The Setting

China says it wants close, cordial and cooperative relations with its neighbours in Southeast Asia, the ten member states of ASEAN. Progress in this direction has gained impressive momentum since the end of the Cold War and Chinese support for communist-led insurgencies seeking to overthrow established governments in the region.

However, China's military power is growing steadily and it claims ownership of a network of widely-scattered islands and their surrounding waters and resources in the South China Sea, one of the world's largest semi-enclosed bodies of water. (See Map 1.) These claims overlap in a substantial way with those of at least three ASEAN countries, Vietnam, the Philippines and Malaysia.

The three million square kilometre South China Sea is the maritime heart of Southeast Asia. It is two-thirds the size of the combined land territory of all the ASEAN states. Most Southeast Asian countries have coastlines overlooking or close to the South China Sea. Some would be wary about having to share a common maritime boundary with such a big and increasingly powerful nation as China, or even having it as a very close neighbour.

Meanwhile, oil and gas reserves under the seabed of the South China Sea are being discovered and exploited further and further from shore, as advances in drilling and production technology enable coastal states and the energy companies working for them to tap hydrocarbons in ever deeper waters. (See Map 2.)

If China does not yet have the military capability to enforce its claims in the South China Sea, it is expected to gain this strength in the next few years. This puts a dark shadow of uncertainty over the future of China's relations not just with ASEAN members, but also with their main dialogue partners, including the United States, Japan, India, South Korea and Australia. All of these countries have important links with China. They also have significant strategic and commercial interests in the South China Sea and in ASEAN.