Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Hey Sarah here. One of the best things about working
Speaker 2: at Bloomberg is that we've got reporters everywhere. Today on
Speaker 2: the Big Take, we're bringing you a story from our
Speaker 2: colleagues in Hong Kong.
Speaker 1: Today, the US and the Philippines kicked off one of
Speaker 1: the largest military exercises in waters near the South China Sea.
Speaker 1: We got our here united to open the Philippine US
Speaker 1: Balkatan Exercise. Close to seventeen thousand military personnel from both
Speaker 1: countries will train together in drills locally called Balikatan, which
Speaker 1: translates to shoulder to shoulder. This exercise represents the essence
Speaker 1: of unity, collective responsibility and during partnership. These joint military
Speaker 1: drills take place annually, but this year's come amid rising
Speaker 1: tensions in the South China Sea over who controls this
Speaker 1: important body of water that's rich in energy reserves.
Speaker 2: The controversy is really fueled right now by China's claims
Speaker 2: across almost the entire waterway. They are staking a claim
Speaker 2: to areas that are much closer to places like the
Speaker 2: Philippines or Vietnam than they are to what you would
Speaker 2: think of as traditional mainland China.
Speaker 1: That's Bloomberg's Bill Ferries, a senior editor based in Singapore
Speaker 1: covering geopolitics and US China relations. While there have been
Speaker 1: long running disputes over which countries have rights to parts
Speaker 1: of the territory, tensions between China and the Philippines have
Speaker 1: escalated since Philippine President Ferdinand Marcos Junior took office in
Speaker 1: twenty twenty two. His government has been drawing attention to
Speaker 1: what it describes as Beijing's harassment of Philippine boats. The
Speaker 1: Philippine president recently spoke to Bloomberg TV about the situation
Speaker 1: in the South China Sea.
Speaker 2: The threat has grown and since the threat has grown,
Speaker 2: we must do more.
Speaker 1: To defend our territory. The United States, meanwhile, has promised
Speaker 1: to stand with the Philippines against what it calls provocative
Speaker 1: actions by China, and it's criticized the Chinese use of
Speaker 1: high powered water cannons against Philippine boats, and the United
Speaker 1: States and other nations have a vested interest in making
Speaker 1: sure there's no disruption to ships traveling through this waterway.
Speaker 2: More than thirty percent of the maritime crude oil trade
Speaker 2: is passing through the South China Sea every year. It
Speaker 2: is literally trillions of dollars in total trade.
Speaker 1: Today on the show Escalating Tensions in the South China
Speaker 1: Sea and why who controls this vast body of water
Speaker 1: matters for the world from Boomberg News. This is the
Speaker 1: big tape. I'm one h Now, the name South China
Speaker 1: Sea gives you a sense of the region we're talking about,
Speaker 1: but you may not know all the countries that are
Speaker 1: around these waters. So I asked Bill to give us
Speaker 1: a mental map of the area.
Speaker 2: Well, I'll see if I can come up with an
Speaker 2: analogy that works for you. If you hold up your
Speaker 2: right hand in front of your face, Okay, got that,
Speaker 2: Where your fingers meet the palm, you can think of
Speaker 2: that as the southern coast of China. Mmmm. Okay, and
Speaker 2: everything basically down from that your palm down to your wrist,
Speaker 2: that would be the region of the South China Sea.
Speaker 2: Your thumb jutting off to the right there, you can
Speaker 2: think of that as the Philippines.
Speaker 1: Ah, Okay, I got it now. So if we continue
Speaker 1: on from the base of the thumb, you have all
Speaker 1: these other Southeast Asian countries surrounding the palm. Right, there's
Speaker 1: Brunei where your wrist is. And if you continue going
Speaker 1: back up the left side of your palm, you've got
Speaker 1: Malaysia and then Vietnam right below the pinky.
Speaker 2: Yeah, And it basically takes up a big swath of
Speaker 2: Southeast Asian coastline, and it's a region that's really bigger
Speaker 2: than the Mediterranean Sea.
Speaker 1: More than a handful of countries or governments claim parts
Speaker 1: of the waterway, but for many years Beijing has asserted
Speaker 1: that much of the sea is its territory.
Speaker 2: They have used a nineteen forty seven map that showed
Speaker 2: really kind of a vague nine dash line running through
Speaker 2: that whole region, but very close to the coast of
Speaker 2: all these other countries, so very close to the Borneo
Speaker 2: coast and right up along the Philippine coast, and they
Speaker 2: say that that is their traditional waterway. Now, all these
Speaker 2: other countries have competing claims, there's a lot of overlap.
Speaker 2: Sometimes three countries disagree about certain parts, but they're all
Speaker 2: in a long running, decades old dispute about whose territory
Speaker 2: that really is.
Speaker 1: This vast body of water is dotted with mostly uninhabitable islands, reefs,
Speaker 1: and shoals, which of course are shallow sandy areas. Are
Speaker 1: these countries really fighting over rocks and reefs?
Speaker 2: A lot of the fight is over rocks and reefs,
Speaker 2: and it's partly because if you can claim that reef
Speaker 2: that's exposed above the level of the ocean is your territory,
Speaker 2: then you have the right to exploit the resources that
Speaker 2: are there.
Speaker 1: Many of these countries are eyeing new sources of energy
Speaker 1: to fuel their growth, and underneath this vast body of
Speaker 1: water lie huge reserves that can be tapped for natural
Speaker 1: gas and oil.
Speaker 2: Well. The US Energy Information Administration estimates the region could
Speaker 2: contain three point six billion barrels of oil and more
Speaker 2: than forty trillion cubic feet of natural gas in terms
Speaker 2: of proved and probable reserves. So really kind of a
Speaker 2: massive amount that has been locked up for years, but
Speaker 2: no one really knows because the amount of exploration that
Speaker 2: needs to go in to confirm all that, a lot
Speaker 2: of that has been stalled, and a lot of the
Speaker 2: production that these countries would like to have going has
Speaker 2: also been stalled because companies get very nervous when you
Speaker 2: have multiple countries disputing any one area. So Vietnam, for instance,
Speaker 2: more than a decade ago discovered a field that they
Speaker 2: called the Blue Whale. The rights to exploration and production
Speaker 2: are controlled by Exonmobile that's in a contested area that
Speaker 2: China says is actually their territory. This just a few
Speaker 2: months ago was when Vietnam expected that Blue Whale project
Speaker 2: to come online originally, Instead, nothing has happened. The main
Speaker 2: offshore energy field that the Philippines uses, it provides about
Speaker 2: twenty percent of the country's energy that is seen as
Speaker 2: rapidly declining and there's been no real adequate replacement for that.
Speaker 2: Filippines would like to be doing more exploration, more production offshore,
Speaker 2: but it basically hasn't been able to get any of
Speaker 2: that done because of these disputes.
Speaker 1: And so for these developing Southeast Asian countries, finding new
Speaker 1: sources of energy is key to their economic growth. Right.
Speaker 1: You've got Vietnam and the Philippines, for example, with rolling
Speaker 1: blackouts and brownouts throughout the year, and that really impacts
Speaker 1: electricity in homes and factories for hours.
Speaker 2: Well, and that's a situation that's expected to worsen in
Speaker 2: a place like the Philippines if they can't find better
Speaker 2: sources of fuel. And you know, nothing puts off investors
Speaker 2: more than the question of whether there'll be sufficient energy
Speaker 2: to run the factories. So when you're looking at how
Speaker 2: you diversify your supply chains out of China, one of
Speaker 2: the things you're going to look at is how reliable
Speaker 2: is the energy supply if I go to this country.
Speaker 2: How reliable is the water supply? All these things affect,
Speaker 2: you know, the investment climate that these countries are looking
Speaker 2: to create.
Speaker 1: Now. To be fair, China's aggressive actions in the South
Speaker 1: China Sea aren't the only reasons why energy projects haven't
Speaker 1: been able to get off the ground. These projects are
Speaker 1: also battling red tape, corruption and shifting market demands. Bill
Speaker 1: This jockeying over the South China See by various countries
Speaker 1: goes back decades, and China has been exerting control over
Speaker 1: these waters for years. What's new in this dispute right now?
Speaker 2: Several years ago, the Philippine president at the time, Rodrigo
Speaker 2: de Terte, was really turning away from his nation's alliance
Speaker 2: with the US and trying to get closer to China,
Speaker 2: So he really downplayed a lot of these differences and
Speaker 2: disputes over some of this territory. Come just a year
Speaker 2: or two ago, you had a new president, fernand Marcos Junior,
Speaker 2: who took over in the Philippines, and he basically went
Speaker 2: in the opposite direction, and he started being much more
Speaker 2: forward about pushing what he viewed as the Philippines traditional claims.
Speaker 2: So we started sending more resupply missions out to some
Speaker 2: of these isolated outposts where there were a few Philippine
Speaker 2: troops stationed, and he started trying to send the Philippines
Speaker 2: Coastguard out to some of these islands that the Philippines claimed,
Speaker 2: but that China was also claiming.
Speaker 1: So with new leadership in place, we're seeing the Philippines
Speaker 1: get more aggressive about patrolling these waters and claiming it sovereignty.
Speaker 1: Are we also seeing more Chinese ships out there in
Speaker 1: these waters too.
Speaker 2: Absolutely, China has what analysts talk about as their maritime militia,
Speaker 2: So at one level, these essentially are like fishing fleets,
Speaker 2: but they're not necessarily doing a lot of fishing. They're
Speaker 2: out there to swarm any other boats that try to
Speaker 2: come out and get to some of these disputed areas.
Speaker 2: So if the Philippines tries to send a Coastguard cutter
Speaker 2: out to a disputed island, it might find itself completely
Speaker 2: surrounded by what might look like a fleet of Chinese
Speaker 2: fishing vessels, but those vessels are backed by a coastcard
Speaker 2: that is either right there or looming in the distance,
Speaker 2: helping coordinate that action.
Speaker 1: Here's what this kind of confrontation can sound like. This
Speaker 1: is sound from video taken by the Armed Forces of
Speaker 1: the Philippines. It's from March fifth, when two Chinese Coast
Speaker 1: Guard ships turned high powered water cannons directly at a
Speaker 1: Philippine ship in a contested shroal. The incident left several
Speaker 1: Filipino crew members injured. There have been at least six
Speaker 1: incidents like this in eight months.
Speaker 2: It really is the front lines of what a lot
Speaker 2: of geopolitical analysts say is one of the biggest flash
Speaker 2: points in the world at this point, but particularly in
Speaker 2: the US China Southeast Asia relationship, because any of these incidents,
Speaker 2: if something goes badly wrong, it could really spiral into
Speaker 2: a much broader conflict.
Speaker 1: After the break, we'll hear how countries are bracing for
Speaker 1: a potentially bigger conflict in the South China Sea. This week,
Speaker 1: military personnel from the US and the Philippines are conducting
Speaker 1: joint military exercises off the coasts of the Philippines near
Speaker 1: the South China Sea.
Speaker 2: We're talking about dropping bombs, launching missiles, launching torpedoes. As
Speaker 2: close to real war practice as you can get. The
Speaker 2: communication systems. How do the two sides talk to each
Speaker 2: other when they've built different systems, How do they coordinate
Speaker 2: if there's an attack in one area, what's the strategy
Speaker 2: to get over there. They're not really looking to provoke
Speaker 2: the Chinese into a reaction, but they don't mind the
Speaker 2: Chinese getting a chance to watch their exercises and how
Speaker 2: they would respond in a crisis.
Speaker 1: And that's because there's a mutual defense treaty between the
Speaker 1: US and the Philippines, right right.
Speaker 2: That's really kind of the core of the US Philippine alliance.
Speaker 2: They have this nineteen fifty one treaty that says the
Speaker 2: two sides will come to each other's aid in case
Speaker 2: of attack. There's always been a lot of questions about
Speaker 2: what constitutes an attack. The Philippines has tried to in
Speaker 2: some way sidestep that a little bit. A lot of times,
Speaker 2: when it sends resupply boats, for instance, out to this
Speaker 2: small garrison of troops, it keeps on one of the reefs.
Speaker 2: It charters civilian vessels to do that, so when those
Speaker 2: vessels get pushed back on by the Chinese, you don't
Speaker 2: have a situation of a Chinese military vessel going against
Speaker 2: a Philippine military vessel. But the big question is at
Speaker 2: what point would the US feel obligated to come to
Speaker 2: the Philippines defense if there was a bigger crisis.
Speaker 1: How real is that threat? Is the US really going
Speaker 1: to fight China over islands in the South China Sea?
Speaker 2: Yeah, I think all sides concerned would like to avoid that.
Speaker 2: I mean, in the end, you really would have a
Speaker 2: conflict going up over some reefs and shoals. They're important
Speaker 2: to all the nations involved, but I think everyone would
Speaker 2: like to avoid kind of a full scale war. What
Speaker 2: the Philippines president has said is that he's not trying
Speaker 2: to poke the bear referring to China. The Philippines strategy
Speaker 2: here has been to try to publicize this in some ways,
Speaker 2: like a name and shame when they go out. Now
Speaker 2: they are filming, they're trying to put drones in the air.
Speaker 1: And how much of an advantage does China have here
Speaker 1: in this dispute? It seems like it's really using its
Speaker 1: military militia to assert control in these contested areas well.
Speaker 2: China has a big head start and it's very hard
Speaker 2: to see them backing down from this. They have been
Speaker 2: building up some of these claims, they've been building up
Speaker 2: these islands for more than a decade now, and a
Speaker 2: lot of other countries took a less confrontational approach and
Speaker 2: don't have that kind of footprint in the region. Until
Speaker 2: there is some sort of a diplomatic breakthrough, it's going
Speaker 2: to be very hard to see how these resources to
Speaker 2: the Philippines close to Vietnam, how those get out of
Speaker 2: the ground, and what the framework, what the agreement that
Speaker 2: would bring all those sides together to get those projects going.
Speaker 2: It's hard to see at this point. It's really a
Speaker 2: stalemate and it's not clear that it's going to get
Speaker 2: any better.
Speaker 1: Bill, thank you so much for the insight.
Speaker 2: Thank you for having me.
Speaker 1: This is the big take from Bloomberg News. I'm wan ha.
Speaker 1: This episode was produced by Naomi Un Young Young and
Speaker 1: Jessica Beck. It was edited by Caitlin Kenney and Bill
Speaker 1: Ferries and mixed by Alex Suguira. It was fact checked
Speaker 1: by David Fox. We had additional reporting from Philip Hymon's
Speaker 1: Andreo Colonso and Cliff Venzon. Our senior producer is Naomi Shaven,
Speaker 1: Senior editor is Elizabeth Ponso. Nicole beemster Bower is our
Speaker 1: executive producer, and Sage Bauman is Bloomberg's head of podcasts.
Speaker 1: Thanks for listening to The Big Take. We'll be back
Speaker 1: tomorrow
Speaker 2: As