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Hey Sarah here. One of the best things about working at Bloomberg is that we've got reporters everywhere. Today on the Big Take, we're bringing you a story from our colleagues in Hong Kong.
Today, the US and the Philippines kicked off one of the largest military exercises in waters near the South China Sea. We got our here united to open the Philippine US Balkatan Exercise. Close to seventeen thousand military personnel from both countries will train together in drills locally called Balikatan, which translates to shoulder to shoulder. This exercise represents the essence
of unity, collective responsibility and during partnership. These joint military drills take place annually, but this year's come amid rising tensions in the South China Sea over who controls this important body of water that's rich in energy reserves.
The controversy is really fueled right now by China's claims across almost the entire waterway. They are staking a claim to areas that are much closer to places like the Philippines or Vietnam than they are to what you would think of as traditional mainland China.
That's Bloomberg's Bill Ferries, a senior editor based in Singapore covering geopolitics and US China relations. While there have been long running disputes over which countries have rights to parts of the territory, tensions between China and the Philippines have escalated since Philippine President Ferdinand Marcos Junior took office in twenty twenty two. His government has been drawing attention to
what it describes as Beijing's harassment of Philippine boats. The Philippine president recently spoke to Bloomberg TV about the situation in the South China Sea.
The threat has grown and since the threat has grown, we must do more.
To defend our territory. The United States, meanwhile, has promised to stand with the Philippines against what it calls provocative actions by China, and it's criticized the Chinese use of high powered water cannons against Philippine boats, and the United States and other nations have a vested interest in making sure there's no disruption to ships traveling through this waterway.
More than thirty percent of the maritime crude oil trade is passing through the South China Sea every year. It is literally trillions of dollars in total trade.
Today on the show Escalating Tensions in the South China Sea and why who controls this vast body of water matters for the world from Boomberg News. This is the big tape. I'm one h Now, the name South China Sea gives you a sense of the region we're talking about, but you may not know all the countries that are around these waters. So I asked Bill to give us a mental map of the area.
Well, I'll see if I can come up with an analogy that works for you. If you hold up your right hand in front of your face, Okay, got that, Where your fingers meet the palm, you can think of that as the southern coast of China. Mmmm. Okay, and everything basically down from that your palm down to your wrist, that would be the region of the South China Sea. Your thumb jutting off to the right there, you can think of that as the Philippines.
Ah, Okay, I got it now. So if we continue on from the base of the thumb, you have all these other Southeast Asian countries surrounding the palm. Right, there's Brunei where your wrist is. And if you continue going back up the left side of your palm, you've got Malaysia and then Vietnam right below the pinky.
Yeah, And it basically takes up a big swath of Southeast Asian coastline, and it's a region that's really bigger than the Mediterranean Sea.
More than a handful of countries or governments claim parts of the waterway, but for many years Beijing has asserted that much of the sea is its territory.
They have used a nineteen forty seven map that showed really kind of a vague nine dash line running through that whole region, but very close to the coast of all these other countries, so very close to the Borneo coast and right up along the Philippine coast, and they say that that is their traditional waterway. Now, all these other countries have competing claims, there's a lot of overlap.
Sometimes three countries disagree about certain parts, but they're all in a long running, decades old dispute about whose territory that really is.
This vast body of water is dotted with mostly uninhabitable islands, reefs, and shoals, which of course are shallow sandy areas. Are these countries really fighting over rocks and reefs?
A lot of the fight is over rocks and reefs, and it's partly because if you can claim that reef that's exposed above the level of the ocean is your territory, then you have the right to exploit the resources that are there.
Many of these countries are eyeing new sources of energy to fuel their growth, and underneath this vast body of water lie huge reserves that can be tapped for natural gas and oil.
Well. The US Energy Information Administration estimates the region could contain three point six billion barrels of oil and more than forty trillion cubic feet of natural gas in terms
of proved and probable reserves. So really kind of a massive amount that has been locked up for years, but no one really knows because the amount of exploration that needs to go in to confirm all that, a lot of that has been stalled, and a lot of the production that these countries would like to have going has also been stalled because companies get very nervous when you have multiple countries disputing any one area. So Vietnam, for instance, more than a decade ago discovered a field that they
called the Blue Whale. The rights to exploration and production are controlled by Exonmobile that's in a contested area that China says is actually their territory. This just a few months ago was when Vietnam expected that Blue Whale project
to come online originally, Instead, nothing has happened. The main offshore energy field that the Philippines uses, it provides about twenty percent of the country's energy that is seen as rapidly declining and there's been no real adequate replacement for that. Filippines would like to be doing more exploration, more production offshore, but it basically hasn't been able to get any of that done because of these disputes.
And so for these developing Southeast Asian countries, finding new sources of energy is key to their economic growth. Right. You've got Vietnam and the Philippines, for example, with rolling blackouts and brownouts throughout the year, and that really impacts electricity in homes and factories for hours.
Well, and that's a situation that's expected to worsen in a place like the Philippines if they can't find better sources of fuel. And you know, nothing puts off investors more than the question of whether there'll be sufficient energy to run the factories. So when you're looking at how you diversify your supply chains out of China, one of the things you're going to look at is how reliable is the energy supply if I go to this country.
How reliable is the water supply? All these things affect, you know, the investment climate that these countries are looking to create.
Now. To be fair, China's aggressive actions in the South China Sea aren't the only reasons why energy projects haven't been able to get off the ground. These projects are also battling red tape, corruption and shifting market demands. Bill This jockeying over the South China See by various countries goes back decades, and China has been exerting control over these waters for years. What's new in this dispute right now?
Several years ago, the Philippine president at the time, Rodrigo de Terte, was really turning away from his nation's alliance with the US and trying to get closer to China, So he really downplayed a lot of these differences and
disputes over some of this territory. Come just a year or two ago, you had a new president, fernand Marcos Junior, who took over in the Philippines, and he basically went in the opposite direction, and he started being much more forward about pushing what he viewed as the Philippines traditional claims.
So we started sending more resupply missions out to some of these isolated outposts where there were a few Philippine troops stationed, and he started trying to send the Philippines Coastguard out to some of these islands that the Philippines claimed, but that China was also claiming.
So with new leadership in place, we're seeing the Philippines get more aggressive about patrolling these waters and claiming it sovereignty. Are we also seeing more Chinese ships out there in these waters too.
Absolutely, China has what analysts talk about as their maritime militia, So at one level, these essentially are like fishing fleets, but they're not necessarily doing a lot of fishing. They're out there to swarm any other boats that try to come out and get to some of these disputed areas.
So if the Philippines tries to send a Coastguard cutter out to a disputed island, it might find itself completely surrounded by what might look like a fleet of Chinese fishing vessels, but those vessels are backed by a coastcard that is either right there or looming in the distance, helping coordinate that action.
Here's what this kind of confrontation can sound like. This is sound from video taken by the Armed Forces of the Philippines. It's from March fifth, when two Chinese Coast Guard ships turned high powered water cannons directly at a Philippine ship in a contested shroal. The incident left several Filipino crew members injured. There have been at least six incidents like this in eight months.
It really is the front lines of what a lot of geopolitical analysts say is one of the biggest flash points in the world at this point, but particularly in the US China Southeast Asia relationship, because any of these incidents, if something goes badly wrong, it could really spiral into a much broader conflict.
After the break, we'll hear how countries are bracing for a potentially bigger conflict in the South China Sea. This week, military personnel from the US and the Philippines are conducting joint military exercises off the coasts of the Philippines near the South China Sea.
We're talking about dropping bombs, launching missiles, launching torpedoes. As close to real war practice as you can get. The communication systems. How do the two sides talk to each other when they've built different systems, How do they coordinate if there's an attack in one area, what's the strategy
to get over there. They're not really looking to provoke the Chinese into a reaction, but they don't mind the Chinese getting a chance to watch their exercises and how they would respond in a crisis.
And that's because there's a mutual defense treaty between the US and the Philippines, right right.
That's really kind of the core of the US Philippine alliance. They have this nineteen fifty one treaty that says the two sides will come to each other's aid in case of attack. There's always been a lot of questions about what constitutes an attack. The Philippines has tried to in some way sidestep that a little bit. A lot of times, when it sends resupply boats, for instance, out to this small garrison of troops, it keeps on one of the reefs.
It charters civilian vessels to do that, so when those vessels get pushed back on by the Chinese, you don't have a situation of a Chinese military vessel going against a Philippine military vessel. But the big question is at what point would the US feel obligated to come to the Philippines defense if there was a bigger crisis.
How real is that threat? Is the US really going to fight China over islands in the South China Sea?
Yeah, I think all sides concerned would like to avoid that. I mean, in the end, you really would have a conflict going up over some reefs and shoals. They're important to all the nations involved, but I think everyone would like to avoid kind of a full scale war. What the Philippines president has said is that he's not trying to poke the bear referring to China. The Philippines strategy here has been to try to publicize this in some ways,
like a name and shame when they go out. Now they are filming, they're trying to put drones in the air.
And how much of an advantage does China have here in this dispute? It seems like it's really using its military militia to assert control in these contested areas well.
China has a big head start and it's very hard to see them backing down from this. They have been building up some of these claims, they've been building up these islands for more than a decade now, and a lot of other countries took a less confrontational approach and
don't have that kind of footprint in the region. Until there is some sort of a diplomatic breakthrough, it's going to be very hard to see how these resources to the Philippines close to Vietnam, how those get out of the ground, and what the framework, what the agreement that would bring all those sides together to get those projects going. It's hard to see at this point. It's really a stalemate and it's not clear that it's going to get any better.
Bill, thank you so much for the insight.
Thank you for having me.
This is the big take from Bloomberg News. I'm wan ha. This episode was produced by Naomi Un Young Young and Jessica Beck. It was edited by Caitlin Kenney and Bill Ferries and mixed by Alex Suguira. It was fact checked by David Fox. We had additional reporting from Philip Hymon's Andreo Colonso and Cliff Venzon. Our senior producer is Naomi Shaven, Senior editor is Elizabeth Ponso. Nicole beemster Bower is our executive producer, and Sage Bauman is Bloomberg's head of podcasts.
Thanks for listening to The Big Take. We'll be back tomorrow
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