Philippines - Sea Tensions Deepen With China's Rise

PUERTO PRINCESA, Philippines—Here among the azure waters of the South China Sea, China is learning how hard it is to win friends and allies to accompany its rise as a world economic power.

For a decade, China has channeled billions in development aid to neighbors—transforming the skyline of Phnom Penh, Cambodia, and throwing a lifeline to Myanmar's old military regime when the West imposed sanctions. In Africa and South America, more cash has flowed as China seeks to ring-fence energy and food resources.

China's largess included some $2.8 billion to fund broadband and other projects in the Philippines, a rival claimant to vast oil and gas reserves thought to lie beneath the South China Sea between the two countries. As the Chinese money flowed, the two signed a groundbreaking pact to jointly survey the sea's riches.

Today, that pact is in shreds, with Beijing and Manila locked in a tense dispute over who owns what in the sea. At one place 119 nautical miles off the Philippine coast, Chinese and Philippine fishing vessels are engaged in a tense, on-and-off confrontation over fishing rights. At another spot, China is warning the Philippines to stop local energy firms from drilling. Many of the projects China was funding in the Philippines, meanwhile, have collapsed amid resentments and allegations of corruption.

Philippine President Benigno Aquino III, speaking with The Wall Street Journal Thursday in Washington, said there could soon be other governments reassessing their ties to the Chinese. "Now, if they do not conform to international law," he said, "there will be a lot of other countries who find themselves, like us, thinking, 'What should our relations be with the Chinese?' "

Mr. Aquino, who will meet with President Barack Obama on Friday, said there had been some progress in easing tensions in the fishing dispute but described that as just one problem in a large, complicated and tense relationship.

The story of how Chinese-Philippine relations unraveled shows the way anti-China sentiment is continuing to build in some countries, even as Beijing deploys development aid and soft power around the world.

It also underscores new risks for the U.S. in Asia, as countries around the region such as Vietnam and even Myanmar look to build stronger relationships with Washington to help them withstand the Chinese juggernaut, and as America ramps up its military and diplomatic presence among the region's booming economies.

Under a 60-year-old mutual-defense treaty, the U.S. is obliged to come to Manila's aid in the event of an armed attack, an event experts call unlikely but not impossible should relations with China grow dramatically worse.

The Philippines, once a colony of the U.S., long remained one of its crucial allies in Asia, but the Philippine senate closed America's sprawling Philippine bases at Subic Bay and Clark Field in 1991. Now, an apparent effort by China to win Philippine favor through money has opened the door for America again, showing how China's missteps are potentially America's gains in the region.

Mr. Aquino's government has several times asked for more support from the U.S. In April, American soldiers took part in joint training exercises with Philippine troops, designed to teach them how to withstand a beach assault from a foreign power.

The U.S. is stepping up military ties with other countries in the region as well. A U.S. Navy vessel called at a former American naval base at Cam Ranh Bay in Vietnam last August for the first time in three decades—for maintenance and noncombat exercises—and on Sunday, U.S. Defense Secretary Leon Panetta visited the base. In April, nearly 200 Marines arrived in Darwin, Australia, as the U.S. builds up a presence there to help ensure free navigation through the South China Sea.

China has faced backlashes against its expanding commercial and military power before. In Zambia, President Michael Sata successfully ran for office last year challenging China's dominance of the African country's copper industry. Former South African President Thabo Mbeki has warned of the danger of China creating a colonial relationship in Africa. Myanmar suspended a $3.6 billion Chinese-funded hydropower project last September amid fears it could ruin the agricultural heartland. The stakes are especially high in the Philippines because of the South China Sea. Its contested waters, which are claimed in whole or in part by China, the Philippines, Vietnam, Malaysia, Taiwan and Brunei, contain between 28 billion and 213 billion barrels in proven and undiscovered oil resources, according to the U.S. Energy Information Administration. It is unclear how much is accessible, but some think the reserves potentially could be larger than those of any other country besides Saudi Arabia and Venezuela.

China has come to blows over the area before. It routed South Vietnamese forces from the Paracel Islands in 1974 and engaged Vietnam again in 1988, killing dozens of sailors.

Beijing claims much of the area, including the areas around Reed Bank—a spot 80 nautical miles off the Philippine coast where China is warning the Philippines to stop local energy firms from drilling—and Scarborough Shoal, site of the fishing-vessel confrontation.

China tried to cool tensions in the 1990s by cranking up educational exchange programs with neighbors. "The Philippines, though, was a really tough nut for China to crack. Here was this Christian, American ally whose culture is very much tilted toward the U.S.A.," said Ernie Bower, a senior adviser at the Center for Strategic International Studies in Washington. "In the end, China discovered that money was the way to do it."

Chinese diplomats sent word to Manila in 2003 that Beijing wanted stronger ties and was willing to fund infrastructure projects, said people familiar with the situation. The Philippines' then-president, Gloria Macapagal Arroyo, hoped to link the economy with China's faster-growing one, and also needed new friends after angering Washington by withdrawing Philippine troops from Iraq in 2004.

When Chinese President Hu Jintao arrived for a state visit in April 2005, Mrs. Arroyo described relations between their countries as entering "a golden age." Chinese officials provided loans without stringent conditions.

The Chinese would finance a railway linking Manila to a northern manufacturing zone and the rehabilitation of a dam. China's state-run telecom giant ZTE Corp. negotiated a $330 million deal to build an Internet network. The Export-Import Bank of China helped the Philippines finance the deal with a loan.

China's Ministry of Foreign Affairs, asked by the Journal about the purpose of this aid, said it was conducted "in line with the spirit of mutual respect, equality, mutual benefit and common development."

Around the time aid began flowing, Manila offered China a deal to jointly explore for oil in the South China Sea, including in some waters designated as Philippine territory under the United Nations' Convention on the Law of the Sea.

Critics such as Mr. Aquino say that while it isn't clear whether the pact was a quid pro quo for China's aid, the agreement gave too much leeway to China and violated the Philippine constitution by giving control of some Philippine territory to a foreign entity. Opposition and nationalist leaders challenged the agreement in court in 2008. The pact then lapsed.

China, while holding its silence, was clearly disappointed. Its Ministry of Foreign Affairs still describes the accord as a positive influence on stability in region.

As opposition to the exploration deal grew, critics lined up to challenge the Chinese-funded infrastructure projects, as well, which some politicians felt were proffered by the Chinese to gain undue influence.

Some Philippine congressional leaders alleged the broadband deal was overpriced and involved kickbacks to Philippine businessmen, including an ally of Mrs. Arroyo and her husband, Jose Miguel Arroyo. A congressional investigation led to a number of resignations, among them an official accused of offering bribes to ensure the deal went through. The official denied the allegations but said ZTE officials were his "golfing buddies" and had paid for his trips to China. ZTE has denied paying any kickbacks or bribes.

Mrs. Arroyo's approval ratings plunged. China's reputation, too, took a beating. The Philippine Daily Inquirer editorialized that the Chinese telecom company had "bamboozled" the Philippine government. One lawmaker accused China of having invented "corruption for all human civilization," though she later apologized.

Mrs. Arroyo decided to void the contract and flew to China to smooth things over. China played down the controversy and said it wouldn't affect ties. A Chinese foreign ministry official said it was natural for countries to encounter stumbling blocks as they developed their ties.

But other deals also fell apart, including the railway line and an agreement by which Chinese state companies would have leased a million acres of Philippine farmland. Mr. and Mrs. Arroyo have since been charged with corruption in connection with Chinese-funded deals. They have pleaded not guilty.

The 2010 election of Mr. Aquino, the son of "People Power" icon Corazon Aquino, didn't help matters. Although open to working with China, he was eager to rebuild relations with the U.S. to put the country's foreign relations on a more even keel after Mrs. Arroyo's years of courting China.

Relations with China kept going downhill.

Chinese authorities were angered when Mr. Aquino's government bungled a hostage incident in which a former policeman seized a bus-load of Hong Kong tourists in a bid to get his job back. Eight hostages were killed in the botched rescue effort.

Mr. Aquino intensified investigations into alleged corruption in Mrs. Arroyo's government. He encouraged Philippine oil companies to explore in parts of the South China Sea without China.

Then in February 2011, the crew of a Philippine-British oil-exploration vessel surveying the area around Reed Bank reported being harassed by two Chinese coast guard boats. The Philippines sent planes to warn the Chinese vessels, which quickly backed off. China denied threatening the exploration ship but told the Philippines not to explore in the sea without seeking Chinese approval.

A month later, Chinese authorities refused to commute the death sentences of three captured Filipino drug "mules," despite personal entreaties from Mr. Aquino, and they were executed.

Mr. Aquino ramped up belligerent talk. In July, he vowed to upgrade his armed forces and challenged China to steer clear of areas in the sea claimed by the Philippines.

Manila also stepped up discussions with the U.S., which offered a Coast Guard cutter in addition to one supplied earlier. Philippine officials pressed the U.S. to clarify its duties under the 1951 mutual-defense treaty, culminating in November in a new "Manila Declaration" reaffirming it.

Then came the latest flap, over fishing rights at Scarborough Shoal. The standoff began in April after a Philippine vessel, one of the cutters provided by the U.S., tried to arrest the crews of several Chinese fishing boats anchored at the shoal. The Philippines said Chinese surveillance vessels intervened to prevent any arrests.

By mid-May, anger was boiling over. More than two hundred Filipino protesters rallied outside the Chinese embassy in Manila.

Chinese tour operators canceled trips to the Philippines. Hawkish voices in China urged harsher action. The People's Liberation Army's daily newspaper warned that "the Chinese Foreign Ministry has made it clear China is prepared for any escalation of the situation by the Philippines. It goes without saying what this means."

At the Philippines' Western Command headquarters in Puerto Princesa, Lt. Gen. Juancho Sabban, along with his political leaders in Manila, is girding for a fresh potential flash point later this year when the oil-exploration firm that was at the center of 2011 standoff returns to Reed Bank to begin drilling. "Maybe we'll have to send out a flotilla of fishing boats to curtain our exploration vessels, but we will protect their right to exploit our natural resources," Gen. Sabban said.

The Aquino government has accepted five more bids for exploration contracts and set another tender for July that includes two areas near the contested Reed Bank. "Our position has been very clear," Mr. Aquino said in Washington Thursday. "The bottom line is clearly it's within our territory."

JAMES HOOKWAY

Robert Ourlian contributed to this article.

http://online.wsj.com/

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