Overview and focus

In the wake of the tribunal constituted under Annex VII to the United Nations Convention on the Law of the Sea (UNCLOS) on the South China Sea dispute, there has been an increased – and some would argue more critical – focus on the Association of Southeast Asian Nations (ASEAN) and its four member states that are claimants in the dispute.1 Their statements and responses have been the subject of much speculation, scrutiny, criticism and praise – with the latter two depending on which side of the fence one sits. The response of ASEAN in particular has received criticism as the organisation was unable to develop a seemingly strong and unified position on a dispute that not only impacted several of its member states, but a dispute that appears to be entering into a new paradigm – that of a clash between major powers and stakeholders alongside that between claimant and littoral states.

At the recent back-to-back ASEAN Summits held in Vientiane, the South China Sea was again high on the agenda. Some observers repeated earlier reproaches for the organisation not taking a critical stand against China in the dispute, and on failing to mention the Tribunal’s decision.2 Nevertheless, examination of the Chairman’s statement indicates that the South China Sea did feature prominently and strongly relative to a number of framing issues and disagreements that preceded the final statement in previous ASEAN Summits; the realities and limitations faced by the regional organisation; and, in particular, the pressure and expectations on Laos, its current chair. The eight paragraphs referring to the South China Sea dispute expressed “serious concern over recent and on-going developments”, and took note of concerns expressed by some member states regarding the land reclamations and escalation of activities. The statement further called for the peaceful resolution of the dispute, “in accordance with international law”.3

Of the four ASEAN claimant states, Brunei and Malaysia present – and are faced – with their own unique and interesting challenges. Both, like all other ASEAN claimants, are in dispute not only with China, but also with each other. Unlike other claimants, however, both are located at the southernmost portion of China’s Nine-Dash Line or U-shaped claim. Both – especially Malaysia – have only recently begun to deal with the increased Chinese presence in their waters and exclusive economic zones, something that Vietnam and the Philippines have long experienced. The aim of this short paper is to highlight significant issues and dilemmas for Brunei and Malaysia concerning their response and management of the South China Sea dispute. In highlighting and understanding these issues and dilemmas, it is also imperative to understand why the South China Sea is of importance to both of these countries.

Critical issues and dilemmas for Brunei

Brunei is considered a relatively low-profile claimant in the South China Sea dispute, especially in recent years, during which tensions have increased significantly.4 The country has consistently advocated its “two-step approach” to resolving the dispute.5 This entails not merely that claimants seek to resolve the dispute through peaceful negotiation in accordance with international law, but also the need for all parties – including ASEAN and China – to ensure a peaceful and conducive environment in which the negotiations take place. Statements from Brunei have been relatively measured over the years, with little information being offered or stated regarding increased Chinese activities in the southernmost portions of its Nine-Dash Line claim.

While Brunei is the smallest claimant state with the smallest claim, geographic and economic realities make the dispute and its outcome of great importance to the Sultanate.6 The country’s entire coastline of 161km straddles the South China Sea. It is also a country that relies overwhelmingly on oil and gas exports – which contributes as much as 90 per cent of government revenue and 60 per cent of its GDP.7 The vast majority of these hydrocarbon resources are concentrated offshore in its exclusive economic zone (EEZ) in the South China Sea – much of which lies close to or falls within China’s Nine-Dash Line claim.8 Its economic lifeblood – and great wealth – is tied to the South China Sea and the future trajectories of the dispute.

The state’s dependency on hydrocarbons could also lead to another crisis – the falling prices of oil and gas and dwindling reserves means that its finances have been increasingly strained and its future prospects as a wealthy, tax-free and subsidised state look increasingly dim.9 Attempts to diversify its economic base have yet to show any promising results. Amidst these developments, China has emerged as a significant partner to Brunei. Aside from being a major customer of its hydrocarbon exports, in recent years China has committed at least USD500 million in investment to develop strategic industries and facilities in Brunei.10 China has also reached out to offer its assistance in deep-sea drilling.

As with several other ASEAN member states, this apparent increased dependence on China has raised the question of China using its increased influence to stymie any pushback from ASEAN or efforts to unify its member states to take a more critical stance over Chinese actions in the South China Sea dispute. This perception of greater Chinese influence was given greater weight in light of China’s four-point “consensus” on the South China Sea with Brunei, Cambodia, and Laos.11 In its aftermath, as criticism and questions were directed to the nature, implication and even validity of the apparent consensus, it was worth noting that Brunei chooses to remain silent on the issue. There was no rebuttal or clarification offered publicly on the nature of its role in this consensus.

Last but not least, despite its vast wealth from hydrocarbon exports, Brunei maintains a relatively small naval and air force with limited capability for sustained patrols and active military operations. At present, its inventory includes around four blue-water-capable offshore patrol vessels and several transport planes that can be used for maritime surveillance. Brunei has yet to secure the type of combat-capable naval and air assets that other claimants possess and deploy in the disputed region. To counterbalance this, it maintains good defence relations with the United Kingdom, the United States and, to an extent, Singapore. Additionally, Brunei is also the only claimant not to maintain an outpost of any kind on the South China Sea.12

Given Brunei’s historical and ongoing constraints and dilemmas, it is unsurprising that the Sultanate chooses to conduct a low-key approach when it comes to managing and responding to South China Sea claims and the wider dispute. One can imagine that the question of how Brunei manages these issues in the future, especially in terms of its relationship with China, is not only keeping the policy thinkers in Bandar Seri Begawan awake at night, but also those from several other ASEAN capitals.

Critical issues and dilemmas for Malaysia

As with Brunei, Malaysia’s interest and stake in its claims in the South China Sea are often tied to the region’s economic value to the Malaysian economy and government. A significant portion of Malaysia’s oil and gas revenues are derived from the region, and its estimated reserves are among the highest when compared to other claimants.13 However, the estimates of hydrocarbon and marine resources in the seabed and water columns comprise only one aspect of the country’s stake and interest in the dispute. Of foundational concern is how the Malaysian nation is cleaved – geographically and demographically – by the South China Sea.

Malaysia’s two landmasses on either side of this body of water are known as “Peninsular or West Malaysia” and “East Malaysia” on the island of Borneo. The distance between them can only be covered by flight or sea, which places pressures not only on the country’s military and coast guard assets but also on intra-national market access due to the existing cabotage policy between East and West. Social integration and nation-building across waters is also an abiding challenge. Additionally, the two large East Malaysian states of Sabah and Sarawak are politically crucial and afford the long-standing ruling coalition an electoral bulwark.

These challenges are inherently fundamental to the defence of the country’s interest in the South China Sea and are reflected in official policy. Malaysia’s national defence policy states that any threat or disruption to the sea routes and air space between peninsula Malaysia, Sabah, and Sarawak could detrimentally affect the integrity of those territories. Despite this imperative, Malaysia’s seriousness in standing up for its claims, especially in the face of rising assertiveness in the South China Sea, has been questioned. In particular, the country has come under criticism of varying shades for how it has dealt with China on the issue.

Malaysia’s tempered approach to China has been attributed to, among other things, a “special relationship” dating back to 1974 when the then-Prime Minister, Abdul Razak Hussein, and father of the current Prime Minister, Najib Abdul Razak, established diplomatic ties with Premier Zhou En Lai during a difficult time in the region. Whether or not the relationship remains a special one is open to contention. However, in recent times trade and investment ties have burgeoned between the two countries.

Over the past year, in particular, Chinese investment has flowed fast and hard into Malaysia. China’s investment of USD10 billion in the Malacca Gateway project, launched in February 2015, is expected to transform the ancient entrepôt of Melaka into Southeast Asia’s largest private marina by 2025, complete with a deep-sea port and ocean park in support of China’s Belt and Road Initiative.14 In November 2015, 1MDB, the Malaysian government’s controversial strategic investment company disposed of EDRA Global Energy Berhad to China General Nuclear Power Corporation for USD2 billion in a bid to cut its total debt of USD11 billion. This was followed in the subsequent month by another sale of 1MDB’s controlling stake in Bandar Malaysia, a huge development project that will host the Malaysian terminal station for the high-speed rail (HSR) connection between Malaysia and Singapore. In a tie-up with a local Malaysian partner, China Railway Engineering Corporation (CREC) purchased the equity stake for nearly USD2 billion.15 CREC is a contender for the HSR project, and in anticipation of winning the tender has committed to invest USD2 billion in Bandar Malaysia for its regional centre.16 This year in June the Malaysia–China Kuantan Industrial Park, part of the East Coast Economic Region Special Economic Zone (ECER SEZ), drew USD395 million in investment, USD145 million of which will derive from Guangxi Investment Group Co Ltd.17

These, along with warmer political ties between the Malaysian and Chinese leadership, provide a useful but insufficient backdrop to interactions surrounding the South China Sea. The Malaysian government, after all, has always viewed the country’s territorial claims in the Spratlys seriously. Its official, declaratory policy is premised upon the following.18 First, Malaysia maintains complete rejection of China’s Nine-Dash Line claim because of the assertion’s incompatibility with international law, including UNCLOS. Second, Malaysia believes in the peaceful management and resolution of the dispute through negotiations, dialogue, and consultation among all claimant parties in accordance with the DOC, pending completion of a substantive and meaningful COC. Third, any resolution must be within the framework of international law, including UNCLOS. Malaysia also remains open to legal mechanisms of third-party dispute resolution as provided for by UNCLOS, although the country seems less inclined to pursue this option at present.

Until recently, Malaysia never needed to respond urgently to developments at sea. With the construction of artificial islands taking place in the Parcels rather than the Spratlys, Malaysia could afford simply to cast a watchful and wary eye on developments. For its part, the Malaysian government avoided inflaming tensions both at home and abroad. It refrained from erecting new installations on the features it occupied, even though others were doing exactly that, in flagrant violation of the Declaration on the Conduct of Parties in the South China Sea (DOC).19 Malaysia also confined discussions on the South China Sea dispute to the policy and bureaucratic elite. This encouraged candour among involved and knowledgeable interlocutors, but it also averted the growth of public nationalist sentiment. For a while Malaysia resisted broadening discussion of the dispute to non-claimant parties, believing that internationalising the issue beyond the confined ASEAN/ASEAN–China framework would import even greater and unhelpful major power rivalry into the issue.

However, the People’s Liberation Army Navy (PLAN), Chinese Coast Guard (CCG), and swarms of Chinese fishing vessels, have frequently sailed – and even anchored – in Malaysia’s EEZ. Minister in the Prime Minister’s Department, Shahidan Kassim, reported to Parliament that PLAN vessels had encroached on Malaysia’s maritime zone in the South China Sea nearly once a year since 2011.20 These incursions increased in 2013 around Beting Serupai, Beting Patinggi Ali (South Luconia Shoal), and Beting Raja Jarom (North Luconia Shoal), all within Malaysia’s EEZ. Even though there were no openly publicised protests, Malaysian senior officials recognised that Malaysia could no longer remain inactive since the stakes were “indeed very high”.21 The Malaysian Maritime Enforcement Agency (MMEA) and Royal Malaysian Navy (RMN) now constantly monitor the Beting Patinggi Ali area, and from 2014 to 2015, increased the frequency of their patrols by nearly 30 per cent.22

One of the most striking signs of growing frustration with these incursions has been the apparent change in tone by the Ministry of Foreign Affairs Malaysia. Although the government had been quietly lodging almost weekly diplomatic notes to protest, manage, and resolve the repeated intrusions of waters around Beting Patinggi Ali, at the end of March 2015 the ministry publicly confirmed the presence of a large number of foreign vessels in Malaysia’s maritime areas and “called in” the Chinese ambassador to Malaysia, Huang Huikang “to seek clarification as well as to register Malaysia’s concerns over the matter”.23

However, when the Arbitral Tribunal issued its award, the Ministry resumed diplomatic restraint. It simply noted the decision and recalled past and continuing ASEAN commitments, including full and effective implementation of the DOC in its entirety, early conclusion of the COC, self-restraint, and full respect for diplomatic and legal processes.24
This careful and watchful positioning encapsulates Malaysia’s approach towards the South China Sea dispute. While the government has repeatedly stressed that the defence of territory is non-negotiable, it is also cognisant that as a small country with limited resources it will have to be firm, pragmatic and discerning in protecting its sovereignty in the immediate to middle-term. Importantly, it will have to achieve this without undermining the preservation of longer-term national and regional peace, prosperity and stability. As such, Malaysia will have to balance a range of considerations – political, economic, and defence – domestically and externally n managing South China Sea complexities.

Those studying the nuances of Malaysia’s approach will recognise the subtle changes in the government’s perception and articulation of, as well as response to, the evolving strategic environment. The country’s quiet and unassuming South China Sea policy has worked well enough for it, so far. However, whether it will continue to do so remains to be seen.

This article first appeared in NASSP Issue Brief Series December 2016

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