Sovereignty over the Spratly and Paracel Islands in the South China Sea is continually cited as one of the most important security issues for the 21^st century. That body of water is believed to contain significant reserves of deep-sea minerals and hydrocarbons; some estimates compare the quantity of gas to that of Qatar.

Additionally, and perhaps more importantly for the wider region, the waters around the potentially resource-rich islands is one of the most heavily trafficked Sea Lines of Communication (SLOCs) in the world, making them a key concern for the region and the world economy. If access were inhibited, maritime trade - a key component of 90 percent of all international trade - would meet with costly delays. The result would be a devastating ripple effect on the wider global economy.

Similarly, any conflict in the South China Sea could draw the navies of the world to the brink of war. The increasing militarization of the region is a growing concern for Asia and the international community at large.

As well as the immediate claimants in the sea - China, Vietnam, the Philippines, Brunei and Malaysia - other countries in the region have entered the dispute to ensure the security of trade flows through the sea and the stability of the region. Further, the key claimants, as well as Australia, Japan, and India, have all recently contracted significant improvements to their naval capacities and many have engaged in large-scale joint naval exercises with the US and India.

Concern over the South China Sea and the rise of China has led to a significant recalibration of US foreign policy and has shifted the scales of power in the region. As US President Barack Obama stated in an address to the Australian Parliament in November 2011, the US has “made a deliberate and strategic decision, as a Pacific nation, [that] the United States will play a larger and long-term role in shaping this region and its future”.

Marines, submarines and the regional response
In November, as part of this re-engagement, the US opened a naval base in Darwin, Australia. Some 2,500 US marines will be stationed there. The move increases the US presence in the region, adding to the approximately 30,000 US personnel currently based in Japan, 28,000 in South Korea and 38,000 in Hawaii. According to official US Department of Defense figures, almost 22,000 marines were stationed in the East Asia-Pacific region in September 2011, a 20 percent increase on the previous year. US Navy personnel in the East Asia-Pacific region also increased by 80 percent to 18,302.

Japan, the regional naval powerhouse, has also become more active and begun military cooperation with the Philippines and will stage joint naval exercises this year with India. This is not surprising given that almost 90 percent of Japan’s energy passes through the South China Sea.

Vietnam last year announced the purchase of six diesel-electric Kilo-class submarines from Russia that should be operational by 2014. India made a similar purchase some years ago and has agreed to share its operational know-how of the vessels with Vietnam, which also purchased eight Sukhoi Su-30MK2 fighter jets.

Indonesia is also increasing its naval capacity. In December, South Korean company Daewoo agreed to build three diesel-powered 1,400-ton-class submarines for Jakarta, which had been searching for a contractor since 2007.

Australia is contracting the design and construction of 12 new submarines to replace its aging Collins-class fleet of six vessels. If European off-the-shelf submarine designs are contracted, the fleets could operate together, seeing Australia’s submarine fleet trebled.

The Future Defense Submarine Project will mark Australia’s largest-ever defense initiative, indicating current concerns in its defense elite. In 2010, after the release of an Australian defense white paper, Defense Minister Stephen Smith emphasized the importance of US cooperation in future naval exercises.

The 2013 release of the Boeing-built P-8 Poseidon, a surveillance aircraft with anti-submarine-warfare capabilities, may also have a wide impact on the security of the region. India has ordered 12 and, after an initial expression of interest, a decision from the Royal Australian Air Force is pending.

In January, Chinese Assistant Foreign Minister Liu Zhenmin urged Asian countries to do away with “Cold War mentalities” in dealing with complex regional issues. Yet despite this request, alliances are being formed in the region and they will likely present future problems.

A ’core national interest’
The strategic importance of the South China Sea for Beijing is twofold - control of a crucial SLOC and the capability for maritime-access denial, as well as access to significant energy resources for a hungry Chinese economy.

Many analysts indicate that the US re-engagement in the region is in response to Beijing’s 2010 declaration that the South China Sea was of “core national interest”. Previously, the use of such rhetoric has been reserved solely for Taiwan and Tibet. It is therefore not surprising that many see this as a significant recalibration of Beijing’s foreign policy. Recent posturing by China, and a string of international maritime incidents, would indicate this to be the case. This policy shift has been bolstered by the sexcentenary celebrations of China’s most famous sea voyages by Zheng He, one of world’s first great seafarers.

Articles in the government-run daily newspaper Global Times have demonstrated more bellicosity. One example is the September 2011 article titled “Time to teach those around South China Sea a lesson”. As a result, it is becoming increasingly difficult for China to back down in the territorial dispute given the rising nationalist sentiments over the issue in the country.

To avoid conflict, military confidence-building measures (as defined in Beijing’s white paper “China’s National Defense in 2010”) between the US and the People’s Liberation Army need to increase, as well as greater regional dialogue. These measures are not in themselves solutions to rising tensions, but they are nonetheless productive in averting open conflict.

Some agreement has occurred over the past 12 months, most notably the signing of an accord between China and Vietnam to create a hotline for emergencies and twice-yearly meetings to discuss issues relating to the South China Sea. However, to be effective, these agreements need to be inclusive and regional rather than exclusive and bilateral. Unfortunately this approach is unlikely, as the bilateral negotiations give China the upper hand.

Some analysts are now discussing the “Finlandization” of the region. The likeness of this exists - China’s strategy in the region is that of any burgeoning power; it asserts its influence through divide and rule, sticks and economic carrots (such as described in a Policy Brief No 78 on China’s near-monopoly of rare-earth elements, published by the Institute for Security and Development Policy, Stockholm). It has led Asian states to bicker among themselves, further weakening their positions. Smaller Asian states are simply unable or unwilling to front up to China in a David-and-Goliath battle.

This has been a catalyst for US re-engagement in the region and for growing regional militarization, but also indicates the possibility of a new cold-war scenario as the US and China lock horns.

Greater attention by the US in the Asia-Pacific region, at least in the short term, has reset the chessboard, one previously dominated by China. However, it also has the potential to destabilize the region further. Should the global economy fall back into recession, Beijing may be forced to increase nationalist rhetoric to stave off the unrest that mass unemployment would inevitably bring. The South China Sea dispute offers perfect fuel for this rhetorical fire.

While open conflict does not appear imminent given current Sino-US economic co-dependence, these escalations - naval buildups, tense dialogue, and an uncertain economic outlook - coupled with the lack of confidence-building measures merit the issue ever closer attention from the international community.