As the old saying goes, “be careful what you wish for, God may grant it”. The International Tribunal at The Hague handed down what seems to be an unambiguously clear and potentially far-reaching decision rejecting China’s claims in the South China Sea in their entirety and finding that China has “illegally” harassed fishermen exercising traditional fishing rights, and caused irreparable environmental damage with some of its construction activities around rock formations.
The Philippines seems to have prevailed on every major point in dispute. Those in the international community seeking certainty, predictability and the application of due legal process have got what they wished for. The Australian Foreign Minister has already made an early start out of the boxes, asserting that the decision is “final and binding” on the parties and upping the ante by declaring that it is an “important test case for how the region can manage disputes peacefully”.
…As a great power in the region, China could do immense damage over this issue, including to Australia. It could adopt a belligerent attitude towards a variety of forms of regional cooperation, it could dare the US to challenge it more directly by more aggressively building and militarising various structures, it could move more oil exploration and drilling platforms into the area, and it could increase its harassment of fishing boats from other claimant states. Such actions, individually and collectively, will all introduce much greater risk and potential instability into the region. China could also declare an air identification zone over the area, as it did with the Daiyu/Senkaku Islands in its dispute with Japan, inviting other states to challenge it.
This is one of those slow motion disputes that pops up every so often and bubbles away in the background. It could be a flash point at some stage between the US and China, or not. It will need to serve someone’s interests to raise the tensions first. Maybe that could be Donald Trump though there are much more pressing issues between the Great Powers that would be a lot more useful in generating domestic sympathy. Maybe it could be Xi Jinping but beyond the saber-rattling of his above options it’s does not strike me a big deal.
Markets are terrible at pricing political risks generally, and in these days of barely discounted risk at all, this issue looks small and unlikely to make any price difference.
