Equant Analytics

Three charts to show why the South and East China Seas matter

Equant Analytics
July 2017

Japan does not officially have an army, it has a Self Defence Force. So, when it starts sending warships into the South China Seas in an attempt to keep China’s territorial claims in check, it is clear there is a problem. Its Izumo helicopter carrier’s presence is to provide the assurance to the region that it is willing to move into a more proactive military role in the interests of regional security at a time when US interest is at best only focused on North Korea, and at worst, waning. While the US nominally retains its commitment to the “Freedom of Navigation Operations” (Fonops) to provide a base for regional security, its military operations are taking a lower key and not being publicised as they were under the Obama regime. As the US appears to look away, China continues to build and protect what it deems its sovereign and economic rights. China can play a long game without using its military muscle, but the very fact that it is demonstrating its regional influence reinforces the perception that tensions in the region are dangerous.

The region matters to world trade flows and to its energy security. The importance of the South and East China Seas cannot be understated. It is not just a source of geopolitical tension, it is also a major trading route. The countries in the region’s US$ 10.7tn trade accounted for just over 54% of world trade in 2016. More than this, the countries in the South and East China seas account for just over 40% of world oil trade (Figure 1). Any risk of disruption or threat of instability should make markets and commentators alike feel nervous as a result, not just because of the spill-over effects into the global trade system but also because of the region’s strategic importance.

Figure 1:  Share of world oil trade for countries in the South and East China Seas area 2016
Source:  Equant Analytics 2017

Read the rest of the July Trade Outlook here

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