Could Tensions In South China Sea Hurt U.S. Business With Beijing?

After a U.S. Navy ship sailed within 12 nautical miles of a recently-constructed artificial Chinese island, concerns have been raised over business links.

Although the U.S. ship passed through maritime territory that China claims as its own without any major incident, the incursion could have long-term effects on the relationship between the two nations. There are few options available to China as it seeks to express its discomfort at the actions of the U.S. ship, but one method could be to increase intereference with American business interests in China, writes James Nolt for The Street.

Could China interfere with U.S. business interests in retaliation?

Should China choose to turn the screw on U.S. businesses operating within its borders, it may hope that commercial interests could help to mitigate what Beijing sees as provocative U.S. actions in the South China Sea. Either way U.S. businesses in China may be set for a difficult time.

Ongoing tensions in the South China Sea were exacerbated by the recent voyage of the destroyer USS Lassen close to Mischief Reef, an area of the Spratly Islands which China claims as its own. U.S. officials claim that the movements of the ship were part of a demonstration of the freedom of navigation enjoyed by ships in international waters, but Beijing sees it as a deliberate provocation.

One theory is that the U.S. is demonstrating its lack of respect for China’s territorial claims in the South China Sea in retaliation for the massive hack of U.S. federal employee data, an act of cyber espionage that many have blamed on Beijing. The dispute over the hack was allegedly not resolved during Chinese President Xi Jinping’s recent visit to Washington.

Obama has little to lose by confronting China over territorial claims

For President Obama, now is a convenient time to dispute territorial claims with China. Given the current U.S. electoral cycle Obama and the Democratic Party leadership may hope to neutralize the Republican campaign by taking a tough stance on China.

Obama also stands to cement the trust and support of U.S. allies in Asia, several of whom spoke out in praise of the maneuvers. Since the USS Lassen passed by the island, several U.S. officials have stated that similar voyages will be undertaken by other ships.

It is hard to imagine China threatening a violent response to U.S. ships in waters that it claims. Economically speaking, Beijing’s hands are also tied because any reduction in economic cooperation would damage Chinese interests as much as American.

Beijing backed into a corner in the South China Sea?

At the same time, by merely protesting against the incursions China risks losing credibility and appearing impotent in the face of continued U.S. regional hegemony. Beijing may want to consider keeping quiet about an issue on which it largely stands alone against the world instead of solidifying the alliances between its adversaries.

However analysis of the issue has become confused. The South China Sea is subject to multiple overlapping territorial claims from a number of countries, but the U.S. itself has no particular stake in the sea boundaries.

Maritime territorial disputes are to be solved between China, Vietnam, the Philippines and various other claimants, all of whom want access to the oil fields that are thought to lie beneath the waters of the South China Sea, in addition to its rich fishing grounds.

Freedom of navigation primary U.S. interest in the region

The U.S. is ultimately concerned with maintaining freedom of navigation in one of the world’s most important shipping lanes. The United Nations Convention on the Law of the Sea says that nations can claim economic rights within 200 miles of their territory, but navigation rights can only be regulated within 12 miles.

The law rules out the building of artificial islands as territory in order to claim, but China has embarked on a massive program of land reclamation in various areas of the South China Sea. Now Beijing claims that its artificial islands, built on top of submerged reefs, count as Chinese sovereign territory which should have a 12 mile exclusion zone to foreign ships.

By sailing within 12 miles of Mischief Reef, the U.S. clearly demonstrated its lack of respect for these claims. For a long time it looked as though the Obama administration was running scared of China and afraid to stand up to Beijing on key issues. That may have changed this week.

Although Obama is not running for President himself, he could still help his fellow Democrats by taking a tougher position on foreign policy, an area in which his administration has come in for criticism from Republicans.

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About the Author

Brendan Byrne
While studying economics, Brendan found himself comfortably falling down the rabbit hole of restaurant work, ultimately opening a consulting business and working as a private wine buyer. On a whim, he moved to China, and in his first week following a triumphant pub quiz victory, he found himself bleeding on the floor based on his arrogance. The same man who put him there offered him a job lecturing for the University of Wales in various sister universities throughout the Middle Kingdom. While primarily lecturing in descriptive and comparative statistics, Brendan simultaneously earned an Msc in Banking and International Finance from the University of Wales-Bangor. He's presently doing something he hates, respecting French people. Well, two, his wife and her mother in the lovely town of Antigua, Guatemala. To contact Brendan or give him an exclusive, please contact him at

2 Comments on "Could Tensions In South China Sea Hurt U.S. Business With Beijing?"

  1. It is such a foolish question from you know whom Byrne. Obviously, Carter is playing a dangerous game and has not done his homework about the number of US casualty (the number of sailors perished cannot be less than in Vietnam for sure) should a war he loves so much is realized.

  2. michaeljacksonforever | Oct 28, 2015, 6:06 pm at 6:06 pm |

    The author is totally miscalculate the whole thing. The US provocation is not hurting the Chinese government, rather hurting the feelings of Chinese people. Chinese government need not do anything, the subsequent demostration and anti-US sentiment of Chinese people will bring to the table of boycot American products. Obama is really a stupid president, making decision without knowing the consequence.

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