Chinese Acquisition of the Spratly Archipelago and Its Implications for the Future

Author(s): PAUL D. SENESE

Source: Conflict Management and Peace Science , Spring 2005, Vol. 22, No. 1, SPECIAL
ISSUE: Papers in Honor of Stuart A. Bremer (Spring 2005), pp. 79-94
Published by: Sage Publications, Ltd.

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Conflict Management and Peace Science, 22:79-94, 2005
Copyright © Peace Science Society (International) Routledge
ISSN: 0738-8942 print / 1549-9219 online g ^ Taylor & Francis Group
Taylor & Francis Grou
DOI: 10.1080/07388940590915336

Chinese Acquisition of the Spratly Archipelago

and Its Implications for the Future

PAUL D. SENESE

Department of Political Science

University at Buffalo
The State University of New York
Buffalo, New York, USA

In this study, I first examine the place of the Spratly Islands dispute at the
interstate relations between China and its regional neighbors around the Sou
Sea. In doing so, I trace the varied historical claims and periodic disputes
archipelago, along with the current state of affairs, which is increasingly dom
the need for more and cheaper sources of oil and natural gas. This backgr
the groundwork for the core of this study, which is a simulation analysis l
the potential ramifications of a more aggressive Chinese position in the S
Sea. Using computer simulation techniques. I compare the desirability of tw
related to Chinese policy in the area. The findings suggest that a more aggressiv
policy on the Spratlys would be beneficial in some ways, especially in th
energy production and imports over the following forty years. At the same t
are several potential drawbacks as well, including increased environmental d
and renewed energy supply problems in the second half of the century. I co
examining the implications of both conflictual and peaceful Chinese approache
in the South China Sea. in light of China's obvious ascension as the leadin
East and Southeast Asia, as well as its rapidly improving global position.

Keywords China, computer simulation modeling, energy, internationa

Philippines, South China Sea, Spratly Islands, Vietnam

What would result if China embarked upon a more aggressive policy in esta
historical claims to the hotly disputed Spratly Islands? The stakes for doing so
the coming decade for a number of reasons. One of these reasons stems from the
integral location of the Spratly archipelago in the midst of international sh
running through the South China Sea. Another, even more important, motivat
the large estimated reserves of both oil and natural gas. Such resources make t
particularly attractive target for a country like China whose energy consumption
a rate commensurate with its booming economy and improving position as a
And while China currently acquires the bulk of its oil and natural gas from Russ
Arabia, its rising consumption and related desire to lower prices make the sea
supply sources increasingly critical.

An earlier version of this paper was presented at the Conference in Honor of Stuart A. Bre
conjunction with the Thirty-Seventh North American Meeting of the Peace Science Society (Inte
Arbor, MI, November 2003.1 would like to thank the editor, anonymous reviewers, Claudio Ciof
Jarvis, Thomas Muller, and Cathy Ng for helpful suggestions. Special thanks go to Barry Hughe
supplying the professional version (4.35) of his International Futures software. Finally, I extend very
and dedicate this research to the memory of Stuart Bremer, who taught me well.
Address correspondence to Paul D. Senese, Department of Political Science, 520 Park Hall,
Buffalo. SUNY, Buffalo, NY 14260, USA. E-mail: pdsenese@buffalo.edu

79

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80 P. D. Senese

In this study, I will first examine the place of the Spratlys dispute at the heart of interstate
relations between China and its regional neighbors around the South China Sea. In doin
so, I will trace the varied historical claims and periodic disputes over the archipelago, alon
with the current state of affairs. This background will then lay the groundwork for th
core of this study, which is a simulation analysis looking at the potential ramifications of
more aggressive Chinese position in the South China Sea. By using computer simulation
techniques, I can compare the desirability of various scenarios related to Chinese policy i
the area. And given China's obvious ascension as the leading state in East and Southeast
Asia, as well as its improving position vis-a-vis the United States, its policies in this regio
promise to have long-term implications both regionally and around the globe.

Background and Competing Claims

In February and March of 2004, a brief controversy arose over planned joint Filipino
American military training exercises. The conduct of such activities is not new and wa
not the object of the controversy. Instead, it was the location of some of the proposed
activities that gathered the attention of onlookers. For the first time, the Armed Forces
of the Philippines had planned these joint exercises, which were to include live fire drill
and amphibious landings, in two provinces strategically located near the Spratly Island
But after the raising of some concerns by China, as well as by some within the Filipin
government itself, the exercises were shifted to other locations instead (Guerrero & Lema
2004). This controversy and shifting of plans points to the continually prickly nature of the
Spratlys issue.
The Spratly Islands are a widely contested stretch of land dotting the South China Sea.1
Together they consist of more than two hundred islets, coral reefs, and shoals covering
wide area. Between the Philippines and Vietnam, they are over nine hundred miles from
China (see inset map). At first glance, these barren islets that lie in a prime typhoon zon
appear of little value. So exactly why are they so hotly contested?
The primary reason is that China, along with Brunei, Malaysia, the Philippines, Taiwan
and Vietnam, sees the area as a treasure-trove of oil and natural gas reserves. While estimates
vary widely, one suggests that the South China Sea may contain over 17 billion tons of
oil, reserves larger than those of Kuwait (Marlay, 1997). And given the generally high
economic growth rates of the contesting countries, along with continued volatility in th
Middle East and Russia, the ability to secure alternative oil and natural gas reserves has
become increasingly important. This is especially true of China which, after years of being
a net exporter of oil, has now become the world's second largest oil importer (behind the
United States).
The Spratly area is also valuable for at least two other reasons. First, it serves as a
bountiful fishing region (Wang, 2001). With the accelerated pace at which global fishing
stocks have become depleted in recent decades, this feature is becoming increasingly valu
able. And this is particularly the case in a region with relatively high rates of population
growth (Safina, 1995). Second, the Spratlys lie at the heart of strategic shipping lanes that
run through the South China Sea. These navigation routes are busy to the extent that mor
than one-fifth of the globe's trade passes through the area, including all tankers bringing
Middle Eastern oil to the world's third largest oil importer, Japan (Marlay, 1997). So, t
gether with the potential oil and natural gas reserves, the fishing and trade significance o
the area renders their value quite high indeed.2

'The Chinese refer to the islands as "Xisha." The western usage of "Spratly" is due to the British
serviceman of that name who charted them in the 1880s.

2Some of the contesting states, especially Vietnam, have even begun to consider the value of the
islands in terms of tourism.

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 Chinese Acquisition of the Spratly Archipelago 81

Source: Political Handbook of the World 2000-2002; Stanley B. Kaufman of Education

Communications, Binghamton University; and Burton C. Rush of Visual Services, Briar
Manor, NY.

Each of the six countries—China, Brunei, Malaysia, the Philippines, Taiwan,

Vietnam—have historical claims on the land (see Chang, 1991). China, for its part, cla
sovereignty over the whole of the Spratly archipelago.3 In fact, Chinese discovery an
ploitation of the islands began over two thousand years ago, under Emperor Wu Di of
Han Dynasty. And they were officially included on maps as part of Chinese territory
early as 1405. During World War II, Japan actually occupied the islands for several ye
but gave them back to China after the war and cemented the return by officially renoun
its claims to the Spratlys in a 1952 treaty.4
Breaking from agreements reached with China in 1895, France also claimed sovereig
over the Spratlys (and Paracels) for roughly twenty years from the early 1930s until
withdrawal from Indochina in 1954. France's abandoned claim was immediately taken u
South Vietnam until 1975 and the Democratic Republic of Vietnam since then. Vietna
claims to the islands date back to a decision by Emperor Gia Long in 1802 to create
company to exploit the islands. Its claims have been interrupted since then by the Fr
and South Vietnamese, but remain consistent with earlier language.
After Chinese occupation of the nearby Paracel Islands in 1974, Vietnam sent troo
to several of the Spratly Islands the following year. The Chinese invasion of northe
Vietnam in February and March of 1979, while mainly a reaction to the Vietnamese d
into Cambodia, was also partly in response to continued disagreements over soverei
of the Paracel and Spratly groups. This invasion did not go nearly as well as the Ch
had hoped, but their 1988 seizure from Vietnam of six reefs in the Spratlys, sinking

3Taiwanese historical claims to the islands are identical to those of China, since they were
and the same prior to 1949.
4For a detailed look at the historical and legal bases for China's claim over the Spratlys
Chang (1991), Chiu and Park (1975), Marlay (1997), and Wong (2002).

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82 P. D. Senese

Vietnamese ships and killing 72 men in the process, was much more successful. Combine
these two episodes help bolster the common perception that Vietnam is indomitable wh
invaded, but lacks any real abilities to project power beyond its immediate borders (Marl
1997).
In 1993, after almost two decades of tense relations, China and Vietnam finally agreed to
seek a negotiated resolution to their territorial disagreements. However, little real progress
was made and Hanoi's signing of an agreement in 1996 with the American company,
Conoco, for oil exploration in the South China Sea jolted the Chinese. By 2000, however,
relations had begun to warm again as the sides agreed on historic settlements to several key
differences, including various land and Gulf of Tonkin boundary disputes. Conspicuous by
their absence from these settlements, though, were the Spratlys and Paracels (Banks, Muller,
& Overstreet, 2003). So, while some progress has been made in negotiating solutions to other
disagreements, the Spratlys issue remains problematic for the future of Chinese-Vietnamese
relations.

Of course, China and Vietnam are not the only countries who claim either complete or
partial sovereignty over the Spratly archipelago. The Philippines, for one, currently claims
eight islands as its own. These claims date unofficially to 1956, when a Filipino entrepreneur
claimed to have "discovered" several of the islands. Although initially reticent to officially
claim these islets as its own, partially due to protests by China, Taiwan, and Vietnam, Manilla
finally stated its claim in 1971. By the next year, the Philippines officially designated the
eight islands as part of its Palawan Province (Johnson, 1994).
Like Vietnam, the Philippines has broad disagreements with China in the South China
Sea. Beginning in 1995, the Philippines and China have had a number of clashes over various
issues in the area, including fishing rights and, especially, various forms of construction on
islets, reefs, and shoals. The first of these clashes occurred in 1995 when the Philippines
discovered newly built structures and a satellite dish on Mischief Reef. While China claimed
that the buildings were merely wind shelters for fishermen, the Philippines asserted that
they more closely resembled the beginnings of small forts and helicopter landing platforms.
In the end, the Philippines was shown to be helpless militarily when faced with a Chinese
fait accompli over Mischief Reef.5 Over the next several years, tensions between the two
sides continued in a series of clashes, disagreements, and misunderstandings. Some of the
friction has also involved corrupt Chinese navy personnel probably acting without direct
guidance from Beijing. Either way, tensions have remained high. In the past few years,
several meetings of foreign ministers and resulting joint statements have echoed the desire
to find a peaceful resolution to the dispute, but little real progress has been made (Banks,
Muller, & Overstreet, 2003; Marlay, 1997; Paal, 1997).
The final two official claimants to part of the Spratlys are Malaysia and Brunei. The
basis for the Malaysian sovereignty claim put forth in 1979 lies in the fact that a number of
the islands reside on its continental shelf (Thomas, 1989). The Malaysian government has
actually built a resort hotel on one of the atolls, after transporting soil from its mainland
(Marlay, 1997). In joint Chinese-Malaysian meetings in recent years, both sides have en
dorsed a code of conduct that would apply to all claimants (Banks, Muller, & Overstreet,
2003). Brunei's claim of the Louisa Reef is based strictly on the 1994 United Nations
Convention of the Law of the Sea (UNCLOS). UNCLOS established a 200-mile exclusive
economic zone for countries, thus providing Brunei with a legally derived justification for
claiming some of the islands.6

'Austin (2003) provides an interesting take on the effect of the Mischief Reef crisis, and the
Spratly issue more broadly, on the overall security policy of the Philippines.
6For a close look at the validity of these types of claims, see Gjetnes (2001).

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 Chinese Acquisition of the Spratly Archipelago 83

One final regional player in the disputes over the Spratlys is the Association of Southeast
Asian Nations (ASEAN).7 Various summit meetings, especially one in 1999, have produced
"codes of conduct" and "declarations" regarding members' actions toward the islands. A
proposed code of conduct coming out of this 1999 meeting called for a moratorium on new
construction and rejections of the use of force in the Spratlys (Banks, Muller, & Overstreet,
2003). The most recent agreement related to this issue was the "Declaration on the Conduct
of Parties in the South China Sea." Designed to ease tension, this 2002 declaration falls
far short of a legally binding code of conduct (The World Factbook, 2003). And while
adherence to a stronger code would be a boon for future peace in the region, serious doubts
linger among members about China's long-term dedication to such restraints.

The Possibility of Chinese Aggression

Given such concerns and the potentially widespread impact of China's actions in the South
China Sea, I explore the ramifications of a more aggressive Chinese policy regarding the
Spratlys—just the sort of development these other countries fear and are jockeying to avoid.
And while the scenario I develop is hypothetical and stylized, a further look at regional
trends and rhetoric lays bare the real possibility that China will eventually embark upon
just such a course in the South China Sea. For instance, as early as August 1992 the Fat
Eastern Economic Review published an issue with a series of articles highlighting just such
an eventuality. One of these articles cites an internal Chinese document stating that: "In
terms of resources, the South China Sea holds reserves worth one trillion U.S. dollars. Once
Xinjiang has been developed this will be the sole area for replacement of resources, and it is
a main fallback position for lebensraum (lit. "sheng cun keng jian") for the Chinese people
in the coming century." Other articles in the issue argue that it is only a matter of time before
China begins to expand its interests southward and that the United States will choose not to
directly intervene in any militarized disputes that arise.8 The latter assertion, if accurate, is
quite significant as China appears quite capable of seizing control of the Spratlys from the
Philippine navy or that of Vietnam, but is still a ways away from being able to instill fear in
the United States. After all, as we saw, the Philippine navy was shown to be helpless when
faced with the Chinese fait accompli on Mischief Reef in 1995.9
Outside observers have also been quick to highlight the real possibility that a constantly
improving Chinese military may find use to the south. Former U.S. Secretary of Defense
Robert McNamara, for example, has argued that the Chinese military "is being configured
to protect island claims in the South China Sea as a matter of national priority" (Tyler,
1995). Rapid-deployment airborne forces are now based on the closest Chinese province
to the Spratlys, Hainan Island. Further, the Chinese conduct military exercises in the South
China Sea that include sea blockades, beach landings, and paratrooper assaults (Marlay,
1997). Together, these preparations support the conclusion that "China does not itself know
exactly what it wants to do—but wants to ensure it has the capability to do so when it finally
does decide. That is not an unreasonable position for a great power, as China is destined to
be" (Editorial, Far Eastern Economic Review, 13 April 1995, 5).10

7For a detailed account of ASEAN's reaction to the Mischief Reef crisis of 1995, see Sharpe
(2003).
8See the Far Eastern Economic Review, 13 August 1992.
9For an extensive treatment of China's intentions in the South China Sea, see Valencia (1995).
And for a detailed analysis of China's extensive naval modernization plans, especially in terms of a
submarine force, see Goldstein and Murray (2004).
l0For a purely fictional account of a Chinese military takeover of Vietnamese claims in the
Spratlys, see Hawksley and Holberton 1997. The implications of the scenario I develop here are much
less severe than those conjured in Hawksley and Holberton's entertaining literary work.

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84 P. D. Senese

With this background in hand, I use future-oriented modeling techniques to simulate

the core components of a potential Chinese occupation of the Spratly archipelago. This
action includes a beefing up of their security forces in the area and an acceleration of their
construction of security structures and landing strips. They also begin to more forcefully
stake out exclusive fishing zones for Chinese companies and nationals. Finally, the Chinese
embark upon an aggressive program of exploration and development pertaining to the oil
and natural gas reserves in the area. This program is conducted partly with the help of vari
ous international petroleum companies, and partly through the participation of indigenous
Chinese firms.
In the simulation, China embarks upon this newly ambitious course beginning in 2015.
The main impetus for China's action stems from its increasing energy demands as it con
tinues to develop into the future. Also, it seeks to lower its dependence on imported oil
and natural gas, especially from the frequently volatile OPEC cartel and Russia. In fact, if
development of the petroleum resources goes very well, China may be able to increase its
energy exports. With the continuing rise of China, not only as the dominant power in East
Asia but also as a major contender on the global scene, its ability to secure safe and stable
energy supplies becomes of paramount concern.

Computer Simulation and the International Futures Model

Before assessing the ramifications of potential future Chinese aggression in the Spratly
Islands, some discussion of computer simulation as a tool for understanding the conse
quences of alternative policies is in order. While individual issue or actor analyses are
valuable tools for understanding certain aspects of international relations, integrated mod
eling supplements such case studies in several highly beneficial ways. First, simulation
models provide a consistent framework for comparing the leverage that alternative policy
tools produce in regard to a range of goals. And while no modeling system will ever pro
vide a complete representation of all complex underlying systems, over time good ones
evolve so as to capture what analysts identify as the dominant relationships and dynamics
within them. Second, simulation models allow for the exploration of secondary and tertiary
impacts of policy interventions or of attaining policy targets. For instance, we know that
rebound effects of all sorts are persistent in many systems that have a general equilibrating
character; without the formal representation of such equilibration, these rebound effects
are difficult, if not impossible, to analyze. And third, simulation allows for the examina
tion of interaction effects, both synergies and contradictions, among policy interventions
themselves. In addition to considering policy interventions individually, in order to isolate
the leverage they provide actors, we also benefit from investigating them in combinations.
Such combinations represent politically feasible policy packages that may maximize actors'
ability to reach desired goals.
These benefits notwithstanding, integrated simulation models do have their weaknesses.
For one, they obviously exclude factors that may be important, but are difficult to quan
tify (e.g., soft power). For another, they also exclude facets for which the development of
formulations for forecasting is nearly impossible (e.g., although the World Bank has de
veloped quite good measures for governance quality, forecasting them for the long term is
extremely difficult because they depend so much on leadership changes and orientations).
The simulation analysis below is undertaken with proper consideration of both the strengths
and weaknesses of integrated modeling in mind. And while it does not capture all aspects
of all potential factors and scenarios, it does capture those which are integral for assessing
the question at hand.
In general, then, computer simulation modeling is a valuable tool for developing and
examining alternative scenarios about the future. These alternative scenarios essentially

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 Chinese Acquisition of the Spratly Archipelago 85

take the form of if-then statements about the choices that various agents decide to select
over time. For instance, an analyst could easily simulate a choice by Canada to institute a
10 percent increase in its military spending (phased in over any plausible period). Then the
analyst could examine the "state of the future world" including this policy choice compared
to one that does not include it. And the scope of other parameters and variables that can
be manipulated or observed is great, ranging from Canadian spending on education to
American military spending to the probability of state failure in Canada.
In this research, I examine the state of the world following a Chinese initiation of a
militarized territorial dispute in the South China Sea compared to the state of the world absent
such a move by the Chinese. The modeling software used for this purpose, the Professional
Version (4.35) of International Futures (IFs), was developed by Barry Hughes." The lineage
of this software has evolved through several generations over the past thirty years.12 One
of the major stages of this lineage was the development of the GLOBUS project at the
Wissenschaftszentrum in Berlin. Barry Hughes was a member of the team there, which
had been created with the inspiration of Karl Deutsch and under the leadership of Stuart
Bremer (1987; see also Bremer, 1977, and Bremer and Hughes, 1990).13 The IFs software
used below, while building on this earlier work, has made great strides of its own in several
areas, not the least of which is its enhanced ease of use.
IFs, like its predecessors, is a global modeling system. The extensive data base under
lying it includes data for 164 countries over as much of the period since 1960 as possible.
The model itself is a recursive system that can run without intervention from its initial year
(currently 2000), while the model interface facilitates interventions flexibly across time,
issue, and geography. Model projections are based on an extrapolation of trends in the past
and various modeling assumptions. Among these modeling assumptions are insights from
the best academic theory available across the relevant disciplines, including international
relations. The major issue areas conceptualized by IFs include agriculture and food, eco
nomic, energy, environment, international and sociopolitical, and population. Within and
across each of these submodel categories, the user can adjust various starting values and
policy levers. The effects of such interventions can then be compared to a base case, which
represents the projected state of the world absent such changes. In this way, and as the
analysis below reveals, IFs is quite powerful in its ability to simulate and compare various
scenarios for the future.

Scenario Analysis and Results

The scenario analysis that follows attempts to simulate what a Chinese takeover of the
Spratly Islands would look like and its implications for the future. The interventions made
to the IFs model are based on a scenario that has China initiating a territorial militarized
interstate dispute in the year 2015. The original targets are the Philippines and Vietnam.
Taiwan and Malaysia soon also become targets as their protests are met by Chinese threats
to use more force.14 The United States joins on the side of the targets after a short while, as
well, with threats and displays, but no uses, of military force. The dispute officially ends in

"For more information about IFs, see www.du.edu/~- bhughes/ifswelcome.html

I2For a detailed description of this evolution, see Hughes (1999a, 2001a, 2003b). For research
using the model, see Hughes (1997, 1999b, 2001b, 2003a).
13My first exposure to computer simulation modeling came during two graduate seminars with
Stuart Bremer at Binghamton University. And while they were definitely the two most difficult classes
I took in graduate school, Stuart's excellent tutelage also made them two of the most interesting. For
this reason, and because of his patient mentoring throughout my graduate school days, I dedicate this
research to his memory.
14Brunei is not included as an actor in the IFs software.

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86 P. D. Senese

2016 with China keeping control of the Spratly archipelago, and the four Asian countrie
acquiescing to China's wishes. In return, China promises a limited package of speci
privileges for the four pertaining to fishing rights and joint development of energy resource
These preliminary joint development plans are somewhat less advantageous for the fou
compared to those offered back and forth by the various parties in the past, but are now agree
to and formalized in the face of Chinese aggression. The United States grudgingly accept
this arrangement, partially mollified by Chinese promises to include American petroleum
companies in the bidding for exploration privileges, along with guarantees of free and
unfettered shipping access through the South China Sea. The extension of invitations t
jointly develop the energy reserves is very helpful to China, as its technological ability t
do so on its own would take a good bit more time to develop.
In creating this stylized scenario, the following package of interventions was imple
mented within the IFs software:

• A territorial militarized interstate dispute is initiated by China against Malaysia, the

Philippines, Taiwan, the United States, and Vietnam. The dispute lasts for two years,
2015 to 2016.

• Parameters within the model are adjusted to allow for the possibility that the dispute
might escalate to war; these include a parameter for the base probability of conventional
war between the disputants and two war-enabling parameters.
• Multipliers for China's rates of oil and gas discovery are steadily raised from the base
value of 1 to a new value of 2 over a five-year period beginning in 2017. They then remain
at 2 for twenty years before beginning a steady ten-year decline in 2042 back to the base
value of 1. They then remain at 1 for the rest of the simulation span (from 2052 to 2075).
• Multipliers for China's resources of oil and gas are steadily raised from the base value of
1 to a new value of 3 over a five-year period beginning in 2021. They then remain at 3 for
twenty-five years before beginning a steady five-year decline in 2051 down to a value of
2, where they remain for the rest of the simulation period.15

In assessing the effects of such events, I present a series of graphs. The time frame
for these graphs runs through the year 2075, with two lines shown in each, one for the
base scenario (which does not include the Spratly takeover adjustments listed above) and
a second for the Spratly scenario (which does include the adjustments). Since the primary
motivation for the Chinese takeover lies in the energy area, I first look at its impact there,
followed by a brief examination of its environmental and economic effects.
Stemming from the increased rate of oil discovery caused by the acquisition and en
hanced exploration of the area around the Spratlys, Chinese oil production begins an an
ticipated increase from the early 2020s through to about 2050 (see Figure la). The timing
of this increase is, as one would expect, slightly behind the rate of discovery enhancement
mentioned above, as there is a short lag between discovery and production. After 2050,
oil production begins a rather sharp decrease back toward that represented by the base sce
nario. This sharp rise and decline pattern suggests an aggressive development of oil reserves
by the Chinese, followed by eventual resource exhaustion. The pattern for gas production
(Figure lb) is similar, but much more drastic; gas production rises crisply over the eight
year period from 2023 to 2031, then levels off for a year, before beginning its decline back
toward what it would be absent acquisition of the Spratly reserves. The exaggerated nature
of the gas dynamic is due in part to the ease of development associated with gas extraction
and production compared to that of oil.

15Sensitivity analyses show the results presented below to be robust in the face of slightly altered
interventions for rate of energy discovery and resources.

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 Chinese Acquisition of the Spratly Archipelago 87

• —
Base Scenario(China.Oil) Spratly Scenario(China.Oil)

10

2006 2013 2020 2027 2034 2041 2048 2055 2062 2069
Year

FIGURE la Chinese oil production.

Taken together, Figures la and lb reveal a honeymoon period of Chinese

tion (for the Spratly scenario) that is eventually followed by a decline. Does
period result in a decreased need for imported energy? And does the later d
a search for still other sources and forms of energy? The answer to both of
is yes. Figure 2 shows Chinese energy imports generally rising through mo

• ——

Base Scenario(China,Gas)
Spratly Scenario(China.Gas)
1.50

1.25 --

1.00 --

0.50 --

0.25 --

r ti »
2006 2013 2020 2027 2034 2041 2048 2055 2062 2069
Year

FIGURE lb Chinese gas production.

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 P. D. Senese

• —

Base Scenario(China)
Spratly Scenario(China)

* *
30 --
> X

2006 2013 2020 2027 2034 2041 2048 2055 2062 2069
Year

FIGURE 2 Chinese energy imports.

for both the base and Spratly scenarios.16 However, there is a distinct span through the
2020s and 2030s where imports for the Spratly scenario are noticeably lower. This sort of
disparity is in evidence during the late 2050s as well. Thus, while there is a small exception
(during the 2040s) and the differences are not extremely large, Chinese energy imports are,
on average, lower for the Spratly scenario until near the end of the period. In 2066, we
see the beginning of what could be a renewed need for outside sources of energy for the
Spratly scenario relative to that for the base case. This is in line with the notion that a spike
in Chinese oil and gas resources spurred by the development of reserves in the South China
Sea will eventually dry out, to be replaced with alternatives, such as more importing and,
perhaps, new non-fossil fuel sources.
This latter possibility is borne out by the results shown in Figure 3, which depicts
China's levels of renewable energy production across the two scenarios. While development
of renewables goes up in both, it does so earlier and more rapidly in the base scenario. It
appears that the enhanced levels of oil and gas reserves produced through the Spratly
takeover leave China with less urgency in its pursuit of renewable energy resources. And
since renewables look to be one of the key sources of energy into the second half of the
century, this delay on China's part leaves it in the disadvantageous position of having to
catch up later on.
This increased reliance on oil and gas production, relative to renewables, also has
negative side effects for the global environment. As Figure 4 reveals, the relative increase
in fossil fuel use for the Spratly scenario has the effect of raising world temperature levels
at a rate that is slightly faster than that for the base scenario. These increased temperature
estimates are directly related to greater atmospheric levels of CO2 (results not shown),
which are themselves caused by China's enhanced reliance on the burning of fossil fuels.

l6This general rise in energy imports takes place alongside steady population growth in China
(through at least mid-century).

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 Chinese Acquisition of the Spratly Archipelago 89

Base Scenario(China,OthRenew) Spratly Scenario(China,OthRenew)

2006 2013 2020 2027 2034 2041 2048 2055 2062 2069
Year

FIGURE 3 Chinese renewable energy production.

So, while the Spratly scenario is beneficial for China's overall energy situation through
roughly 2050 or so, it does seem to give them a false sense of energy security, as well as a
deleterious influence on the global environment. Neither of these outcomes would appear
to be desirable, for the Chinese or the global community (see also Dunn, 2001; McElroy &
Nielsen, 1997).

• ——
Base Scenario Spratly Scenario

16.25 +

16.00 +

15.75 I

15.50 +

15.25 +

2006 2013 2020 2027 2034 2041 2048 2055 2062 2069
Year

FIGURE 4 World temperature.

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90 P. D. Senese

• — i

Base Scenario(China)
Spratly Scenario(China)

60

55 \
50

45

g 40
(0
e
** 35

30

25

20

2006 2013 2020 2027 2034 2041 2048 2055 2062 2069
Year

FIGURE 5a Chinese energy prices.

On the other hand, from a purely financial perspecti

the desirable impact of keeping energy prices lower tha
China and the world (see Figures 5a and 5b). This finding
Chinese energy stocks and imports and the resultant ju
suppliers such as OPEC and Russia. Energy prices fo

• —— A*

Base Scenario Spratly Scenario

2006 2013 2020 2027 2034 2041 2048 2055 2062 2069
Year

FIGURE 5b World energy prices.

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 Chinese Acquisition of the Spratly Archipelago 91

Base Scenano(Chna) 6835.882 9666.054 13862.768 18876.729 23886.012 28284.422 33092.367 36604199 39496387 42829305
SpratyScanariotChina) 6835 882 9666 053 13860 361 18925 646 24032236 29013.553 33722.828 36874 668 39593 555 42965 457

FIGURE 6 Chinese GDP (PPP).

China Sea—Malaysia, the Philippines, Taiwan, and Vietnam—also tend to be lower for the
Spratly scenario when compared to the base case (results not shown). These lower energy
prices are certainly a benefit of the Spratly scenario for China, the Philippines, and Taiwan,
while at the same time, a potential detriment to oil exporters such as Brunei, Malaysia, and
Vietnam (see also Manning, 2001).
Looking at gross measures of economic productivity, the Spratly scenario imparts
benefits to the Chinese, but they appear to be minimal in nature. As Figure 6 shows,
Chinese GDP (adjusted for purchasing power) rises steadily throughout the period. This rise
is slightly more pronounced for the Spratly case compared to the base scenario, especially
during the 2040s. On the whole, though, this improvement in economic performance is
rather small. Other economic indicators reveal similar effects (not shown), with the Spratly
scenario characterized by modest improvements compared to the base case. One possible
reason for why the Chinese economy does not improve even more rapidly for the Spratly
scenario lies in the fact that the economy is projected to continue on an upward trend even in
the absence of the energy improvements discussed above. So, when tacked onto an economy
that is on a strong positive trajectory in the first place, the changes inherent in the Spratly
case are only able to make small further enhancements. A second potential reason stems
from the sheer size of the Chinese economy, which makes it difficult for any one factor shift
to exert a large influence.
Finally, the Spratly scenario has little effect in the regional or international politi
cal arena (results not shown). The militarized dispute between China and Malaysia, the
Philippines, Taiwan, the United States, and Vietnam does not escalate to the war level.
Also, threat levels between the various actors, while noticeably higher during and imme
diately following the actual dispute, revert back to base levels shortly thereafter. Further,

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92 P. D. Senese

various measures of conventional and economic power are influenced very little by the
Spratly manipulations. When taken together, all of these findings in the international politi
cal area point to the presence of only marginal long-term effects stemming from the Spratly
takeover.17

Conclusions

As China's economy continues to grow at a rapid pace, so too will its need for additiona
sources of energy that are both affordable and reliable. Efforts at increasing domestic
production have met with some success, but not nearly enough to satisfy the need for
more oil- and natural gas-based energy supplies. And hopes of building a pipeline from
Russia to avoid the cost of shipping the oil over rail or through the Black Sea, while still
alive, have been dimmed by recent legal complications within Russia. Taken together, these
developments point to a need for the Chinese to seek other venues of supply for oil and
natural gas.
But what are the leading candidates for new supplies? One obvious target of opportunity
lies just to the south in the South China Sea. While estimates of oil and natural gas reserves in
the South China Sea vary widely, there is a general consensus that development possibilities
abound. And given China's traditional claims of sovereignty over much of the area, including
the whole of the Spratly archipelago, this area would seem a natural focal point for Chinese
expansion. China is not without constraints in the area, however, as a number of its regional
neighbors assert their own claims of control over the Spratlys. The dedication to these claims
has been evidenced by recurrent disputes in the past, as well as the failure of several attempts
at diplomatic resolution to the competing claims. Given this context of recurring disputes
and failed diplomatic initiatives, along with China's rising energy needs, the possibility of
unilateral action by the Chinese becomes quite real.
In this research, I simulate just such an aggressive move by the Chinese and assess its
effects across several issue areas. The results suggest that China would benefit from such a
course of action in a number of ways. First, China would experience substantial periods of
growth in both its oil and natural gas production. This increased production will improve
Chinese self-reliance by lowering their need for energy imports from abroad (particularly
from Saudi Arabia). Further, it will have the effect of marginally lowering energy prices,
for both China and the world. All of these outcomes bode well for China and point to the
desirability of a Spratly takeover by the Chinese.
Not all indicators are positive, however. For one, while China's oil and natural gas
production enjoys a honeymoon period following development of its new Spratly resources,
this boom eventually tapers off. And one unintended consequence of this boom period is
a delay in China's attention to the development of technology and expertise in other areas,
most notably in the realm of renewable energy production. This lapse by the Chinese has
little short-term impact, but does not bode well for the long term in at least two ways. First,
when China's fossil fuel reserves do run out (sometime around the mid-21st century), its
failure to more fully develop renewable options will leave it in the position of having to,
once again, increase its energy imports (the exact thing it had hoped to avoid in the first
place). Second, when coupled with the size of its economy, this relative deficiency in China's
use of renewables has deleterious effects on the global environment, most notably in terms
of increased CO2 in the atmosphere and subsequent rising world temperatures. And while

17It deserves mention that while a number of political implications are observable with the
IFs software, this issue area is not as fully developed as others (such as the economic, energy, and
environmental submodels). Improvements in the political submodel are one of the main foci of current
enhancement efforts.

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 Chinese Acquisition of the Spratly Archipelago 93

increases in these two factors will occur even without Chinese development of the Spratly
reserves, their rate of increase is marginally greater for the Spratly takeover scenario.
On balance, then, an aggressive move to acquire the Spratlys and their oil and natural gas
reserves appears to present a mixture of results to China. These include some benefits in the
energy area (especially over the first thirty years), followed by some negative consequences
for energy supplies later in the century. China's economy is only marginally improved,
while the environment is sullied somewhat. In terms of the political landscape, the simulation
reveals little long-term influence for the Spratly scenario, although it is important to mention
again that the model's ability to simulate political effects is rather limited at this time.
With these political model limitations in mind, one might speculate if China can get the
same energy benefits without incurring the potential international and regional political costs
associated with a military-based unilateral occupation of the archipelago.18 One potential
vehicle for lowering the chances of a Chinese unilateral occupation of the Spratlys could
reside in ASEAN. The international organization has tried to deal with the issue in the past
with only limited success. However, some very recent improvements in ASEAN relations
with China point to a heightened possibility of diplomatic resolution. This would certainly
be a more peaceful route, and one that may furnish China with ancillary benefits in other
areas where its regional partners can provide assistance. It may also improve China's long
term chances of engaging its fellow claimants in the establishment of mutually beneficial
economic agreements of all forms, just one example being an ASEAN-centered free trade
zone. Of course, the prickly issue of sovereignty claims will have to be overcome to make
this a reality, but the mutual benefits that would accrue to the region's members could
make the easing of these claims well worth the sacrifice. But whether China and its fellow
claimants ultimately pursue a peaceful or conflictual resolution to the Spratly dispute, it has
become increasingly obvious that "the world will watch with interest as this drama unfolds"
(Marlay, 1997, 209).

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