China May be Finished with Island-Building Campaign

On Tuesday, Philippines defense minister Delfin Lorenzana announced that Manila has reached an understanding with Beijing about Chinese expansion in the South China Sea, and that China has promised not to seize any additional land features in the region. "The Chinese will not occupy new features in the South China Sea nor they are going to build structures in Scarborough Shoal," he told a congressional hearing.

China has built a string of seven artificial islands in the Spratly chain, all of them on land features claimed by the Philippines and other nations. The government of former Philippine president Benigno Aquino opposed Chinese expansion in the region, but under the current leadership of President Rodrigo Duterte, Manila has downplayed the dispute in favor of strengthening economic ties.

Also on Tuesday, foreign secretary Alan Peter Cayetano said that the Philippines is pursuing an oil and gas exploration agreement with China in disputed parts of the South China Sea, with revenues to be split 60/40 in favor of the Philippines. Last week, Cayetano admitted that there could be sovereignty issues for a partnership with China in contested waters, noting that the joint venture would have to be within a framework that would be consistent with the Philippine constitution. 

The project would involve the exploration of Reed Bank, a seamount at the northeastern end of the Spratly Islands with strong oil and gas potential. It is within the Philippine EEZ, and the Permanent Court of Arbitration in the Hague rejected Chinese claims to its ownership in a landmark ruling last year. Drilling nearly began in 2012 after Philippines-based Philex Petroleum secured an E&P lease from the Philippine Department of Energy, but China objected and the project came to a halt. Philex and Chinese oil firm CNOOC held sporadic talks regarding joint development, but the sovereignty issue – that is, the appearance that China would be recognizing Philippine claims by joining an agreement, or vice versa – was a persistent obstacle. 

For its part, Beijing recently warned its neighbors to avoid unilateral development of energy resources within China's sweeping "nine-dash line" claim in the South China Sea. "In waters where there are overlapping maritime rights and interests, if one party goes for unilateral development, and the other party takes the same action, that might complicate the situation at sea," Chinese foreign minister Wang Yi said in Manila last month. "That might lead to tension, and as the end result, nobody would be able to develop resources."

Last month, following similar Chinese pressure, Vietnam ordered Spanish oil firm Repsol to halt drilling at a leased E&P block near Vanguard Bank in the South China Sea. The area is within Vietnam's EEZ claim, but its ownership its disputed by China.