China state firms see gains in South China Sea

Chinese structures are pictured at the disputed Spratly Islands in South China Sea, on April 21, 2017.
Chinese structures are pictured at the disputed Spratly Islands in South China Sea, on April 21, 2017.PHOTO: REUTERS

Research shows their lucrative role in the area in sectors like infrastructure, oil and gas

HONG KONG/SHANGHAI • Beijing's giant state-owned enterprises (SOEs) are playing an increasing role in China's build-up in the South China Sea and could seek to cement their dominant position in coming years, according to new research.

The work by academic Xue Gong and published by Singapore's ISEAS - Yusof Ishak Institute this week sheds light on a little-examined element of rising tensions across the vital trade route, showing extensive work by Chinese SOEs in developing infrastructure and tourism, as well as oil and gas, some in hotly disputed areas.

Some experts and regional diplomats believe the strong commercial presence could further complicate any future regional solution should Beijing, which research shows has encouraged firms to operate, protect them politically and militarily.

China's SOEs operated in a complex and often opaque environment, serving national strategic interests as they sought new opportunities, Dr Gong told Reuters.

"They cannot operate independently, but they are ultimately opportunists and when the policy environment is favourable, then they will go for it. And we have seen signs of that behaviour in the South China Sea," said Dr Gong, who is based at Singapore's S. Rajaratnam School of International Studies.

China's Foreign Ministry said there was nothing wrong with Chinese companies' carrying out of "normal commercial activities" on Chinese territory, adding that the Chinese government manages and regulates Chinese companies in accordance with the law.

The ongoing build-up of the seven islands deep in the maritime heart of South-east Asia has alarmed the United States and other regional powers.

Dr Gong's research shows how China Communications Construction Corporation (CCCC) and its subsidiaries seized on policies advocated by President Xi Jinping in 2012 to expand its maritime capabilities via the South China Sea, in part by developing some of the world's largest dredgers.

CCCC has formed new units centred on the Paracels, claimed by both China and Vietnam, that are eyeing expansion in tourism, logistics, fishing and the ongoing construction business, according to the paper. It has earmarked US$15 billion (S$20.6 billion) for investment across various sectors - a plan that "stems from the fact that it has quietly benefited from land reclamation in the South China Sea through implementing national tasks", the research states.

CCCC also collaborated with other state firms to develop a nascent cruise ship and tourism industry in the Paracels after state leaders in 2012 overcame earlier reluctance to back such moves.

According to China National Offshore Oil Corporation's (CNOOC) first-quarter filings for listed unit CNOOC Limited, which is in charge of the group's exploration and production business, the South China Sea's share of the firm's total oil and gas output rose to 45 per cent - from 43 per cent last year.

CNOOC's latest annual report listed eight new discoveries in the South China Sea, out of a total of 19 struck offshore China last year.

CNOOC Limited told Reuters it had a deep-water development strategy for the South China Sea and planned to extend investment on future exploration and development. "All oil and gas companies (across) the globe are welcome to jointly invest and operate in offshore China and to achieve success together with the company," CNOOC Limited said.

A host of other state firms are reportedly eyeing slices of the South China Sea action, from nascent nuclear energy programmes and telecoms to fisheries and banking.

Dr Ian Storey, a South China Sea expert at ISEAS - Yusof Ishak Institute, said the work showed "Beijing is incentivising companies to become major players in the South China Sea".

"This is something that China can do that the other claimants cannot do, particularly on this scale," he said. "The dispute is absolutely no closer to resolution, either a legal or a political resolution, and the role of China's state-owned enterprises only highlights that."

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A version of this article appeared in the print edition of The Straits Times on August 11, 2018, with the headline 'China state firms see gains in S. China Sea'. Print Edition | Subscribe