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Senior US official hints at sanctions on Chinese firms in South China Sea

China's President Xi Jinping attends the 10th BRICS Leaders' Summit in Johannesburg, South Africa, on July 26, 2018. (Alexei Nikolsky/Russian Presidential Press And Information Office/TASS/Abaca Press/TNS)
July 15, 2020

This article was originally published by Radio Free Asia and is reprinted with permission.

The United States may level sanctions against Chinese state-owned enterprises that are involved in land reclamation, dredging, and illegal oil exploration in the South China Sea, a senior U.S. diplomat said Tuesday.

David Stilwell, assistant secretary of state for East Asian and Pacific Affairs, was speaking after the Trump administration on Monday declared most of China’s sweeping territorial claims to those disputed waters to be illegal.

That drew an angry reaction from Beijing, which bristled at Secretary of State Mike Pompeo’s assertion that China was treating the South China Sea like its “maritime empire.” China accused Washington of being a “destroyer of regional peace and stability.”

Stillwell on Tuesday expanded on the U.S. decision to align its policy with a 2016 Permanent Court of Arbitration ruling that undermined the legal basis of China’s claims to virtually all of the South China Sea, where five other governments also have claims.

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Speaking at an online forum organized by a Washington D.C.-based think tank, Stilwell also called out China’s state-owned enterprises (SOEs), describing them as “battering rams” used to enforce China’s sweeping maritime claims.

“Beijing has used state-owned enterprises as tools of economic coercion and international abuse,” he told a conference on the South China Sea organized by the Center for Strategic and International Studies. “They have been used to dredge, construct, and militarize the P.R.C’s artificial island fortresses in the Spratlys, from which Beijing now violates the exclusive economic zones of Southeast Asian states.” P.R.C. stands for the People’s Republic of China as the communist-ruled country is formally known.

He explicitly cited China Communications Construction Company (CCCC), a major infrastructure conglomerate responsible for dredging sand from the South China Sea to construct China’s artificial islands, and China National Offshore Oil Corporation (CNOOC), which notably deployed a mobile oil platform in waters claimed by Vietnam back in 2014, sparking a major standoff between the two countries in the South China Sea. Both companies are managed by the State-owned Assets Supervision and Administration Commission of China’s State Council.

Stilwell suggested later on that these companies could be sanctioned for their active role in pushing China’s claims and violating the resource rights of Southeast Asian nations.

“Nothing’s off the table,” he said in response to a question concerning the possibility of U.S. sanctions on those entities. “I would point out that the CCCC is responsible for untold environmental damage, and being an SOE its actions are directed by the Chinese Communist Party. Absolutely, there is room for that.”

In a massive land reclamation campaign between 2014 and 2017, China built disputed rocks and reefs in the South China Sea into artificial islands with human settlements and military facilities, including runways, radar and deep water harbors. Those changes came at a steep environmental cost, with vast destruction of coral on the sea bed.

Researchers from Australia’s James Cook University published a scientific paper in February alleging that the ecosystem of the Spratly Islands, where China has dredged sand and created huge complexes on features such as Fiery Cross Reef, Subi Reef, and Mischief Reef, would never recover due to China’s construction and illegal fishing.

In Monday’s statement from Pompeo, the U.S. invoked the United Nations Convention on the Law of the Sea (UNCLOS) on which the 2016 arbitral ruling in a case between the Philippines and China was based – although the U.S. is not a signatory to the convention. Stilwell gave no indication that position was set to change although he said the U.S. abides by the convention.

The U.S., historically, does not take sides on territorial disputes, and the statement does not mean a total rejection of all China’s claims in the South China Sea. But it does declare illegal many claims that range far from China’s own coastline.

For example, it states that China’s claims to features that are only visible in low-tide conditions, like Second Thomas Reef, Mischief Reef, and James Shoal – which are all much closer to the Philippines than China — are unlawful. Furthermore, while the U.S. still does not take a position on sovereignty disputes over land features like rocks and islands, the U.S. states that China’s claims to the waters off the coast of Brunei, and around features like Luconia Shoals off Malaysia, and Natuna Island off Indonesia, are similarly illegal.

Economic rights violated

Stilwell contended that China’s insistence to economic rights in those waters violated the economic rights of Southeast Asian nations.

“These resources are the birthright of Southeast Asian nations, the lifeblood of their coastal communities, and the livelihood of millions of their citizens. They are the inheritance of each nation’s children and grandchildren and Beijing’s behavior is an assault on the people of Southeast Asia today from generation to generation,” Stilwell said.

He referenced an estimated $2.6 trillion in offshore oil and gas in the South China Sea, as well as the richness of its fishing grounds that employ an estimated 3.7 million people in Southeast Asia.

Monday’s announcement compounds the current deterioration in U.S.-China relations on a range of issues, such as trade, the status of Hong Kong and treatment of Uyghur Muslims in Xinjiang that last week prompted U.S. sanctions over several senior Chinese officials.

China reacted sternly on Tuesday, and accused the U.S. of hypocrisy for accusing China of not abiding by UNCLOS when the U.S., itself, has not ratified the treaty. Foreign Ministry Spokesperson Zhao Lijian also defended China’s conduct in relation to its neighbors.

“China never seeks to build a ‘maritime empire’ in the South China Sea. We always treat our South China Sea neighbors as equals and exercise maximum restraint when it comes to safeguarding our sovereignty, rights and interests in the South China Sea,” Zhao told a press conference in Beijing.

But there was bipartisan support in the U.S. Congress for the U.S. policy announcement from the top-ranking Republican and Democratic lawmakers on the Senate Foreign Relations Committee and House Foreign Affairs Committee.

“China has failed to abide by the Permanent Court of Arbitration’s legally binding ruling from 2016, or provide any credible legal justification for its claims,” Sens. Jim Risch and Bob Menendez, and Reps. Eliot Engel and Michael McCaul said in a joint statement.

“Continued ambiguity with respect to our policy on China’s maritime claims in the South China Sea no longer serves the shared interests of the Indo-Pacific region, given China’s aggressive actions and refusal to abide by international law,” they said.