Where to now for China's nine-dash line, Maritime Silk Road and South China Sea offshore oil and gas exploration efforts?
After July 12th's Permanent Court of Arbitration ruling, prospects look dim for all three.
The tribunal, located in The Hague and comprised of international judges, rejected virtually all of China's expansive territorial claims in the South China Sea.
The tribunal rejected China's nine-dash line as baseless fiction. It also ruled none of the sandbars China's recently built into military bases have any territorial rights.
So, what next?
China could – of course – double down. China could declare the South China Sea to be Chinese regardless of what the the international tribunal says or the world thinks. China could then declare air defense identification zones (ADIZs) and seize 'foreign' vessels in 'Chinese' waters.
But that could create blowback. The Philippines, Japan, South Korea, Indonesia, Malaysia and Singapore could in turn bottleneck Chinese merchant shipping by hindering access to their waters to Chinese ships. China would then be forced into claiming one set of rules for itself, and another set for everyone else.
A far better course is for all sides to claim victory, and then move on.
The Philippines, for instance, can claim victory over Scarborough Shoal (the core issue in the dispute). The U.S. can claim a victory for freedom of navigation. Southeast Asia's littoral countries can claim victory for their broadly-recognized (except by China) offshore exclusive economic zones.
Even China can claim victory by claiming it's being misunderstood (a strategy China's already tried in the South China Sea, to mixed success).
After the tribunal's categorical ruling, China's new strategy could be to lower the temperature by reframing the issue away from rocks, sand and physical territory. It could then seek to reframe the issue around the potential multilateral benefits of China's Maritime Silk Road concept.
In this way, China can claim South China Sea tensions to be merely the unfortunate outcome of misunderstood Chinese altruism.
To date, China's kept the Maritime Silk Road slogan vague. But basically it means buying off the neighbors with Chinese-funded infrastructure. This is also known as 'yuan diplomacy' through soft financial terms.
Rebadging China's illegitimated South China Sea military strategy away from territorial bullying and toward infrastructure diplomacy may now be China's best opportunity to do the right thing. It's particularly so given China's exhausted the alternatives.
Given that the Maritime Silk Road has been kept a fluid, undetailed concept, it should be easy for China to repackage and resell given the international tribunal's realities.
In pushing the Maritime Silk Road, China's Communist Party leaders and China's state controlled press now can start claiming South China Sea issues were always about trade and regional wealth creation and never about winner-takes-all territorial showdowns between unequals.
Inside China, the Maritime Silk Road will no doubt encompass a Chinese hope a future world trade order can be organized outwardly from Hong Kong, Shanghai and Beijing. Indeed, that may happen. But it's unlikely to much before mid-century.
If China signs up to the Maritime Silk Road strategy, the first step might be to dust off any number of shelved joint development proposals with the neighbors. The Philippines and Vietnam, for instance, in the past have held in detailed talks with China about these, in Reed Bank and the Tonkin Gulf, respectively.
Indonesia and Malaysia also have paid polite lip service to the joint development concept. So has Taiwan.
Moving forward with joint development concepts would get a mighty boost by offers of capital from the newly-created, Chinese-controlled Asian Infrastructure Investment Bank (AIIB).
Specifically, the Association of Southeast Asian Nation (ASEAN) states could resurrect its moribund Trans-ASEAN Gas Pipeline (TAGP) project. This cross-border gas pipeline project would deepen energy market integration among ASEAN's ten members.
Spurs from the system could serve offshore joint development areas. These could include, for instance, Reed Bank in the Philippines, the northeast Natuna area in Indonesia and the shallow waters off central Vietnam. This would help ease tensions between China and ASEAN's most testy members with coastlines on the South China Sea.
Assuming all goes well, it could lead to greater cooperation in exploration for deep sea methane hydrates as well as, potentially, offshore wind and ocean thermal energy.
A related moribund infrastructure project in Southeast Asia is the Trans-ASEAN Electricity Grid (TAEG). The TAEG, a cousin project of the TAGP, would upgrade, expand and more deeply interconnect ASEAN's 10 members' electricity grids with deeper cross-border interconnections.
The above presents great opportunities for Chinese infrastructure state champions such as State Grid Corp. of China and China National Overseas Oil Company (CNOOC). Both have been at the forefront, both good and bad, of China's aggressive South China Sea policy.
State Grid, for instance, is well into a 25-year contract to upgrade and rebuild the Philippines' electricity grid. By all accounts it's going well. But that didn't stop the Philippines from expelling Chinese State Grid technicians last year on security grounds.
Meanwhile, CNOOC has played both friendly and unfriendly roles to date in dealing with Vietnam and the Philippines. Both State Grid and CNOOC have much to gain from a Maritime Silk Road funded by Chinese money and enjoying regional social license.
Handled correctly, the international tribunal ruling on July 12th could represent the end of the nine-dash line and its replacement with the Maritime Silk Road. It's not certain, but it would be a good start.
