Thayer Consultancy Background Briefing:

ABN # 65 648 097 123

South China Sea: Sanctioning
Chinese State-Owned Companies
for Illegal Actions?
Carlyle A. Thayer
July 22, 2019

We request your assessment of China’s recent actions in the Vanguard Bank area of
the South China Sea.
Q1. How do you assess the severity of the action that China has taken in the Vanguard
Bank area of the South China Sea when it dispatched the Hai Yang 8 [Haiyang Dizhi 8]
to operate in Vietnam's exclusive economic zone and continental shelf?
ANSWER: China has deliberately violated international law by conducting seismic
surveys in Vietnam’s Exclusive Economic Zone and continental shelf without
permission of the Vietnamese government.
So far China’s response has been to call on Vietnam to respect China’s sovereignty. In
other words, China continues to assert it historic rights to sovereignty over the land
features and water in the South China Sea despite a ruling by the Arbitral Tribunal
three years ago that such claims have been superseded by China’s accession to the
United Nations Convention on the Law of the Sea. The Arbitral Tribunal also ruled that
China’s nine-dash line claim to the South China Sea was without legal foundation. In
other words, China refuses to conform to international law and a rule-based order in
the Indo-Pacific region.
China’s actions also run counter to the Basic Agreement on Guidelines to Settle Marine
Issues Between China and Vietnam agreed in October 2011. This raises serious
questions about whether Vietnam, or other claimant states, can trust China to adhere
to agreements reached on the South China Sea.
Q2. Many analysts say that it is China’s strategy to move from bilateral disputes to
joint exploitation. What is your assessment?
ANSWER: It is unclear what China’s motivations were when it dispatched the Haiyang
Dizhi 8 into Vietnam’s Exclusive Economic Zone. But it is clear from China’s submission
to the ASEAN-China Single Draft South China Sea Code of Conduct Negotiating Text
that all exploitation of marine resources in the South China Sea should be conducted
by companies from China and Southeast Asian states and not outside states. In other
words, Beijing seeks hegemony over the South China Sea by binding littoral states to
joint development with China. This would mean Vietnam would have to terminate
leases with VietSovPetro, Rosneft Vietnam, ExxonMobile, etc.
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Q3. After the U.S. condemned China’s actions, what do you think ASEAN needs to do
in response to China's illegal actions?
ANSWER: ASEAN is unlikely to join the United States in condemning Chinese bullying.
ASEAN has already committed itself not to take action. At the 34th ASEAN Summit in
June this year, for example, the ASEAN Chair devoted only two paragraphs to the
South China Sea issue. The first paragraph “welcomed the continued cooperation
between ASEAN and China and were encouraged by the progress of the substantive
negotiations towards the early conclusion of an effective and substantive Code of
Conduct in the South China Sea.” China’s violation of Vietnam’s EEZ undermines this
cooperation.
In the second paragraph, the ASEAN Chair “took note of some concern on… activities
in the area, which have eroded trust and confidence, increased tensions and may
undermine peace, security and stability in the region.” This has been repeated for
several years and it indicates that there is no consensus in ASEAN to take a stronger
stand against China.
Q4. What measures should Vietnam take to permanently terminate China's actions in
the South China Sea instead of constantly dealing with such incidents?
ANSWER: China’s power in the South China Sea will continue to grow and there are no
practical actions that Vietnam can take to permanently terminate China’s aggressive
and illegal actions in the South China Sea if China decides to use coercion to achieve
its goals.
Under international law Vietnam must consult with China to resolve their disputes.
Vietnam must resolve disputes in a peaceful manner and respond proportionally to
illegal Chinese actions. This approach will not necessarily prevent future incidents but
it lays the necessary groundwork for Vietnam to take legal action following the
example of the Philippines. Vietnam needs to demonstrate it has exhausted bilateral
consultations with China before it invokes the compulsory dispute settlement
mechanism in UNCLOS Annex VII. UNCLOS does not provide for any enforcement
measure and China is unlikely to accept a legal ruling that goes against its interests.
Vietnamese officials recently began to express the view that Vietnam needs to work
with the international community. This could mean cooperation with the coast guards
from Japan and the United States.
Vietnam could also work with the international community to impose sanctions on
Chinese state-owned companies that deliberately violate international law in the
South China Sea.

Media Identification: The University of New South Wales, Canberra or The University
of New South Wales at the Australian Defence Force Academy, Canberra.
Suggested citation: Carlyle A. Thayer, “South China Sea: Sanctioning Chinese State-
Owned Companies for Illegal Actions?” Thayer Consultancy Background Brief, July 22,
2019. All background briefs are posted on Scribd.com (search for Thayer). To remove
yourself from the mailing list type, UNSUBSCRIBE in the Subject heading and hit the
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Thayer Consultancy provides political analysis of current regional security issues and
other research support to selected clients. Thayer Consultancy was officially
registered as a small business in Australia in 2002.