stop and satisfied in what it got. It is now the dominant power in the South China Sea
and also has a military facilities that completely dwarfs the facilities of other countries. China is now the
dominant party and this is the time to pause. And my fear is, the Philippines backtracks, we will have
certain voices in China that will say ‘’See, we can get what we want so why not push it further?’’ So it
will increase China’s appetite.

I: So sir, is there a reason why other claimant-states have not unified and publicly condemned what China
is doing?

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R: First of all, not all countries are claimant countries. Like in ASEAN, only the Philippines, Malaysia
and Vietnam are the active claimant states. Brunei essentially abolished its case because it is afraid of
trouble. And among those three countries, you have different perceptions of China. I don’t think Malaysia
sees China as threatening like the Philippines. The second one goes back to your thesis that levels of
economic interdependence, or I would say economic dependence will influence the decision-making
process. It can be seen in the cases of again, Vietnam and Malaysia wherein they are economically
dependent on China compared to the Philippines and that what gives us some leeway, not to mention that
we also have an alliance with the US, and that gives us more backup options. I think that is why the
claimant countries themselves are not approaching the issue similarly because they see it differently and
they trace a different payoff structure. The other thing is that we have to acknowledge that China was not
the first country to engage in reclamation activities. We know that Vietnam is still engaged in different
reclamation activities, right? So my point is, it would be completely hypocritical for these countries to
come up and say that China is the only one that is doing something wrong. The other thing that I will say
is that in fairness to China, it doesn’t treat countries similarly. In Malaysia, it has generally been kinder.
And then in Vietnam, it has not occupied new territories or adjacent waters by Vietnam, but in the case of
the Philippines, China took the Scarborough Shoal. That’s a whole different issue. So if China took away
an island near Malaysian coastline or Vietnamese coastline in such a brazen way like it did to the
Philippines, then I’m sure they would have gone as crazy as the Philippines. So my point is that we have
the Scarborough Shoal crisis but none for Malaysia yet. But all of us share one problem with China and
the other one is fishery. China is affecting the fisheries of ASEAN countries such as Philippines, Vietnam,
Malaysia and even Indonesia. So I think that is why Malaysia and Indonesia have been also speaking up.
But then again because Malaysia, Vietnam and Indonesia does not have any alliance with the US, and
they are economically dependent with China, they will act with much more restraint compared to the
Philippines. But then, look at Duterte, Duterte is increasingly sounding like Malaysians and Indonesians,
he is even softer than them. Even if we have alliance with US. Which brings me to an important point, I
think that smaller countries are not unified yet because they are waiting for a US leadership. I think we
are kinda used to the scenario that whenever there is a regional aggressor, whether it’s China or North
Korea or Vietnam in the past, US and other Western powers will automatically come and check them out.
But in the last ten years, we can see that the US have become relatively weaker, compared to China, and
the US has been a little bit cautious in dealing with China, well, the point is this, how can you stand up
against China if you are not even sure with US back-up? Smaller countries are not confident enough to
confront China is because of lack of US leadership. So I guess Duterte is right in saying that why don’t
we look for other ways and not just rely on the United States when in fact, when China took away the
Scarborough, where the hell is the United States? What the hell did they do aside from sending
surveillance? And what did they do when China started all these massive reclamation activities? So I
think that is why many countries are thinking twice when it comes to confronting China. So for me,
whether we like it or not, this will all boil down to US versus China.

I: So sir, last question, how likely these territorial disputes escalate, at what rate, given what we’ve seen
and what we are seeing right now, how likely is China asserting its own dominance?

R: To be honest, I’m afraid about, I’m hearing a new rhetoric from China, ‘’We don’t fear trouble’’, so
that does mean that they are willing to go all the way to war? I don’t know, maybe. And in the part of the

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US, they also said something quite uncharacteristic, they said ‘If China keeps on doing what it is doing,
then it will force America pact.And that makes me very hopeful, hearing that statements from the two
great powers in the region. And we have smaller countries who are confused and don’t know what to do.
Ideally for me, ASEAN and the international law together could have been that emergency response
mediation. ASEAN issued a statement that made China feel isolated and irritated but that’s it.
International law, on the other hand, China is not really rejecting it, but using the arbitration as a
justification to say that , ‘’See, if the Western world and their puppets gang up against us, we need to
discipline them.’’ They are taking the arbitration not to tone down their rhetoric or de escalate their
territorial claims, what they are doing is they are reinterpreting the arbitration as applaud to their national
integrity and use this to justify even more aggressive maneuvers in adjacent waters. I hope it’s all rhetoric.
You can look at the Chapter 6 of my book. Duterte and China could agree to a joint development
agreement and what they should do is to bring their references, again to the international law. You can
find all of this in my writings and in my book. So my point is, it’s not too late yet, but things are moving
fast towards a potential conflict. We live in a scary time, wherein a lot of things that seem impossible is
now possible and that this is the new normal geopolitical environment wherein the reason is not the most
dominant factor that governs interstate relations, I think emotions and nationalism are increasingly
shaping the inter-state relations especially with the emergence of China, the US trying to recover to the
Global Financial Crisis and the small countries scrambling what they should do. That is why I am not that
optimistic as last year. But like I said, there are still opportunities to break the deadlock and that is very
high level of diplomacy between China and its neighbors, and of course, the United States.

I: So sir, we haven’t gone past yet of the point of no return?

R: No, I don’t think we are there yet. You remember that there is still no single class between China and
the claimant states. That says a lot about how careful parties have been to make sure that there will be no
military conflicts. But my point is, as South China Sea, becomes more and more crowded, the risks are
increasing very very fast. But hopefully, countries can blink and leaders are strong enough to rein in
people in the ground. Another thing is that what’s worse than a tyranny is anarchy. So I’m happy that
even Xi JinPing are becoming tyrannical, he was able to rein in the hardliners in China. And now in the
Philippines, we have Duterte who is a strong leader, maybe he’s the right person because to be honest, it
would become very controversial negotiation in trying to find a compromise, the Philippines is going to
lose something in order to avoid war. And if we are weak, we cannot do it right. So let’s hope that US and
other counties will have leaders with strong position- leaders that are strong and reasonable. I think the
worst combination will be unreasonable and weak. The less would be strong position but less reasonable.
If Hillary Clinton will win and issue a strong mandate, if Xi JinPing and Duterte will consolidate power
and if Shinzo Abe will continue to be a strong leader in Japan, then I think we can find a way around it.
Malaysia is a hopeless case because is in a middle of crisis. So I think what is important is to make sure
that domestic politics is stable and strong enough before making controversial choices. Because that’s the
only way to avoid war- joint development agreements. Clearly it will make a lot of people unhappy but
that’s diplomacy. Give and take. And only strong leaders can do that.

I: Sir thank you very much for answering these questions.

R: My pleasure. Have a good day.

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[End of discussion]

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