The tussle over ownership of the Spratly Islands in the South China Sea has brought together an extremely odd couple: China and Taiwan.
China claims almost 90% of the South China Sea based on a 1947 Chinese map depicting the "Nine Dash Line" of the country's territory. Taiwan, so often at political odds with a motherland that views it as a rogue province, supports the same claim.
Taiwan heightened tensions over the region on Wednesday when eight politicians -- from both the ruling Democratic Progressive Party and the opposition Kuomintang -- flew to Taiping Island, which is around 1,000 miles away from Taiwan.
To stake their claim to their fishing rights in the area, five vessels and 12 fishermen also set sail on Wednesday for the island, which Taiwan defends heavily and which is also known in the Philippines as Itu Aba.
There are close to 200 Taiwanese Coast Guard personnel on Taiping, who call it the "Happy Farm." They grow pumpkins, okra, corn and cabbage on the island, which Taiwan has occupied since the 1950s, and they also raise chickens and goats.
Still, the Permanent Court of Arbitration ruled last week that Taiping, the largest of the Spratly Islands, is a rock, not an island. It cannot sustain permanent life or support an economy, the court ruled.
The odd partnership between China and Taiwan stems from the fact that the Nine Dash Line map was first published in pre-Communist days, under the Nationalist government of Chiang Kai-shek. After losing China's civil war, the Nationalists fled to Taiwan, which to this day continues to call itself the Republic of China. Ironically, given the Taiping decision, Taiwan is affectionately known as the ROC or "rock."
Taiwan's government still insists that it is the rightful leadership of China, particularly now that it is democratically elected. Although it only occupies the one island in the Spratlys, its concept would extend Taiwanese control of the South China Sea to the doorstep of Vietnam, Malaysia, Brunei and the Philippines.
All those nations, as well as China and Taiwan, have overlapping claims to the territory in the South China Sea -- and at least part of the $1.3 trillion in oil and gas reserves that lie beneath its seabed.
The arbitration court in The Hague threw out China's Nine Dash Line claim as unfounded. The court also stated that China did not have any right to the resources in the region. That's because the Rule of the Sea, which went into effect in 1994, stipulates that islands have a 200-mile exclusive economic zone around them, while rocks have nothing more than a 12-mile nautical zone and no economic rights at all.
Since the Spratlys are rocks, the court decided, any of them that fall within 200 miles of the Philippines belong to that nation.
The leadership of both China and Taiwan have refused to accept the ruling and say the court had no jurisdiction over their territorial claims.
So far, the dispute has done little to deter Chinese economic growth. Last Friday, China posted GDP growth of 6.7% for the second quarter, a basis point better than expected. That caused China bears such as Nomura, which had forecast Q2 growth of only 6.3%, to raise its full-year forecast for 2016 to 6.5%, up from 6.0%.
However, the political tensions would spill over into economic underperformance if the United States slapped China with trade sanctions for ignoring the arbitration decision. Growth in the region would also take a hit if military jostling, which has seen the United States sail warships through the area claimed by China, led to outright conflict.
Chinese Admiral Wu Shengli warned U.S. Chief of Naval Operations John Richardson that the People's Liberation Army would react to any aggression or infringement of Chinese rights. "Efforts to force us to succumb to pressure will only be counterproductive," he said, according to China's state broadcaster.
Still, in the first contact between the two militaries since the decision in The Hague, Wu said the two sides had stepped up communication to avoid any miscalculation. China has launched "combat overflight" operations at Scarborough Shoal with an H-6K plane that has nuclear capability. Those trips will be "regular practice," the Chinese air force said.
The Philippines rejected an offer of bilateral talks with China, its foreign minister said on Tuesday. China had stipulated that the talks would only take place if they did not involve any discussion of the arbitration.
Ultimately, that decision could be very good news for Chinese oil companies such as CNOOC (CEO) and Sinopec (SHI) . As I explained last week, those are the likely participants in any joint venture with the national oil company of the Philippines to exploit the natural resources in the area.
