South China sea dispute- Looming threat for India

The South China Sea is an important economic and strategic region of Indo- Pacific. It is bordered by Brunei, Cambodia, China, Indonesia, Malaysia, the Philippines Singapore, Taiwan, Thailand and Vietnam. It is a critical commercial gateway for significant portion of world’s merchant shipping. Roughly, two- thirds of South Korea’s energy supplies, 60% of Japan’s and Taiwan’s energy supplies, two-thirds of Australia’s exports and 80% of China’s crude oil imports come through the South China Sea. In addition to centrality of location, South China Sea has oil reserves and natural gas. It is also of significant economic and political importance to South Asian countries including India.

South China Sea has been a source of tension for not just the bordering countries but also for other Asian countries. China, Vietnam, Brunei, the Philippines, Malaysia and Taiwan are all making competing claims in the disputed region of this sea. According to China, the South China Sea historically belongs to them and they have sovereign control over it. China has also constructed military bases in the islands of this sea. It has recently enforced new limits on fishing. Fishermen from Vietnam and the Philippines have accused China of preventing their fishing boats from entering the disputed waters. A total closure of the region would be extremely damaging to Southeast Asia. Commercial fishing accounts for an estimated 3% of Indonesia’s GDP and almost 2 % in Malaysia, the Philippines and Thailand. This act has faced a lot of criticism from the countries which also claim control over the disputed region. Disruptions in South China Sea can have large consequences for global trade. It is anticipated that India would be negatively affected in case China is able to establish its hegemony over the sea.

OBSTRUCTION TO TRADE

India has trading relations with many South-East and East Asian economies. India also has agreement on trade in goods with ASEAN countries called AIFTA. The share of exports to ASEAN is around 11.24% of total exports and that of Japan which is an important market for India’s sea food is 1.4% . 25% of India’s total trade in goods is routed through South China Sea. If in future, China gains control of the sea and shuts it down, it can disrupt trade between India and its partners.

THREAT TO INDIA’S COMPETITIVENESS

Disruption in trade might force India to re-route the transit of its exports. This can lead to significant increase in transportation cost and thus can prove to be threat to India’ competitiveness. To balance this out and maintain cordial relations with other countries, it is possible that India will have to extend its trade agreements. It might have to provide increasing access to its markets which will make India more dependent and vulnerable.

MILITARY POWER AND NATIONAL SECURITY

India has been trying to strengthen its cooperation on defence and security with Japan and South Korea, the rivals of China. It has also signed agreements with these two nations on defence shipbuilding, defence equipment and technology, bullet train and nuclear cooperation. In order to strengthen its military power and to be at par with its arch rivals, India needs to continue with these agreements. The threat of shut down of South China Sea can adversely impact India’s military position.

TRADE OPENNESS INDEX

This index explores correlation between trade and GDP. India’s trade openness index has increased substantially from 11% in 1960 to 42% in 2015. This implies that any adverse impact on the nation’s maritime trade will highly affect its GDP.

Anyone who speculates that with globalization, territorial boundaries and fights for territory have lost their meanings should look at China. India should better be watchful and should start preparing for this looming threat right away if it wants to escape from the adverse consequences of South China Sea dispute and its anticipated control by China.