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Expert Insight: Gilmore's Supply Chain Jab
By Dan Gilmore
Date: Feb. 10, 2014

Supply Chain Comment: More Trouble Brewing in South China Sea

 

Right after my Warning about Potential Troubles, US Ups the Rhetoric against Chinese Territorial Claims

Unfortunately, I may be more prescient than I realize.

Just this past Thursday, I offered a few supply chain predictions for 2014. On that list was this one: "Conflict between China and various Asian countries over territorial disputes in the Pacific ocean will expand, perhaps to the point of brinkmanship, and force Western companies and countries to rethink current dependence on China sourcing and hopes for revenue growth there."

 

Well, just a few days later, the Financial Times reports that "The Obama administration has significantly sharpened its rhetoric about China's territorial claims in the South China Sea over the last week amid growing pressure from allies in the region for Washington to take a firmer line."

 

Amid China's broad and frankly in some cases ridiculous claims on what are sometimes little more than rocks sticking up out of the sea, well outside its territorial waters, the US, along with several other governments in the region, believes that China is pushing these claims as part of a broader strategy to exert greater control over large areas of the western Pacific.

 

"We have been very clear with the Chinese that we would see that [the establishment of a new air zone] as a provocative and destabilising development that would result in changes in our presence and military posture in the region,” Evan Medeiros, the Asia director at the White House national security council, Medeiros told Kyodo, the Japanese news agency, last week.

 

"This is as close as the Obama administration has come to saying that the nine-dash line is illegal. It is quite significant because they previously danced around the issue.” The nine-dash line is a map produced by China which appears to claim that the bulk of the South China Sea is under Chinese control.

 

Where will this go? Who knows. But as others have written, China's position is increasingly aggressive, pehaps sensing US weakness or distraction in the Middle East. It seems willing to risk at least some of its massive export business over these claims.

 

The US of course has a variety of defense committment vis-a-vis Taiwan and Japan - not sure about South Korea or the Phillipines - and if any of these conflicts turn "hot" - even just barely - things could quickly esclalate and change the geo-political landscape in a very major way, with massive impacts on government, business and supply chains.

 

So, the most immediate it seems tension point is if the US challenges China's claimed air right zone by flying into it, without notification.

 

If that happens, there are basically three choices:

 

(1) China does nothing

 

(2) China's airforce flies near to the US flight, sending a message of sorts

 

(3) China shoots at the US plane

 

1 and 3 seem unlikely, in the short term. What happens if it's no. 2? Not sure - but it won't be good.


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profile About the Author
Dan Gilmore is the editor of Supply Chain Digest.
 

Gilmore Says:


China seems willing to risk at least some of its massive export business over these territorial claims.


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