Tuesday, February 24, 2009

South East Asia

As China seeks to expand its sphere of influence in the coming years, it will look first to its backyard, and come into conflict with American interests.

Some strategic considerations in South East Asia:

1) Around 80% of China's imported oil comes through the Strait of Malacca, a choke point between Sumatra and Malaysia. 15 billion barrels of oil go through the strait each day, second only to the Strait of Hormuz. Hu Jintao has called it China's "Malacca Dilemma". China is attempting to circumvent this by building relations and ports in the countries of Burma and Bangladesh. Burma, with its military government and isolation from the West, seems a likely candidate for China to build a pipeline through.

2) The Spratly and Paracel islands. Both areas contain large oil and gas reserves, and Exxon recently landed a contract from Vietnam for exploration off the islands. They are primarily in dispute between China and Vietnam. Total proven reserves are 7 billion barrels, with another 20 billion barrels unproven.

3) Hainan Island. Home to China's nuclear submarine fleet, which can be well concealed due to the islands caves. It is just north of the Paracel islands , and close to deep water.

4) Taiwan, well known. The island's two main political parties have drastically different views on Taiwan's future. The KMT favors a form of reconciliation with mainland China, and increased economic ties. The DPP, now out of power, favors full Taiwanese independence, and is increasingly militant about calling for that in its platform.

5) China might initiate a yuan based trade-settlement program with ASEAN members countries, all of whom are small economies that China has extensive economic relations with. My take, is that the program is a trial towards establishing a regional trading bloc, with the yuan supplanting the dollar as the dominant currency in that bloc. However, American and Western influence is especially strong in the Philippines and Thailand, and unlikely to be overturned. And Vietnam has a noted historical desire to be independent, and fought wars with both China and the U.S.

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