When the Permanent Court of Arbitration [PCA] gave its ruling on the SCS issue on a reference made by the Philippines, it was expected that China's reaction would be vitriolic given its adverse nature. True to expectations, the Chinese authorities moved every sinew to negate the consequences of the ruling by prevailing upon institutions, such as ASEAN, not to make any reference to the PCA ruling in their joint statement. The absence of any reference to the PCA ruling in the joint ASEAN statement, was thus seen as a distinct diplomatic success for the Chinese government.
*One of the reasons usually ascribed for this Chinese success was that of China's preponderant economic influence in the ten ASEAN states, considering that apart from tiny Brunei, China is the largest trading partner of all the other ASEAN states. It was also ascribed to large Chinese investments in infrastructure projects in the region.
* It was therefore surmised that the ASEAN states had opted not to hurt their economic prospects by un-necessarily annoying China. However the truth lies somewhere else.
* Let us examine the issue a little bit more closely. Let us look at the case of the six largest economies of ASEAN; those of Indonesia, Thailand, Malaysia, Singapore, Philippines and Vietnam. These six states are collectively known as the SEA-6.
*In the trade statistics of the SEA-6 with China, one point that clearly emerges is that the bulk of the trade is as a result of the presence in each of the SEA-6, of a large number of global production chains; whose products are both imported from and exported to China. It is this that provides ballast to the trade statistics.
* The majority of the global production chains are not controlled by China, but by Japanese, South Korean, EU and US companies. For example, Samsung, the giant Korean conglomerate, is the largest FDI investor into Vietnam.
*US investment into Singapore alone is three times larger than China's total investment into the region. By 2012 Japan's FDI investment was five times larger than Chinas, whilst EU FDI investment was nine times larger!
* As far as Chinese influence is concerned, the key therefore are the states of Laos, Cambodia and Myanmar. All the three states have common borders with China and it is here where Chinese influence, both economic and political, is at the greatest.
*No surprises therefore that it was Cambodia that resolutely blocked any reference to the PCA ruling on the SCS dispute in joint ASEAN statement. The only reason why Cambodia eventually prevailed was because none of the ASEAN states wanted to break the ASEAN tradition of consensus.
*Chinese diplomatic success may thus prove pyrrhic, given that none of the SEA-6 are in its favor on this issue. In addition, the US was probably not too keen to un-necessarily 'antagonize' China, given that President Obama is due to pay a visit to China shortly.