Hu-Fukuda Summit: The East China Sea Dispute

The primary outcome of Hu Jintao’s recent visit to Japan was a joint statement between the Chinese president and Japanese Prime Minister Yasuo Fukuda, issued on May 7. According to this statement the leaders agreed to make the East China Sea a sea of “peace, cooperation, friendship” [1]. Both leaders publicly stated that they are committed to working out the details of a long anticipated joint development scheme in the East China Sea. Rumors circulated in early February that a breakthrough was close and this most recent speculation has raised hopes in both states that the dispute might be nearing some kind of resolution, or at least reduction of tension in the “narrow strip of water” separating East Asia’s great powers.

Despite the opacity of the recent high level talks between the two sides, the outcomes of which were not reported in the media, a degree of speculation about the possible sources and extent of compromise is warranted.

The Origins of the Dispute

The territorial dispute in the East China Sea is centered on jurisdictional entitlements to the potentially vast hydrocarbon resources which lie beneath. Sino-Japanese tensions over the dispute have been high since August 2003 when Chinese oil company CNOOC entered into a partnership with Unocal and Royal Dutch/Shell to produce natural gas at the Chunxiao gas field located 3 mi from the Japanese claimed “median line” in the East China Sea.

Japan divides the East China Sea in half along this line which marks the limits of both parties’ Exclusive Economic Zones (EEZ) as outlined under the 1982 UN Law of the Sea (UNCLOS III). China claims jurisdiction over the entire East China Sea based on the natural prolongation of its continental shelf, a method of maritime delimitation also recognized under UNCLOS III, but which is increasingly outmoded in international law. This difference is fundamental to the current gas dispute, as China claims that Japan has no right to protest its Chunxiao operations because the production sites are in the Chinese EEZ under either interpretation. Japanese policymakers and public are concerned that the Chunxiao field may extend into the Japanese EEZ, thereby costing Japan valuable resources. In the longer term the dispute is larger than the Chunxiao complex because of the hydrocarbon potential of the East China Sea and current high global energy prices. Both states are significant oil importers and there is a perception in both capitals that their energy security policies are competitive.

Tensions over the Chunxiao field climaxed in mid- to late 2005. Despite repeated requests by Tokyo that Beijing cease its exploration operations at the Chunxiao complex and that it turn over its seismic data as the first step toward joint development discussions, China remained intransigent. In the face of rising public and political pressure, the Liberal Democratic Party (LDP) government declared it would begin its own exploration activities in the area, and resuscitated the long dormant concessions to the area held by Japanese oil companies. In July 2005 Teikoku Oil won the right to conduct exploratory drilling in the East China Sea. The first expedition was met with a significant show of force by the PLA Navy in early September 2005, when a flotilla a five vessels, including the advanced Sovremennyy destroyer, appeared near the Chunxiao complex. This warning was later spelled out by Huang Xingyuan, chief spokesman for the Chinese embassy in Tokyo. He stated that any move by the Japanese to explore for oil or gas in the disputed area would be viewed by Beijing “as an invasion of Chinese territory and … a highly provocative act” [2]. Japanese exploratory drilling efforts have since been put on hold.

Since this stalemate, diplomatic talks have been ongoing, and progress made, particularly in the area of confidence building. Plans exist for a hotline to be established between the Chinese State Oceanic Administration and the Japan Coast Guard to reduce the chance of an incident at sea due to miscalculation or misperception. In addition, numerous joint development proposals have been examined. Since July 2006 there has been disagreement over the site of joint development operations. The Chinese would prefer areas in the sea between Japan’s median line and the Okinawa Trough as they view this as the disputed area. Chinese proposals have included areas near the disputed Senkaku/Diaoyu islands occupied by Japan. Japan’s proposals have been focused on a site straddling the median line and including the Chunxiao complex.

Cooperative Rumors

In February it was reported that China had made a major concession and recognized the Japanese median line in the East China Sea [3]. This is highly unlikely in light of the potentially damaging impact this would have on China’s wider claims over the continental shelf. It is more likely that China demonstrated flexibility on its previous opposition to permitting Japanese participation in exploration and production activities in concession blocks that skirt the median line.

Following the joint statement of May 7, it was again reported that agreement was near, and that the parties were close to consensus on the terms of joint development. Fukuda stated in response to a question at a press conference: “We saw great development and confirmed a solution is in sight” [4]. In light of the diplomatic stalemate described above there are two possible compromise scenarios. In the first scenario, China has moved closer to the Japanese position by agreeing to open parts of the existing Chunxiao complex to Japanese companies. The complex is composed of four fields: Chunxiao and Tianwaitian where production has commenced, and Canxue and Duanqiao, which remain untapped. The other possibility is that Japan has moved closer to the Chinese position and agreed to alternative joint development areas near the median line, or has agreed to the joint development of fields near the Senkaku/Diaoyu islands.

Both options have costs to the conceding party. While the joint development of resources near the disputed islands would not strengthen the legal Chinese claim to the Japanese-controlled islands, it would further extend Chinese influence close to the Japanese mainland. Chinese military control of the East China Sea is a nightmare scenario for Japanese strategic planners, and it is unlikely Tokyo would consider yielding maritime territory, however inconsequential the method, to Beijing. On the other hand, Japanese involvement in the Chunxiao projects, depending on the circumstances, does not necessarily negatively impact China’s claims to the East China Sea. As the Chunxiao project is on the Chinese side of Japan’s median line, participation by Japanese oil companies does not erode the Chinese claim, although it could be viewed as too conciliatory by hardliners in Beijing. From Tokyo’s perspective, this scenario provides protection from rising domestic criticism that it is not doing enough to prevent Chinese oil companies from tapping resources on the Japanese side. There is a degree of historical precedence here as well; Japanese oil companies have a long track record of involvement in China’s offshore oil industry particularly in the Bohai Gulf. Indeed, Japanese oil companies Japex and Teikoku successfully bid for concession blocks in the East China Sea in 1994 [5].

The latter scenario, of China accepting Japanese involvement in the Chunxiao complex, is more likely because the costs to both parties are lower. Moreover, it has been corroborated by diplomatic leaks reported in Japanese newspapers. Kyodo News reported on May 9 that China had shown flexibility by raising the possibility that the Chunxiao field could be jointly developed with Japan [6]. Similarly, the Yomiuri Shimbun reported that this plan was contingent on continued Chinese non-recognition of Japan’s median line [7]. This stipulation aims to prevent any negative fallout for China’s jurisdictional claims to the continental shelf.

Likely Outcomes

It is entirely likely that Tokyo would jump at the chance to be involved in the Chunxiao project. In addition to assuaging domestic criticism of government inaction in the face of Chinese naval expansion, Japanese entities need Chinese assistance to get ECS resources to market. Oil discoveries in the Xihu Trough (the geological formation housing the Chunxiao field) have thus far been negligible, and the focus of production efforts has been on natural gas. Due to the existence of the Okinawa Trough, a geological depression between the Xihu Trough and the Japanese mainland where water depths reach over 2,000m, natural gas cannot be sent to Japan from the East China Sea by pipeline. Rather, Japanese-produced resources would have to be sent to China, liquefied and sent to Japan. Instead of this costly option, Japanese oil companies could simply sell the gas to China and re-invest the profits elsewhere.

This begs the question of why China would welcome Japanese involvement in natural gas production it could sell on its own. Despite its rising global competitiveness, CNOOC remains interested in securing foreign partnerships for its operations. Foreign partnerships help defray the inherent risk of offshore resource exploration and help with costs. Furthermore, from a political standpoint, Japanese involvement in an ECS project reduces the likelihood of further bilateral tensions should Chinese-run East China Sea projects begin to tap resources on the east side of Japan’s median line. Chinese leaders remain focused on a peaceful international environment to facilitate China’s economic and political rise and recurring tensions in the ECS, particularly in light of more capable and active naval forces on both sides, makes this a high stakes game.

Conclusion

In any event, progress on the parameters of a joint development scheme does not necessarily entail a happy ending to the East China Sea dispute. The jurisdictional dispute has created many areas where Chinese and Japanese interests conflict. In addition to other natural gas fields close to the median line, such as Longjing, there is also the issue of continued intrusions into the Japanese-claimed EEZ by Chinese naval vessels. Although an agreement was signed in February 2001 which required two months notification of marine research in either party’s EEZ, China has routinely violated the agreement. Furthermore, Chinese marine research by military intelligence vessels, although far more provocative to Japanese strategists, was not covered by the agreement. Also, despite the conclusion of a fisheries agreement in June 2000, fishing disputes remain common and the bilateral regulatory committee meets infrequently. In short, whatever progress was made on the proposed joint development scheme at the recent summit, it will be quite sometime before the East China Sea becomes the sea of “peace, cooperation and friendship.”

Notes

1. Reiji Yoshida, “Fukuda, Hu put focus on future,” The Japan Times, May 8 2008.

2. Anthony Faiola, “Japan-China Oil Dispute Escalates,” Washington Post, October 22, 2005.

3. Gupta, Sourabh. “An ‘Early Summer’: Sino-Japanese Cooperation in the East China Sea,” Nautilus Policy Forum Online (2008), https://www.nautilus.org/fora/security/08010Gupta.html

4. “Fukuda, Hu agree to boost ties/joint statement future-oriented; gas issue ‘close to resolution,’ The Yomiuri Daily, May 8, 2008.

5. “Japanese Consortium Wins Blocks 41/17 and 42/03 in East China Sea”, Petroleum Economist, January 19, 1994.

6. “China hints at gas row compromise”, Kyodo News, May 7 2008.

7. “Shirakaba gas field key to ‘progress’/Japan, China closer to joint development,” The Yomiuri Daily, May 9, 2008.