The sea lanes in exports and petroleum: the Spratly Islands
Author: Dave Righetto
Every so often in the West we hear about Spratly Islands, a cluster of small islands and reefs in the South China Sea.
Usually we speak of “quarrels” between countries that are claiming and in some cases occupy them militarily; possibly we read of supposedly large resources (oil and gas), but almost never of their strategic location on the world’s busiest sea route. And yes, we also talk about oil and gas: those transported in massive amounts by oil tankers — gas tanker in the case of gas.
Without forgetting the routes of colossal Chinese export (and import) to Europe, Africa and the Middle East. Simply put, the Spratly Islands have huge strategic importance, especially for China.
Geographic location and history of Spratly Islands
Even if you define them Islands, it is actually a set of approximately 750 islets, rocks, etc. scattered over an area of more than 400,000 Kmq. They are located more or less between Viet Nam and the Philippines, a thousand kilometers from the Chinese island of Hainan.
The story of the claims by the various governments is endless: the first probably dates back to 1887 — an English claim. China (most recently, both the PRC and Taiwan) has always claimed the Spratly Islands, so much to send there naval forces at the beginning of 1900; France also claimed the Islands in the past.
After the war (with a small Japanese naval base), have multiplied the demands and occupations: currently, the Spratly Islands have in fact several military bases. In particular, there are military garrisons of: China, Taiwan, Viet Nam, Malaysia, Philippines.
Airports of various countries over the Spratly Islands
All powers mentioned above have built or are building airports on Spratly Islands: the Viet Nam in Spratly, the Philippines in Thitu, Taiwan in Itu Aba, Thitu, Malaysia in Swallow Reef, China in the Fiery Cross Reef.
Aside from Spratly, on all the airports concerned can operate fighter jet (although Philippine’s track is in grass); on the Chinese field, by far the longest (3,000 m), will also operate large aircraft-type bombers. The Fiery Cross is of particular interest: China has artificially enalrged the rock in order to build a track so long; it includes a harbour protected from the sea; it seems that China is to prepare a second field in macadam.
The first thing you notice is that China was the last to build an airport (not yet completed); perhaps this was due to the difficulties of a similar working in such a narrow location, or maybe it’s just a reaction to the airports of others.
The fact is, it is evident the importance ascribed by China to Spratly Islands.
Regarding the range of aircrafts that will be based in the Fiery Cross, the article mentioned at the beginning of this chapter talks about a range of 3,500 miles for H6G bombers, though honestly it seems a bit too much for a derivative of the Russian Tu-16. I think this is a range perhaps acceptable without weapons load, namely in reconnaissance mission.
However, it is clear that such bombers, if armed with anti-ship missiles, they can interdict sea traffic across the South China Sea: simply put, if problems arised they are not only the Chinese export and import to be affected.
Who controls the Spratly Islands controls the Chinese rooutes of export, import, gas and oil
The way we have seen, it is obvious that the control of Spratly Islands, or rather of airspace above (and around), provides control of sea lanes.
The most delicate situation is precisely that of China: it’s far over (for ships coming from the South) the Islands; she has not particularly friendly relations with Japan; for historical reasons, she has strained relations with Taiwan. Moreover, she is considered a military competitor from the United States — the naval Pacific masters. The Philippines and Taiwan lie beyond the Islands as well, though they have good or very good relations with the United States.
On the other hand, the relations between China and Viet Nam are bad for several decades and included a war in 1979. Instead, relations with Malaysia and Indonesia are very good: remember, among other things, the big trade between China and Indonesia, as well as the strategic partnership agreement of 2005 that includes the defense.
In other words, it would seem that the weakness of Chinese maritime traffic is the area around the Spratly Islands. China probably fears a disruption of vital maritime traffic; and among these trades there is also the flow of gas and oil. On the other hand, other nations, the United States, fear that China can use the Spratly aggressively.
It is therefore clear that companies — and certainly not only SMEs — should care more about strategy and geopolitics before making capital decisions of internationalization and export.
Possible consequences on the export
Problems in the area of the Spratly Islands would have enormous consequences on import and export of China (but not only). It is therefore perfectly understandable that the Chinese are trying to gain control of the Islands.
I am planning to write in the future abut Chinese Grand Strategy and aims of the Chinese naval forces. But for now, I will limit myself to the Spratly Islands in the strict sense. Chinese airport will be by far the largest and the most advanced in operational capabilities, but it is still a thousand kilometres from Hainan; its purpose is thus probably more protective than anything else.
Moreover, it is certainly within range of fighter jets that operate from the Philippines and is on a big rock; in case of serious problems, it would have been probably knocked out in no time. It is therefore likely that its purpose is more deterrence, surveillance and traffic protection in case of tension (especially with the Viet Nam), or low/very low intensity conflict or any embargos.
In case of problems, you may expect the diversion of some traffic — with the associated costs — an increase of insurance premiums, a considerable drop in the volume of imports and exports between China and Indonesia. For Western companies, the cost of internationalization in China may become high.
In case of more serious problems, it is clear that the South China Sea would become an area impassable; at that point, a Chinese air base on the Spratly Islands it wouldn’t make any difference.
On the other hand, the base itself might be the spark that ignites the South China Sea; base, whose construction continues and goes to “bump” the United States. Everything will depend on the willingness of the various actors to understand each other’s reasons, but problems related to Spratly Islands could upset the world’s busiest shipping routes, set gravely at risk Western exports and -above all — the internationalization of many companies that are focusing on China.
Now, can we bet that 99 out of 100 managers of Western companies do not know the Spratly issue?
Did they ever seriously pose the problem of where to internationalize? Have they ever done adequate geopolitical considerations and risk management planning? For where to internationalize, often economic considerations are not enough.
Dave Righetto
Export manager and programme manager at Righetconsult, Dave do not define himself evangelist of something, although nowadays all define themselves as such. He prefers to call himself a scholar or even student, because everyone have something to learn. His articles on internationalization, strategy, corporate strategy and geopolitics are located on his blog, Export OK.
He always studied the strategy at all levels, deepening the history and meditating on works ranging from ancient China to today. He did ante-litteram internationalization, working on the field a long time around the world. Mountain enthusiast, he enjoys organizing conferences and taking courses at the Padua Engineering professional board. He arranged for the FOIV (Federation of engineers of Veneto) the Conference “How to make internationalization in practice”, with the patronage of SACE, Unioncamere Veneto and the Venice Engineering board. He collaborates with the Ascom Padua: he consults of internationalisation for businesses, particularly geopolitical aspects.
