China Crisis Rocks Philippines Second Thomas Shoal Strategy
Plus world's biggest drills launch; global investment woes; big Taiwan deal; new submarine cable launch; coming green pact; living cost curve spread & much more
Greetings to new readers and welcome all to the latest edition of the weekly ASEAN Wonk BulletBrief! If you haven’t already, you can upgrade to a paid subscription for $5 a month/$50 a year below to receive full posts by inserting your email address and then selecting an annual or monthly option. You can visit this page for more on pricing for institutions, groups as well as discounts. For current paid subscribers, please make sure you’re hitting the “view entire message” prompt if it comes up at the end of a post to see the full version.
For this iteration of ASEAN Wonk BulletBrief, we are looking at:
Assessing the geopolitical and geoeconomic significance of Philippine South China Sea strategy and wider regional implications after the June 17 Second Thomas Shoal incident with China (Note to Readers: This section includes select ASEAN Wonk shareable on-the-ground impressions following a recent trip to Manila for a couple of separate projects);
Mapping of regional developments, such as biggest drills kickoff; massive cyber attack fallout; and Iran meet scrutiny;
Charting evolving geopolitical, geoeconomic and security trends such as global investment woes; big Taiwan deal and newcomer app concerns;
Tracking and analysis of industry developments and quantitative indicators including new submarine cable agreement; coming cross-country green pact and key ban lifting;
And much more! ICYMI, check out our assessment of the future prospects of Indonesia’s giant capital move in a review of a first-of-its-kind book.
This Week’s WonkCount: 2,189 words (~10 minutes)
Biggest Drills Kickoff; Massive Cyber Attack Fallout; Iran Meet Scrutiny & More
Global Investment Woes; Elusive Weapons Trade & Middle Power Growth Realities
“Southeast Asia held steady,” observes the latest iteration of the World Investment Report on foreign direct investment flows. The report finds that FDI flows declined in all regions in Asia except Southeast Asia relative to the previous year. Globally, FDI fell by 2 percent to $1.3 trillion, which was largely attributed to an economic slowdown and rising geopolitcal tensions (the headline figure exceeds a decline of 10 percent when excluding a few European conduit economies that registered large swings in investment flows). Tight financing conditions also led to a 26 percent fall in international project finance deals, and FDI flows to developing countries also dropped 7 percent to $867 billion (link).
Foreign Direct Investment Flows By Region in Billions of Dollars, Percent, 2022-2023
“Thai banks double the amount of military procurement facilitated to Myanmar from over $60 million to $120 million…Singapore banks facilitate 70 percent less military procurement,” notes a new report released by the UN’s special rapporteur on Myanmar observing recent the relative shift in the Myanmar military’s arms financing from Singapore to Thailand. All told, the Myanmar military’s annual procurement of weapons and military supplies through the formal banking system declined by a third from the year ending March 2023 to the year that followed from $377 million to $253 million (link).
Shifting Supply Chains and Banking Transactions Related To Myanmar Junta Military Procurement
“To graduate from the ranks of middle-income countries in the next 20 years…Indonesia must boost its growth rate to at least 6 percent annually, surpassing the 5 percent annual average observed over the past five years,” concludes a new report from the World Bank. The report outlines a series of measures required to boost growth potential, including marked improvement in productivity of the private sector (link).
Recent GDP Growth Rates in Indonesia
China Crisis Rocks Philippines Second Thomas Shoal Strategy
What’s Behind It
President Ferdinand Marcos Jr.’s suggestion that the Philippines needs to “do more” in countering China’s South China Sea moves spotlighted questions around Manila’s approach following a June 17 incident in Second Thomas Shoal injuring Philippine sailors1. In conversations ASEAN Wonk had with Philippine officials on a trip to Manila in May, there were understandably differing views on how to best advance Manila’s position relative to Beijing on issues ranging from the role of deterrence to policy coordination (see below graphic also on select publicized comments by Manila on its response)2. Beyond Manila, there are also wider regional concerns around actual U.S. commitment in the South China Sea that extend beyond legal parsing of the U.S.-Philippine Mutual Defense Treaty and understandings since3. Some of this dates back to when China occupied Scarborough Shoal after a breakdown in U.S.-brokered talks in 2012 and initiated an artificial island-building and militarization campaign undeterred from 2013.
Select Philippines Response Datapoints Following June 17 Incident with China Related to Second Thomas Shoal
Beyond what is being said in the public domain, the June 17 incident and the Philippine response highlights deeper questions around Manila’s strategy. As one official summed up to ASEAN Wonk privately last month in Manila, there is effectively a “status quo contest” of sorts at play between China and the Philippines4. The Philippines under Marcos views itself as trying to restore its traditional South China Sea approach that eroded under the aberration that was President Rodrigo Duterte through steps like cultivating partnerships and championing transparency. China charges Manila is deviating from a Duterte-era position and informal understandings it sees as the new status quo, and is utilizing Manila’s vulnerabilities in the political, informational and military domains to get its way. Second Thomas Shoal is critical in this context. Manila eventually needs to reinforce its position that rests on the rusting BRP Sierra Madre ship Manila ran aground back in 1999 lest China be able to seize it, as it did with Mischief Reef in 1994 and Scarborough Shoal in 20125.
Why It Matters
Philippine South China Sea strategy is a critical variable not just in an immediate crisis, but in the trajectory of the flashpoint regionally as well. The immediate focus will naturally be around Second Thomas Shoal. In war games ASEAN Wonk has participated in, few China-Philippine clashes end without some U.S. intervention and subsequent escalation. Additionally, the concern moving forward is China will turn boarding and injuring Philippine crew into a new normal after the June 17 incident, which increases the chances of conflict6. That escalation has implications for dynamics in Southeast Asia and ASEAN as well as with other South China Sea claimants — some of whom have contested claims with Manila and adopt varying approaches for different reasons including the absence of a U.S. alliance. China-Philippine confrontations in the South China Sea only place greater scrutiny on the actions of other claimants, complicate their ties with Beijing and Manila and weigh on diplomacy within ASEAN. It is worth noting that the Philippines will itself chair ASEAN in 2026 after Malaysia, which factors into the complex dynamics at play between states within the grouping7.
Key aspects of Philippine South China Sea strategy will also remain important to watch amid evolving regional dynamics (see ASEAN Wonk table below for key touchpoints in areas on the country’s approach. Paid subscribers can also read on for more on what to expect and future implications in the “Prospects” section).
Future Domains, Priority Areas and Aspects to Watch in Philippines South China Sea Strategy
