Bloomberg News

China Denies Impeding Asian Maritime Trade as Wen Meets Obama

November 25, 2011

Nov. 20 (Bloomberg) -- China proposed a maritime cooperation fund and said it has no interest in impeding trade as it counters moves by the U.S. and the Philippines to resolve territorial disputes in the South China Sea.

The 3 billion-yuan ($472 million) fund would develop a “maritime connection network” with Southeast Asian nations, Assistant Foreign Minister Liu Zhenmin told reporters yesterday in Bali, Indonesia. Chinese Premier Wen Jiabao reiterated China’s stance that territorial disputes should be left off the agenda at regional forums and addressed directly between claimants, the official Xinhua News Agency reported.

“China believes that freedom of navigation has not been a factor in the South China Sea,” Liu said at the conclusion of the 18-country East Asia Summit, where U.S. President Barack Obama raised maritime security issues. “With the rapid development of economies in China and East Asian countries, the country and region attach more importance to freedom of navigation than anybody else.”

The remarks aim to dispel concerns that China’s moves to assert its sovereignty in disputed waters would impede trade as Obama pushes to expand commerce and military cooperation on a trip to the region that began Nov. 11. Over the course of Obama’s tour he announced plans to boost troop rotations in Australia and called on China to “play by the rules” as its military might grows.

Liu characterized talks yesterday between Wen and Obama as “very cordial and frank,” while calling the U.S. an “important player” in the region. He also said China is ready to negotiate a legally binding code of conduct in the South China Sea with the 10-member Association of Southeast Asian Nations, four of which have competing claims with China.

‘Freedom of Flow’

White House National Security Adviser Tom Donilon emphasized that commerce is the top U.S. motive for weighing in on the South China Sea’s territorial disputes as he summarized Obama’s trip yesterday, while declining to note any “specific instances” when trade was impeded.

“The United States interest here is in the freedom of flow in commerce,” he said. While the U.S. “doesn’t have a claim” in territory disputes, “we do believe that there should be developed a collaborative diplomatic process for the resolution of these claims.”

The Philippines and Vietnam, which have awarded exploration contracts to Exxon Mobil Corp., Talisman Energy Inc. and Forum Energy Plc, reject China’s map of the sea as a basis for joint development. The South China Sea contains oil reserves that may total as much as 213 billion barrels, according to Chinese studies cited in 2008 by the U.S. Energy Information Agency.

China’s Tone

The tone of China’s response in yesterday’s meeting encouraged Obama’s administration, according to a U.S. official who briefed reporters aboard Air Force One. The official said 16 of 18 leaders at the East Asia summit in Bali addressed the issue of maritime security in the South China Sea, and that China’s Premier Wen discussed the issue after it was raised by Obama.

The U.S. feels that the Chinese came away from the meetings believing that a heavy-handed approach on the South China Sea would backfire, the official said.

China has used patrol boats to disrupt hydrocarbon survey activities in waters it claims, chasing away a ship working for Forum Energy off the Philippines in March and slicing cables of a survey vessel doing work for Vietnam in May.

Japanese Prime Minister Yoshihiko Noda, one of the 18 leaders attending the event, joined the U.S. in emphasizing the importance of rules at sea, saying efforts were being increased to boost security.

‘International Law’

“We were able to convey the importance of international law,” Noda said in press conference in Bali yesterday.

China’s response to the comments and agreements during Obama’s trip may be temporary, said Gary Li, an analyst with Exclusive Analysis Ltd., a London-based business advisory firm.

“In circumstances when they are outnumbered diplomatically, and with the U.S. hovering on the sidelines like a school prefect, China usually goes back into its shell,” he said. “Fundamentally, they are not going to change positions on bilateral talks over multilateral being the preferred way of doing business.”

During his trip Obama called the East Asia summit the “premier” arena to discuss maritime security concerns, a subject China has lobbied to keep out of international gatherings because it touches on territorial disputes. The Philippines, a U.S. treaty ally, has called on Asean to facilitate talks with China over disputed areas of the sea that contain oil and gas resources.

Asserting Sovereignty

The U.S. presence “bolsters our ability to assert our sovereignty over certain areas,” Ricky Carandang, a spokesman for Philippines President Benigno Aquino, said Nov. 17.

Secretary of State Hillary Clinton said Nov. 16 in Manila that the U.S. would boost the Philippines’ naval defenses and work to ensure there isn’t a “big thumb on the scale” that pushes development or strategic issues.

In a news conference in Canberra, Australia, on Nov. 16, Obama said that it is “mistaken” to say the U.S. fears China or is seeking to isolate the world’s most populous nation.

“The main message that I’ve said not only publicly but also privately to the Chinese is that with their rise comes increased responsibilities,” Obama said. “It’s important for them to play by the rules of the road.”

--With assistance from Patrick Harrington in Tokyo and Julianna Goldman and Margaret Talev in Washington. Editors: Patrick Harrington, Dick Schumacher.

To contact the reporter on this story: Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net


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