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Beijing Stakes A Claim And Neighbors Are Howling (Int'l Edition)


International -- Intl' Business: CHINA

BEIJING STAKES A CLAIM-AND NEIGHBORS ARE HOWLING (int'l edition)

Ever since Indonesia began making plans to develop its Natuna natural-gas fields, officials have known the project wouldn't be easy. Analysts figure only a quarter of the estimated 210 trillion cubic feet of reserves--located 225 kilometers from the nearest island and 150 meters beneath the South China Sea--are commercially recoverable. To get that, Exxon Corp. and Pertamina, Indonesia's state oil-and-gas company, will have to spend eight years building 18 triple-decker drilling platforms the size of soccer fields. It took Exxon and Pertamina 15 years just to negotiate the $34 billion venture, signed in January.

Now, there's a new headache: China has issued maps that seem to show that Natuna--more than 2,000 km from the Chinese mainland--is part of its territory. After two years of low-key diplomacy, Beijing has still said nothing to calm Indonesia's fears. "They told us they were willing to jointly develop" the field but the issue of sovereignty was "not negotiable," says Hashim Djalal of Indonesia's Foreign Ministry.

Indonesia isn't the only Southeast Asian nation getting anxious over Beijing's claim to the entire South China Sea. In April, Chinese publications speculated about the possibility of war--after Manila blew up stone markers the Chinese put on reefs off the Philippine coast and arrested 62 Chinese fishermen for poaching. Both Vietnam and Taiwan have reinforced their military outposts on several contested Spratly Islands. Malaysia also has claims.

GANGING UP. There are signs, though, that China is overplaying its hand. In an unusual show of regional unity, senior officials of the Association of South East Asian Nations (ASEAN) protested to Chinese delegates at an Apr. 3 forum in Hangzhou. Previously, Beijing could deal with neighbors one-to-one, rather than as a group. Now, China could face a united diplomatic front against it.

China's aggressive stance has sparked a race by Asians to develop long-dormant ventures all over the South China Sea, from offshore oil fields to fishing grounds and resorts on remote sandbars. That's because, under the 1982 Law of the Sea Convention, nations are entitled to "exclusive zones" up to 320 km off their continental shelves. But since many claims overlap, nations need to prove they have economic interests.

China's motivations are different. In the case of Natuna, Beijing seems to be jockeying for a share of the potentially enormous gas reserves. Analysts say China's ultimate strategy is to gain control of the vast resources and vital shipping lanes of East Asia's oceans--as part of its bid to become Asia's 21st century superpower. There may even be a connection with the power struggle in Beijing, as China's leaders play up nationalism as a rallying point. "They will continue with their strategy and push as far as they can go," says China military expert Tai Ming Cheung of Kim Eng Securities (Hong Kong) Ltd.

The potential stakes in the contested oil fields are huge. Vietnam, for example, wants to triple its output of oil and gas, to 20 million tons annually, by 2000. It now has three offshore sites yielding $1 billion worth of oil yearly. But some of Vietnam's best new sites are also claimed by China. Both countries have drawn foreign companies into the dispute. In 1993, Beijing awarded Denver's Crestone Energy Corp. the rights to explore a bloc claimed by Vietnam--and said the Chinese Navy would protect Crestone. Undaunted, Vietnam handed nearby exploration rights to British Petroleum, Total, Mobil, and Mitsubishi Oil.

ROCKY GEOLOGY. So far, it's unclear whether there is much worth fighting over. Crestone, short on money and hampered by difficult geology, has yet to determine whether its site is viable. And last August, a joint venture between Mobil Oil Corp. and a Japanese consortium had to abandon its first test project, 275 km off Vietnam's coast. It plans to try again this summer. Says an executive of another oil company: "If Mobil finds a vast amount of oil and gas, this will become a hot issue again."

With Vietnam joining ASEAN this year, the South China Sea is likely to be even higher on the agenda at the July meeting of the group's foreign ministers in Bangkok. Few analysts believe a military showdown between ASEAN and China is likely. But unless both sides agree to a formula for sharing the spoils, the decades of peace that made Asia's economic boom possible will be in jeopardy.By Pete Engardio in Hong Kong, with Michael Collins in Hanoi and Michael Shari in Jakarta


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