Withdrawal of BRP 9701 shall be a beginning of changing course by the Philippines

 

On August 26, 2024, an officer from China Coast Guard monitors Philippine Coast Guard ship 4411 which ilegally intruded into waters near China's Xianbin Jiao. Photo: China Coast Guard

It is reported that the Philippine Coast Guard ship 9701 has left Xianbin Jiao (also known as Xianbin Reef) of China's Nansha Islands, which has been illegally stationed for near five months, three days after the China-Philippine BCM meeting on the South China Sea Issue on September 11, but the Philippines did not inform the Chinese side in advance. The ship's departure shows the failure of this round of infringing provocations by the Philippines and is also a step forward in achieving peace and stability in the South China Sea.

But the Philippines and its backers will not admit defeat. How to persuade those are bent on changing the status quo in the South China Sea with infringement, and even expect to "invoke" the US-Philippines Mutual Defense Treaty to force China to give up its sovereignty and development interests, and to persuade them to recognize that China will not retreat on her sovereignty and territorial issues, is indeed a matter that requires effort and long-term patience.

First of all, it would be absurd for the Philippines to package the evacuation of BRP 9701 as a "triumphant return" after completing the "mission." To the outside world, it was obvious that the airdrop of supplies on August 28 was only a drop in the bucket, and the ship's withdrawal was more likely a helpless move after running out of supplies. Of course, the Philippines and its supporters have always been good at packaging "victory" as proof that US commitments really "work." But this is of little practical value, other than to delight a few Filipino elites and their backers.

Second, the Philippines may stick to the "misery selling" strategy, that is, hyping up China's "inhumane" obstruction of Philippine ships to resupply. However, it was in fact the BRP 9701 that invaded and forcibly stayed in the lagoon of Xianbin Jiao, and it could completely leave the lagoon on its own. The so-called need for "humanitarian supplies" is a false claim created by the Philippines. Facts have proved that the Chinese ships exercising control in the nearby waters did not stop the Philippine ship sailing away from the reef. As soon as the BRP 9701 left Xianbin Jiao, the "humanitarian crisis" was gone with it.

Finally, the Philippine side may also smear its retreat as "freedom to come and go" within its "jurisdiction." This is certainly the freedom of speech of the Philippines. Nevertheless, the struggles in recent months have demonstrated that if the Philippine side deliberately provokes and tries to force China to accept its change of the status quo in the South China Sea, it will face strong countermeasures from China. But when they choose to withdraw, China will adhere to the principle of "good to go" and not interfere. Therefore, the Philippines enjoys the freedom to respect China's sovereignty and national interests, but it does not have the freedom to make willful provocations without being stopped or countered.

It is for sure that this round of withdrawal does not mean that the Philippines will give up. Next, the Philippine Government may accuse China of still "staying" in the waters of Xianbin Jiao. But this accusation ignores the premise that China is conducting law-enforcement patrols in waters under its own jurisdiction, and without question it can stay as long as it deems necessary. Second, the withdrawal of the Philippine Coast Guard ship 9701 was done without informing China or indicating its intention to follow up. According to the latest statement of the Philippine National Maritime Commission, the BRP 9701 will still "resume its mission" after the withdrawal and completion of replenishment. Whether it intends to storm Xianbin Jiao again after repairs and supplies or send a new ship to invade, it is still worthy of caution. But for the Philippines, the lesson should be clear: Any new provocation will only invite stronger countermeasures from China, regardless of whether its next "mission" is accompanied by any warship from a third party. If the Philippines moves this kind of illegal ground sitting or illegal stay to other islands and reefs in the South China Sea, the Chinese side is also ready to shift its position and block it at any time.

It is difficult for the Philippines to succeed in illegal sitting and staying on the Chinese territory in the South China Sea, and it cannot be ruled out that the Philippines is again hyping up a "second arbitration" on the so-called environmental issue. In this regard, the Ministry of Natural Resources of China published the "A Survey Report on the Coral Reef Ecosystem of Xianbin Jiao" on August 30, elaborating on the good ecosystem status of China's Xianbin Jiao so far, and the great efforts made by China to investigate and publicize the original ecological status of Xianbin Jiao. It is precisely the illegal stay of the BRP 9701 for nearly five months that poses a real danger of pollution to the coral ecosystem of Xianbin Jiao.

In conclusion, it is a good thing that the Philippines has withdrawn the ship, and other provocations will not work. The Philippine side should take this withdrawal as a beginning of changing its South China Sea policy and shift focus onto developing pragmatic relations with China.

The author is an assistant research fellow from the Shanghai Institutes for International Studies. opinion@globaltimes.com.cn

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Engagement is vital

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  Engagement is vital

    Chinese Coast Guard vessels fire water cannons towards a Philippine resupply vessel Unaizah May 4 on its way to a resupply mission at Seco...

Philippine conspiracy of illegally occupying Ren’ai Jiao doomed to end in failure

Courting Manila, US and its allies try to 'paint a troublemaker as a victim' 

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• China to step up counteractions if Manila keeps provocation: expert
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The only correct choice for the Philippines is to leave Xianbin Jiao immediately

The Philippines should not underestimate the high costs that will inevitably arise from challenging China and undermining regional security, nor should it assume that it has the backing of major powers. For the P

Philippine vessel's illegal behavior and despicable motive

The Philippines' despicable actions disregard the safety of its own vessel and its personnel, and disrupt peace and stability in the South China Sea.

Bretton Woods should heed the cries for fair play or go, how China can help reshape the global financial system

 Is Bretton Woods fit for the 21st century?

America is financed by the rest of the world because of the hegemomic of the US dollar.

The world's largest economy has moved from a giver of global public goods to a taker of global resources.

Probably the best way to increase global funding is to raise the capital of the global multilateral development banks like the World Bank, Asia Development Bank, etc.

In July 1944, delegates from 44 countries gathered in a UN-sponsored conference in Bretton Woods, New Hampshire to decide on a post-World War II monetary and financial order. 

In the closing speech of the gathering, then US Treasury secretary Henry Morgenthau concluded that the conference had succeeded in addressing the twin “economic evils – the competitive currency devaluation and destructive impediments to trade” that led to the war.

To prevent competitive devaluation, the Bretton Woods conference established the fixed but adjustable exchange rate system, which was based on the US dollar linked to gold and capital controls, securing funding from a newly created World Bank and the International Monetary Fund (IMF). 

The global free trade mechanism was negotiated first through the General Agreement on Tariffs and Trade, which decades later became the World Trade Organization.

The Bretton Woods negotiations were led by the US chief delegate Harry Dexter White and the eminent British economist John Maynard Keynes. Keynes argued unsuccessfully for the creation of an new international currency called the bancor, whereas the United States preferred to use its own currency.

In 1944, the US had the largest share of world GDP and was a major creditor to economies suffering from the destruction of war. It is no surprise that the Bretton Woods order was largely US-led and designed.

This Bretton Woods structure lasted until 1971, when rising US fiscal and trade deficits led US President Richard Nixon to delink the US dollar from gold at the fixed price of US$35 to one ounce of gold. 

After flexible exchange rates became the global norm, the US continued to be financed by the rest of the world because of the hegemonic position of the US dollar. It was protected by the might of the US military and its status as the strongest economy, including being the consumer of last resort.

Eighty years later, the US share of world GDP has been pared down to 26 per cent by current exchange rates but the US dollar remains as mighty as ever.

People walk past an image of US dollar bills outside a currency exchange bureau in downtown Nairobi, Kenya, on February 16. Photo: Reuters

Unfortunately, having the US dollar act as the global reserve currency is both a blessing and curse. The US is able to fund its fiscal and trade deficits easily because the rest of the world prefers to hold the US dollar.

But running protracted deficits means that the US net liability to the rest of the world is now US$21 trillion, or about 20 per cent of world GDP, with a gross sovereign debt of US$35 trillion, or roughly one third of world GDP. Fiscal debt cost is rising as interest expenses will rise from 3.4 per cent of GDP in financial year 2025 to 4.1 per cent by 2034.

The irony is that the world’s largest debtor absorbs more of the world’s natural and financial capital that encourages global consumption to drive growth. Since increased levels of consumption ultimately generates more carbon emissions, the current model is neither ecologically nor financially sustainable.

To address these global imbalances, the United Nations has suggested that a “just transition” requires US$2.4 trillion annually to fund clean energy and climate resilience. Where is this money going to come from?

What is climate finance, and why is it crucial to the global energy transition?

This is both a flow and a stock problem. The annual shortfall, or flow, can either be funded from an increase in taxation or a cut in spending. The stock issue is whether there is enough wealth to be taxed or used to fund the needed climate action.

There is growing momentum behind an initiative proposed by French economist Gabriel Zucman, in which a minimum wealth tax of 2 per cent would raise US$200-US$250 billion per year globally from 3,000 billionaires who currently pay little to no tax. Current evidence suggests ultra-high-net worth individuals have an observed pre-tax rate of return to wealth of 7.5 per cent on average per year during the last four decades, while the current effective tax rate is equivalent to roughly 0.3 per cent of their wealth.

Alternatively, the Austrian Institute for Economic Research thinks that a global financial transactions tax of 0.1 per cent could yield between US$238 billion and US$419 billion per year. Needless to say, the rich who control the electoral process in countries across the world will not allow such tax increases.

There are two big-ticket items in global fiscal spending which could be cut. The largest is subsidies on fossil fuels, which were US$7 trillion or 7.1 per cent of global GDP in 2022. On top of that, global military expenditure was US$2.4 trillion in 2023.

Perhaps the best way to increase global funding is to raise the capital of the global multilateral development banks such as the World Bank and Asian Development Bank. If the countries which control the special drawing rights of the IMF can apply their US$650 billion in 2021 to increase the bank’s capital by eight times the leverage, these multilateral development banks can increase their lending by about US$5 trillion.

However, doing so would require these countries to agree that this is a priority, which could be unlikely given the current global atmosphere leaning towards protectionism and isolationism.

In short, the 21st century requires multilateral cooperation in dealing with mutual existential challenges involving climate warming, social imbalances and serious polarisation. If the Bretton Woods framework does not serve the Global South because the established powers are unwilling to reform it, do not be surprised if a new set of institutions rise to replace it.

Andrew Sheng

Andrew Sheng is a former central banker and financial regulator, currently distinguished fellow at the Asia Global Institute, University of Hong Kong. He writes widely on Asian perspectives on

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French economist Marc Uzan on how China can help ...

Open questions | French economist Marc Uzan on how China can help reshape the global financial system

With the US-led financial consensus at a crossroads, economist Marc Uzan says China has role to play in systemic reform

French economist Marc Uzan is executive director and founder of the Reinventing Bretton Woods Committee, a non-profit organisation established in 1994 to address issues related to the world’s financial architecture. He has been working closely with central banks and finance ministries around the world, as well as international organisations such as the International Monetary Fund and the Group of 20, to bring stakeholders together to attempt to fix the system.

In this latest interview in the Open Questions series, Uzan reflects on the decades of change since the paradigmatic Bretton Woods conference in 1944, and the role China and other emerging economies will play in the global financial system during an era of heightened unilateralism and confrontation. This interview first appeared in SCMP Plus. For other interviews in the Open Questions series, click here.

As suggested by the name of your organisation, the Reinventing Bretton Woods Committee, why did you think that the Bretton Woods system should be restructured back in 1994? Can it be?

This question brought a multitude of thoughts about the objectives of the 44 nations whose representatives gathered at Bretton Woods, New Hampshire, in the summer of 1944 to establish a new economic order.

The world has changed considerably since then. Instead of a system of fixed exchange rates among major currencies, we now have a mixed system with major floating currency areas but fixed rates among smaller countries. At that time, we had capital controls, and now we are a global financial market. And from a small group of 44 countries that became the founding members of the International Monetary Fund (IMF) and Worl 

U.S. debt just hit $35 trillion. Is it putting the global economy at 

risk ...

This nation’s gross cumulative debt has hit $35 trillion — a number so large, the International Monetary Fund warns that it’s putting the entire global economy at risk. 

https://www.marketplace.org/2024/08/13/u-s-debt-just-hit-35-trillion-is-it-putting-the-global-economy-at-risk/

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