Center for a New American Security

Saturday marked John Kerry’s inaugural visit to China as acting Secretary of State. While North Korea’s most recent episode of belligerence took center stage and dominated the news, the United States and China also released a joint statement promising cooperation on climate change.

The joint statement called for “forceful” action on climate change through “large-scale” cooperation. According to the statement,

Both sides also noted the significant and mutual benefits of intensified action and cooperation on climate change, including enhanced energy security, a cleaner environment, and more abundant natural resources. They also reaffirmed that working together both in the multilateral negotiation and to advance concrete action on climate change can serve as a pillar of the bilateral relationship, build mutual trust and respect, and pave the way for a stronger overall collaboration. Both sides noted a common interest in developing and deploying new environmental and clean energy technologies that promote economic prosperity and job creation while reducing greenhouse gas emissions.

While this is not the first example of engagement between the United States and China on climate change, it is notably different than previous arrangements. The agreement increases dialogue by forming a Climate Change Working Group to determine specific ways in which the two countries can advance climate cooperation through research, conservation and technology. The Working Group will deliver a report at July’s Strategic and Economic Dialogue (S&ED), which is an annual meeting between American and Chinese cabinet level officials to discuss broad strategic, economic and security opportunities and challenges.

Yesterday, CNAS published a new Flashpoints Bulletin that examines the influence global energy trends have in shaping oil and gas development in the South China Sea, and, consequently, the dynamic between countries in and around the region: Finding Common Ground: Energy, Security and Cooperation in the South China Sea (PDF).

In the piece, I highlight two important trends that are worth following that could add an additional layer of complexity to the South China Sea imbroglio: energy development as an element of India’s eastward engagement (i.e., Look East Policy); and China’s advances in deepwater drilling technology.

On Monday, Quartz published a story about China’s growing foothold in Greenland and the mounting concerns about its quest to produce the semi-autonomous island’s rare earth metals. (See “China’s creep into Greenland is setting off alarm bells.”)

The New York Times reported last September that the retreating Greenland ice sheet is giving way to new opportunities for the 57,000 people living on the once sparse island. In particular, the melting ice is leading to new discoveries of mineral deposits, including rare earths. According to the report, the small Greenland town of Narsaq sits near one of the world’s largest deposits of rare earth elements – which are critical in the manufacturing of advanced technologies, from smart phones and smart bombs to wind turbines and high-end batteries. According to Greenland Minerals and Energy Ltd, the deposit could contain about 10.3 million metric tons of rare earth metals, equivalent to about 10 percent of the known global reserves (which total about 110 million metric tons, according to the U.S. Geological Survey).

Quartz reports that Western officials are particularly concerned about potential Chinese control of Greenland’s rare earth elements given that they are critical to advanced technologies and have few – if any – reliable manufacturing substitutes. (Some technologies can substitute rare earths, but they do not have the same effective properties.) Adding to the angst is the fact that China today produces about 97 percent of the world’s rare earth elements – even though it only holds 50 percent of the world’s known reserves, and that China has been limiting exports in order to satisfy its own domestic demand.

But how worried should Western officials be about China’s potential control of Greenland’s rare earths? A couple of points are worth mentioning that should help allay concerns.

First, China’s share of the rare earth market is in relative decline. Sure, China produces 97 percent of the world’s rare earth resources. But the United States has ample reserves as well; they are just not being produced – yet. According to the U.S. Geological Survey, the United States holds about 13 million metric tons of rare earths, or about 12 percent of the known global reserves. One of the largest mines is in California. While the United States used to produce these minerals, more rigorous environmental standards made it difficult for U.S. producers to compete with cheaper Chinese metals, and so U.S. producers stopped extracting them. But that is starting to change as prices rise. The market appears to be doing its thing, and the United States is ramping up U.S. rare earth production to compete with Chinese metals. Naturally this will help diversify the market. Moreover, Australia and Malaysia are also planning to increase production of their known reserves as well. Other countries are likely to follow suit, including India and other states in Central Asia.

Natural resource trends topped international headlines in 2012 – from illicit resource trade in Afghanistan to energy competition in the South China Sea. Which ones should readers track in 2013? Here’s a list of the five international trends I’ll be watching in 2013, in no particular order.

1. China’s technological development in deepwater drilling. China made great strides in strengthening its technological edge in deepwater drilling last year. In May 2012, the state-run China National Offshore Oil Company, CNOOC, began operating the country's first deepwater drilling rig, putting CNOOC in a position to transform its reach by moving away from solely shallow water operations to new depths, including deepwater blocs of the South China Sea. (Chinese estimates place 70 percent of recoverable natural gas and oil deposits in deepwater of the South China Sea.)
   
   In December 2012, the Canadian government paved the way for CNOOC to acquire the Calgary-based energy giant, Nexen Inc., including the company’s high-tech ultra deepwater drilling technology, which would add to CNOOC’s technological edge in deepwater drilling. The deal still faces some scrutiny from the U.S. Congress over Nexen's Gulf of Mexico assets. Regardless though, as China continues to develop its edge in deepwater drilling technology, it could speed up the country’s efforts to unilaterally drill in deepwater blocs of the South China Sea.
2. An increasing focus on energy development in the South China Sea as part of India’s “Look East Policy.” India shares many of the same energy vulnerabilities as other countries in East Asia, particularly a growing reliance on petroleum imports from the Middle East and North Africa. Those same vulnerabilities have contributed to New Delhi’s interest in exploring for energy in the South China Sea, which some countries, including China, view as a potential “second Persian Gulf.” 
   
   India’s foray into the South China Sea has drawn China’s ire, which has protested India’s recent joint ventures with Vietnam. In December 2012, Chinese fishing boats blocked a Vietnamese seismic vessel, causing the ship’s cables to snap. The episode provoked a response from the Indian government, which said it would “consider sending navy vessels to protect its interests in the South China Sea.” This may lay the groundwork for a greater Indian naval involvement in the South China Sea in 2013; it is something worth watching. 

India’s interest in the South China Sea is getting more attention. Last year, The Times of India reported that India’s offshore Oil and Natural Gas Corporation (ONGC) Videsh would work with Vietnam to jointly explore for oil and natural gas resources in the South China Sea. Despite warnings from China – which has made sovereign claims to the entire South China Sea and its energy resources – India and Vietnam have pressed ahead with joint development, leading to increased tensions between China, India and Vietnam.

Last Friday, Vietnam lodged a complaint with China when two Chinese fishing boats reportedly blocked a Vietnamese seismic survey vessel that caused the ship’s cables to snap. The latest episode is just another in a string of incidents where Chinese fishing boats have blocked attempts by Vietnam and other countries to survey for natural gas and oil deposits. (Track these incidents using the CNAS Flashpoint timeline feature here.) The latest incident also comes on the heels of an announcement from China’s Hainan Province last week warning that provincial police would be permitted to board and search vessels violating China’s territorial waters, including in contested areas.

In response to the most recent attempt by Chinese fishermen to block Vietnam’s seismic surveying, Vietnamese officials said that the government would step up defensive patrols, including deploying marine police, to protect against future Chinese encroachment. India seemed to respond in kind, according to a New York Times report, saying “it would consider sending navy vessels to protect its interests in the South China Sea.”

Territorial claims over the South China Sea took an interesting turn last week.  

According to a report from Reuters, China’s new passports have raised the eyebrows of several South China Sea claimants: the country’s microchip-equipped passports contain a map of China’s claim over the South China Sea – represented by the country’s disputed nine-dash line.

The Philippines and Vietnam have condemned the Chinese passports, worrying that accepting the documents could legitimize China’s diplomatic claim over the sea. According to Reuters, “The map means countries disputing the Chinese claims will have to stamp microchip-equipped passports of countless visitors, in effect acquiescing to the Chinese point of view.”                              

"The Philippines strongly protests the inclusion of the nine-dash lines in the e-passport as such image covers an area that is clearly part of the Philippines' territory and maritime domain," Philippine Foreign Secretary Albert del Rosario said last week, according to Reuters.

China’s Foreign Ministry responded to questions about the passports, stating, "The passports' maps with their outlines of China are not targeting a specific country. China is willing to actively communicate with the relevant countries and promote the healthy development of Sino-foreign personnel exchanges.”

With the continuing dispute between China and Japan in the East China Sea, don’t forget to tune into CNAS’s Flashpoints page, an online web portal for those studying security in the East and South China Seas. Flashpoints not only has the latest developments from the region, but offers insights into the rich history surrounding the ongoing territorial disputes in the Asia Pacific.

Photo: Courtesy of CNAS.org. 

All eyes are on Secretary of State Hillary Rodham Clinton and her visit to the Asia Pacific this week.

On Tuesday, Secretary Clinton met with officials of the Association of South East Asian Nations, or ASEAN, in Jakarta where she encouraged ASEAN leaders to work cooperatively with China to resolve the longstanding territorial dispute in the South China Sea. “The United States does not take a position on competing territorial claims ... but we believe the nations of the region should work collaboratively to resolve disputes without coercion, without intimidation and certainly without the use of force," Secretary Clinton said, according to a report on CBSNews.com. "That is why we encourage ASEAN and China to make meaningful progress toward finalizing a comprehensive code of conduct in order to establish rules of the road and clear procedures for peacefully addressing disagreements."

The New York Times published a report this morning differentiating between the underlying issues driving competition in the East and South China Seas.

As readers of this blog know well, concerns over access to natural resources are an important driver of competition in the South China Sea. States ringing the sea are competing for territorial claims to potentially rich reserves of oil, natural gas and other mineral deposits.

But in the East China Sea, other issues are in play. The New York Times reminds us: “Unlike in the South China Sea, where the frictions center on competition for natural resources, the East Asian island disputes are more about history, rooted in lingering — and easily ignited — anger over Japan’s brutal dominance decades ago.”

The latest dispute over the uninhabited island group near Taiwan – known as the Senkaku Islands in Japan and the Diaoyu Islands in China – began in earnest earlier this year when Tokyo’s Governor Shintaro Ishiara announced that the Tokyo Metropolitan Government was negotiating with private landowners to purchase the islands by the end of 2012. “Under pressure not to look weak in advance of elections, Prime Minister Yoshihiko Noda quickly said the central government would buy the islands instead,” The New York Times reports. “That set off a tit-for-tat between activists from both countries.”

While the potential reserves of oil and natural gas are important drivers of Beijing’s assertive behavior in the South China Sea, access to the sea's energy resources is not the only issue behind China’s outsized claim to the area. According to a Sunday report in The New York Times, China's upcoming leadership transition may also be shaping Beijing’s behavior in the region.

“The leadership in Beijing appears to have fastened on to the South China Sea as a way of showing its domestic audience that China is now a regional power, able to get its way in an area it has long considered rightfully its own,” The New York Times reported. “Some analysts view the stepped-up actions as a diversion from the coming once-a-decade leadership transition, letting the government show strength at a potentially vulnerable moment.”

Of course, Beijing’s concerns about domestic politics and access to energy resources are not mutually exclusive. After all, China’s interest in the potential oil and natural gas in the South China Sea is in part driven by concerns over its vulnerability elsewhere, particularly the Strait of Malacca, through which up to 80 percent of China’s Persian Gulf and African oil imports travels. A closure of the strait could have an immediate impact on the Chinese economy and domestic stability.  “[I]f the Malacca Strait were closed for just one day, the disruption in energy supplies might cause social unrest in China, according to a well-placed officer of the People’s Liberation Army,” wrote Patrick M. Cronin and Robert D. Kaplan in a January 2012 CNAS study, Cooperation from Strength: The United States, China and the South China Sea.