Costly Signaling in the South China Sea

This will be my final post in the “China Does Not Want Your Rules Based Order” series. You can read the original post that started the conversation here and the first follow up discussion here. In this post I will focus on a comment left back on the original essay by Andrew Chubb. Chubb is just about the sharpest analyst working South China Sea issues on either side of the Pacific. I first discovered him at his tragically under-updated blog, South China Sea Conversations, but you can find his writings in all sorts of places. Here is what he wrote in the original post’s comment thread:

I agree that China has good reasons to want to demonstrate US unreliability, but how important is this really as the cause of the PRC behaviours you cite versus, say, geostrategic gains (i.e. control of maritime space), resource insecurity and its increased material capabilities? At Scarborough Shoal, as we know, the PRC didn’t initiate the standoff, it was precipitated by a confluence of developments, including the Philippines’ use of its new navy ship, and the fact that CMS ships happened to be nearby on a patrol nearby at the time – this being a function of the PHL navy having a new ship courtesy of the US Coastguard, and the PRC’s shipbuilding projects initiated in 1999. As far as I’m aware, it’s also not clear what level of the PRC state the authorization for “rescuing” the fishers was made – the CMS ships on patrol apparently received the distress call and asked for authorization before acting, but they evidently got it pretty quickly, so it seems plausible that it may have been authorized at the level of CMS or SOA headquarters and the Navy. So as a demonstration of US unreliability it’s at most opportunistic and, as the PRC’s subsequent behaviour in the area has suggested, motivated strongly by the desire to actually control the surrounding maritime space. I’m also not sure how the PRC could have been sure that the US would not have intervened more strongly – if they weren’t sure, then that aspect of China’s motivation may be better categorized as a probe, designed to test the US reaction (a line of thinking that i believe is important in explaining the 2090 Impeccable incident). 

As for the HYSY-981 and island-building, they were both massive logistical operations with enormous financial costs and complex inter-bureaucratic coordination, so the resources and actual maritime control motivations again seem more persuasive (and in the case of the island building, a perceived need to “dig in” in the Spratlys, and perhaps make use of some excess construction capacity). If the aim was demonstrating US unreliability, there surely must be much cheaper ways of doing that?

Also, China’s reasons for to demonstrating US unreliability only hold up to a point, right? For example, the point at which Japan decides it needs its own nuclear deterrent. If the PRC were to actually ruin the US’s credibility, the region would likely become very unstable, and that would clearly threaten the PRC economy – and we know for sure and certain that rising living standards is an agreed-upon strategy in Beijing (a core interest, no less). I reckon the hardheads in Beijing are well aware of the benefits that current arrangements have brought, as expressed in terms like the “period of strategic opportunity” for economic growth, and a “relatively peaceful external environment” with “opportunities greater than challenges” etc language. What’s your take on that? [1]

One of the worst mental habits of the American analyst is an ingrained assumption that everything that happens in the world is a direct response to something the United States has (or has not) done. This sort of analysis is lazy at its best and blind at its worst. I usually condemn it when I see it. Chubb is right to call me out—though he has the grace to do it subtly—when I fall into this trap myself. There is more to what is happening in the West Pacific than American and Chinese rivalry. Claiming anything to the contrary was not my intent.

I mentioned, either in detail or in passing, five specific instances where Chinese actions have subverted the system America created and is now trying to uphold in the region: the 2012  Scarborough Shoal standoff, the 2012 Senkaku/Diaoyu incidents, 2012’s hung ASEAN summit in Phnom Penh,  the 2014 HYSY-981 oil rig incident, and dredging and construction in the Spratly Islands over the last four years. Each of these events had different proximate causes. Most of these are unrelated to American actions in the region. Chubb’s description of  the events surrounding the seizure of Scarborough Shoal, for example, match my own understanding of the incident. The Chinese decision to begin the Scarborough Shoal standoff was made in response to Filipino operations around the shoal. America did not enter the story until much later. Crises have a momentum of their own, and it is far more likely that the momentum of the moment, not a carefully calculated grand strategy emanating from the halls of Zhongnanhai, dictated the course of that summer’s crisis.

This critique does not apply as well to the other incidents under discussion. As Chubb notes himself, both the HYSY-981 rig and the dredging in the Spratlys were made possible by massive investments in infrastructure and technology development. These were the products of years of planning. Their development could not possibly be a tit-for-tat responses to decisions made by other countries years after their procurement cycle began. Does it make sense to understand them in terms of signaling at all?

Before we address that question it is wise to consider the alternatives. The first alternative is geostrategic: building up a presence on South China Sea reefs and islands will help China control the sea in the event of future conflict. I have trouble taking this argument seriously. These island and reefs are indefensible bits of rock and sand. They cannot be hardened. Their assets cannot be hidden. In the first round of conflict with any power armed with precision guided munitions, they will be destroyed. Lyle Goldstein said it well in a short piece for the National Interest last year:

In the age of precision strike, any and almost all fixed targets can be destroyed with ease, even by lesser militaries.  Much has been made of Beijing’s new opportunity to fly surveillance aircraft, anti-submarine warfare aircraft and even fighter aircraft from the airstrips now being built. Supposedly, China could base small frigates, fast attack craft and even submarines at these new facilities, but that approach still seems far-fetched. Never mind that it would be nearly impossible to store a strategically significant amount of fuel and munitions on these reefs, but such forces would have little and more likely even negative war-fighting value since they would be so exposed to hostile fire. In other words, a squadron of Su-27s flying out of Fiery Cross Reef “base” would most likely be smoking wrecks within hours of the start of any South China Sea conflict. To this author’s reckoning, a facility can be termed a “base” when it has some prospect of playing a useful operational role during armed conflict. By that definition, these facilities are not bases, but rather outposts of a merely symbolic nature. [2]

The second alternative is resource insecurity, especially energy insecurity. There is some evidence connecting the HYSY-981 incident to China’s energy needs, and obviously no country (or company) will take the effort to build a deep oil rig they never plan on using in the first place.[3] However, placing the rig in disputed waters is not a wise path to energy security. Ultra-deep offshore oil rigs have a notoriously low Energy Return on Investment (EROI), and the fuel needs of sixty ship flotilla assigned to guard the rig night and day will only lower this number. [4] Offshore oil rigs also have an extremely long payback time even when oil prices are high. Recovering the capital invested in the rig’s construction and operation costs requires decades—much longer than the three months China National Offshore Oil Corporation originally announced HYSY-981 would explore the disputed areas close to the Paracel Islands.

Image taken from Sue Goodridge, “Offshore Drilling Unveiled: Your Quintessential Investment Primer,”   Market Realist (1 February 2016).

The rig’s two month stint in Vietnam’s declared EEZ raises an issue easily obscured by looking solely at the rig’s entire procurement cycle. When CNOOC announced in 2008 that it planned to invest $29 billion (USD) over twenty years to develop the South China Sea, it was acting on a decade long time scale far removed from the twists and turns of day-to-day diplomacy. Their announcement did not specify when individual CNOOC assets would be deployed, much less when they would be deployed in disputed waters. CNOOC and its Party backers realized that those decisions must take into account changing international conditions and could not be made years in advance. As such, the timing of the rig’s deployment should be understood in the context of those conditions. Just as the United State’s decision to invest in THAAD anti-ballistic missile system should be distinguished from its more recent decision to deploy this system in South Korea, so should China’s decision to invest in deep-water drilling technology be distinguished from all later decisions to deploy this technology in disputed waters. That such an attempt would be made was more or less inevitable; the timing and location of this attempt, in contrast, was not ordained in the heavens, and could be decided on a much shorter notice. As it turned out, the Chinese timed the deployment of HYSY-981 very cleverly, successfully demonstrating the impotence of both the United States and ASEAN in one go. 

Finally, the mere fact that China is willing to invest the time and capital needed to build artificial atolls, undersea labs, and advanced oil rigs is itself an important form signalling. International relation theorists often write about the importance of “costly signaling” in foreign policy. International diplomacy is game of lies. Every actor on the international stage wishes to look more committed and fearsome than it truly is; after all, the more committed one is to a goal, the harder it will be to deter you from pursuing it. The harder it is to deter you, the less likely other nations will even make the attempt. But how do you inform other countries you are actually committed to the course you have declared, when they know you have every incentive to bluff? One answer is to send costly signals—that is, adopt policies which cost you money, time, or prestige to implement, and so display that your commitment to the goal at hand is more than just hot air. The classic example usually cited is military mobilization, which carries material costs no amount of bluster can compare with. [5]

The international relations theorists of the future may well use island dredging, not army mobilization, as the go-to example of costly signaling in great power politics. The one thing that threads together reclaiming islands, constructing billion dollar rigs, and building military bases on barren atolls is their cost. The high cost of these projects is an effective way for Beijing to show just how committed it is to the South China Sea. It knows that most of the rival claimants do not have a spare $30 billion to throw at resource development in the region. It also knows that every reef dredged and runway built by Chinese hands makes it that much harder for Chinese feet to walk away from their claims. These long term investments also reinforce the broader narrative Chinese diplomats use when bargaining with other powers across the region. Singapore’s foreign ambassador at large understands this point:

While the artificial islands are inconsequential in military terms, they are a potent reminder to ASEAN that China is a geographic fact whereas the US presence in the South China Sea is the consequence of a geopolitical calculation. This is an idea that China never tires of seeding in ways subtle or direct. [6]

The islands also meet what I have argued is the most important goal of China’s rule bucking in the East and South China Seas. The CPC legitimizes its rule through an inherently revanchist nationalist narrative. The most important audience for Chinese actions in these seas is not the Americans, or even the Southeast Asians and the Japanese, but the Chinese public. This narrative requires the Chinese to come off as the winners somewhere. The South China Sea is the least dangerous pace for them to make the attempt. They continually test and probe, seeking small chinks in the armor where they can expose U.S. hypocrisy and display Chinese power to their lesser neighbors, because this really is the only place they can hope to stand up to America and win at it. 

[1] Andrew Chubb, comment (5 June 2016) on T. Greer, “China Does Not Want Your Rules Based Order,” The Scholar’s Stage (4 June 2016).

[2]  Lyle Goldstein “The South China Sea Showdown: 5 Dangerous Myths,” National Interest (29 Septemeber 2015)

[3] See discussion in James Manicom, “The Energy Context behind China’s Drilling Rig in the South China Sea,” China Brief 14, iss. 11 (June 2014); Erica Downs, “Business and Politics in the South China Sea: Explaining HYSY 981’s Foray into Disputed Waters,” China Brief 14, iss. 12 (June 2014).

[4] Adam R. Brandt, et. al., “Energy Return on Investment (EROI) for Forty Global Oilfields Using a Detailed Engineering-Based Model of Oil Production,” PLOS One (December 2015); David J. Murphy, “The implications of the declining energy return on investment of oil production,” Philosophical Transactions of the Royal Society 372, iss 2006 (January 2014);

[5] James D. Fearon, “Signaling Foreign Policy Interests: Tying Hands versus Sinking Costs,” Journal of Conflict Resolution 41, no. 1 (1997): 68-9.

[6] Bilihari Kausikan, “ASEAN and U.S.-China Competition in Southeast Asia,” (Lecture, delivered as part of the IPS 2015/16 Nathan Lectures series, Singapore, 30 March 2016). Online transcript here, see p. 18.