China-Vietnam: Weighing the Cost-Benefit of War in South China Sea Face-Off

In the recent skirmish over the South China Sea, both China and Vietnam are unclear about how much they stand to gain from the water space, but the potential costs are calculable, analysts say.

Just how much oil is beneath the South China Sea's is unknown.

Some Chinese sources estimate it's over 200 billion barrels, roughly 80 percent of Saudia Arabia's oil reserves, but others say that's an extreme exaggeration.

The benefits maybe unclear, but Beijing can calculate how much its mounting face-off with Vietnam over the sea space would cost the Chinese economy.

At face value, the price tag is US $12.7 billion-- the amount of Vietnam's trade deficit with China in 2010, according to Vietnam's General Statistics Office.

That's seven percent of China's trade surplus from last year, a small but significant chunk of the country's earnings.

Still, analysts say all-out war would mean a much more complicated calculation of losses.

Responding to the six-hour-long live-fire drills Vietnam conducted in the South China Sea-- one hour for each of the countries and territories laying claim on the waters, China's Foreign Ministry spokesperson Hong Lei announced that China won't use force to respond to what it sees as offensives in an area where the People's Republic claims to have indisputable sovereignty.

I think that economics definitely had something to do with the announcement, said Nariman Behravesh, chief economist at the IHS Global Insight, a leader in economic analysis, on call from London.

It has growing trade links with all Asian economies, especially the countries interested in Spratly, Behravesh said, referring to the disputed islands off China and Vietnam's shared coastline.

Analysts believe that despite the ongoing deluge of strongly worded condemnations, accusing Vietnam of threatening Chinese autonomy in the region, China is likely to stand by its promise of detente.

There is a way to measure how likely things are to lead to military confrontation, said Dr. Donald K. Emmerson, Director of the Southeast Asia Forum at Stanford University.

Emmerson attended the 2011 Shangri-La dialogue in Singapore, after Chinese ships cut cords on PetroVietnam's survey ships late last month. Then, China's tone was conciliatory, until another subsequent attack on June 9, when another Chinese vessel cut cords on another PetroVietnam ship, in what Vietnamese Foreign Minister Nguyen Phuong Nga said was a premeditated offensive.

China relies increasingly on the import of fuels from the Middle East. Those fuels come from the Malaca Straight, into the South China Sea. If China were to wage a war in the primary transit area for fuels, that would be an unwise decision, Emmerson said,

That's one reason not to go to war over the South China Sea.

Another reason for the Southeast Asian nations and territories laying claim to the sea-- there are six in total, including Vietnam, the Phillipines and Taiwan-- not to engage China militaristically would be to preserve geopolitical stability in the region.

The border states realize that a full-scale war with tankers being blown up at sea would be so dangerous to the countries concerned, he said, explaining that the international economy would be greatly shaken by the disruption of the key shipping route.

Half of the world's merchant fleet by tonnage sails through South China Sea every year, Emmerson said.

That's a huge artery of global trade. Although it's true that the South China sea is [the] main passage way, there are more costly alternatives, moving eastward through Philippines and Indonesia.

As far as solutions, both Emmerson and Global Insight's Behravesh see cooperatios in China's future with its ASEAN business partners to the South.

And there's precedent.

Emmerson explained that in July 2005, a joint marine seismic undertaking was founded by China, the Philippines and Vietnam -- the signatories included companies like PetroVietnam -- not the foreign ministers or prime ministers. It was in the name of joint work between the companies -- to begin finding out how much oil was beneath the seabed.

They at first wanted joint exploration and then joint exploitation.Then the project lapsed in 2008, he added.

Where China clearly stands to benefit from an increased oil supply in its endless drive to fuel its growing economy, Vietnam also stands to benefit.

I certainly think Vietnam has the capability through joint ventures to exploit the reserves, said Behravesh, explaining that a win-win partnership on the oil could help cool geopolitical heat in the region and allow for the joint exploitation of the region's resources.