“China-Philippines Most Recent ‘Arrangement’ Has Nothing to Address the Root Cause of Tensions in the South China Sea”

The Philippine government has announced that China and the Philippines have reached an agreement to ease tensions over the disputed Second Thomas Shoal in the South China Sea. This agreement, negotiated by Chinese and Filipino diplomats in Manila, outlines temporary conditions for resupplying Filipino troops stationed on the shoal. Both nations claim sovereignty over the shoal, which has been the scene of frequent confrontations between their forces. The Second Thomas Shoal, also known as Ren’ai Jiao in China and Ayungin Shoal in the Philippines, lies roughly 1,000 kilometers from China’s southern Hainan Island and the western Philippines Island of Palawan. It has been a flashpoint in recent months, culminating in a violent incident on June 17. During this confrontation, Chinese forces rammed and boarded two Philippine navy boats attempting to deliver supplies to Filipino personnel on the shoal. The Chinese forces seized control of the boats, damaged and took several M4 weapons along with other supplies with them. The clash, which resulted in injuries to Filipino navy officers, was captured on video and in photographs. Both China and the Philippines blame each other for the conflict, asserting their respective claims over the strategically significant shoal. The South China Sea is a crucial global trade route with rich fishing grounds and underwater gas reserves.

In addition to China and the Philippines, other nations with territorial claims in the South China Sea include Vietnam, Malaysia, Brunei, and Taiwan. The region is a sensitive area and a potential flashpoint in the US-China rivalry. While the recent agreement between China and the Philippines marks a step towards reducing immediate tensions, it does not address the underlying causes of the broader South China Sea disputes.

Significance & Background of the South China Sea Dispute

The South China Sea is an incredibly productive area, serving as a major fishing ground for China, Vietnam, the Philippines, and other claimant states. The region’s continental shelf harbors significant natural gas and petroleum reserves. The abundance of marine life in the South China Sea is due to the large-scale drainage of nutrient-rich waters from land and the upwelling of water in specific maritime regions. This heavily fished area is a primary source of animal protein for the densely populated Southeast Asian region, with prevalent species including shrimp, shellfish, anchovies, croaker, mackerel, and tuna. Most of the catch, whether fresh or preserved, is consumed locally. The Philippines, in particular, is a major fish-producing nation.

Furthermore, the South China Sea holds tremendous geopolitical significance in the context of global politics. Its strategic location at the intersection of major maritime routes connecting the Indian and Pacific Oceans makes it a focal point for international powers and their interests. The region is critical to the world economy, facilitating the annual flow of goods worth trillions of dollars. Nearly one-third of global trade, including vital energy resources such as oil and natural gas, passes through these waters. Any attempt by China to disrupt this trade would harm the global supply chain and the economies of other countries. Consequently, the South China Sea has become a focal point for the ambitions and rivalries of major powers, including the United States, China, Russia, and Japan.

Ayungin Shoal, also known as Second Thomas Shoal, is a contested reef claimed by the Philippines, China, Brunei, Malaysia, and Vietnam. The Philippine military ship Sierra Madre, intentionally grounded in 1999 to counter China’s territorial claims, is manned by a small contingent of Philippine Marines. For years, these nations have been embroiled in disputes over the territorial status of various islands and reefs like the Ayungin Shoal in the South China Sea. This region, which includes Whitson Reef, the Paracel Islands, Thitu Island, Scarborough Shoal, and the Spratly Islands, is believed to hold significant oil and gas reserves.

In July 2016, the Permanent Court of Arbitration in The Hague ruled against China’s territorial claims in the South China Sea in a case brought by the Philippines. Recently, the Philippine Foreign Ministry announced that the Philippines and China have agreed on guidelines for de-escalating tensions in the South China Sea to facilitate the transfer of personnel and supplies to the BRP Sierra Madre stationed at Ayungin Shoal. The ministry’s statement outlined that both nations have reached an understanding of principles to prevent misunderstandings and miscalculations during the Philippines’ lawful and routine rotation and resupply missions to the shoal.

This agreement was the result of productive discussions during the 9th Bilateral Consultation Mechanism on the South China Sea, held in Manila on July 2, 2024. Despite this progress, China has refused to acknowledge or recognize the court’s ruling, which states that the islands do not form an exclusive economic zone or disputed territory. The Philippine Foreign Ministry affirmed that Manila will continue to uphold its rights and authority over Ayungin Shoal, in accordance with the UN Convention on the Law of the Sea.

Clauses of the Recent Arrangement

According to Manila, China and the Philippines have reached a ‘provisional deal’ for resupply missions in the South China Sea.

The Philippines and China have reached a provisional arrangement for resupply missions to the beached Filipino naval ship, Sierra Madre, on the Second Thomas Shoal, according to a statement from Manila’s Department of Foreign Affairs (DFA). The DFA did not provide specifics about the resupply missions but emphasized that the arrangement followed “frank and constructive discussions” during the Bilateral Consultation Mechanism earlier this month. Both sides acknowledged the need to de-escalate the situation in the South China Sea and manage their differences through dialogue and consultation, agreeing that the arrangement would not prejudice their respective positions in the area.

The Chinese foreign ministry confirmed the temporary arrangement and reiterated its demand for the Philippines to tow away the Sierra Madre and restore the shoal to its original, unoccupied state. A Chinese spokesperson expressed China’s willingness to allow humanitarian resupply missions to the ship’s occupants if necessary before the vessel is removed. However, China firmly opposed any transfer of substantial building materials or attempts to establish fixed facilities and permanent outposts on the shoal, vowing to resist such actions to safeguard its sovereignty.

Despite an offer of assistance from the United States, Philippine security authorities announced that they would conduct the resupply missions independently. White House National Security Adviser Jake Sullivan had stated that the US would do whatever necessary to support its treaty ally in resupplying the Sierra Madre. However, Eduardo Año, his Filipino counterpart, confirmed that the resupply operations would remain “a pure Philippine operation,” indicating no need for direct US involvement at this time.

Analysis of the Arrangement

Concerns of a military conflict at the Second Thomas Shoal, potentially involving the United States, loom large as tensions between China and the Philippines escalate in the South China Sea. Despite these worries, there are strong reasons to believe that both Beijing and Manila will strive to avoid a military clash. Chinese officials must weigh the regional geopolitical implications and the significant distraction from their current focus on domestic socioeconomic issues. Manila faces an immediate constraint due to an unfavourable military power balance compared to China. Many questions remain about how the United States, the Philippines’ ally, will respond if a naval confrontation occurs in the South China Sea. A critical issue is how Manila and its allies will eventually address China’s gray zone operations, which have proven challenging for regional entities and their supporters, influencing the outcome of current tensions between Beijing and Manila.

Beijing appears ready to seize what it perceives as a favorable moment to capture the Second Thomas Shoal. It has employed water cannons to prevent Filipino vessels from transporting construction materials to repair the BRP Sierra Madre. The Philippines has a strong incentive to strengthen the BRP Sierra Madre to maintain control of the feature long-term. During the prolonged dispute, Manila has sent survival supplies to its marines on the ship, which Beijing claims to have allowed for humanitarian reasons. The Philippines may have covertly supplied limited construction materials to the ship, but there are concerns that the vessel will disintegrate if not significantly strengthened.

The goals of the two countries appear incompatible, and conflict is likely to escalate. From another perspective, China may continue to employ gray zone tactics, gradually depleting Manila’s resources and policy options, enabling Beijing to achieve its short-term objectives. Chinese officials recognize these geopolitical constraints but aim to increase China’s presence and influence in the South China Sea. In the ongoing dispute, Beijing heavily relies on gray zone measures, hoping to ensure the eventual failure of the Filipino vessel on the Second Thomas Shoal. When the warship fails, the shoal might swiftly fall under Chinese control. Beijing expects this strategy to help avert the worst-case regional geopolitical repercussions of a direct military conflict. Many Chinese policy elites believe that the gray zone approach is the best way to address this geostrategic challenge. For more than a year, China has effectively blocked the Philippines’ resupply sorties and prevented ship repairs using these tactics.

As a result, the Philippines is forced to choose between responding to China’s blockade and retaining control of the Second Thomas Shoal. A power imbalance and logistical challenges limit the Philippines’ ability to counter China’s strategy. In the worst-case scenario, Manila may take military action or seek military assistance from non-regional states to resist China’s activities. If this occurs, China is likely to retaliate with substantial military force, citing retribution and self defense.

Root Causes of the Tensions

China’s assertiveness in the South China Sea has steadily intensified, escalating tensions with Southeast Asian claimant nations, particularly the Philippines, near the Second Thomas Shoal in the Spratly Islands. China’s sweeping claims to sovereignty over the sea—and its estimated 11 billion barrels of undiscovered oil and 190 trillion cubic feet of natural gas—have angered rival claimants Brunei, Indonesia, Malaysia, the Philippines, Taiwan, and Vietnam. Countries began staking claims to islands and zones in the South China Sea as early as the 1970s, including the resource-rich and strategically vital Spratly Islands. The inability of Chinese and Southeast Asian authorities to resolve these disputes diplomatically risks undermining international maritime law and encouraging destabilizing military buildups.

China insists that international military forces are not permitted to conduct intelligence activities, such as reconnaissance flights, within its claimed exclusive economic zone (EEZ). The United States, however, maintains that under the United Nations Convention on the Law of the Sea (UNCLOS), claimant countries should have freedom of navigation through EEZs and are not required to notify claimants of military activity.

Recent satellite data reveals China’s growing efforts to expand its territorial control in the South China Sea by physically enlarging existing islands or creating new ones. Beyond adding sand to existing reefs, China has built ports, military stations, and airstrips, especially on the Paracel and Spratly Islands, where it maintains multiple outposts. Notably, China has militarized Woody Island, deploying fighter jets, cruise missiles, and a radar system.

To protect its regional political, security, and economic interests, the US has challenged China’s assertive territorial claims and land reclamation projects through freedom of navigation operations and increased support for Southeast Asian partners. In response to China’s aggressive stance, Japan has provided military ships and equipment to the Philippines and Vietnam to bolster their maritime security and deter Chinese aggression.

Philippine President Ferdinand Marcos Jr., who took office in June 2022, has taken a firmer stance against China compared to his predecessor, Rodrigo Duterte. The Philippines’ most contentious disputes with China center around the Second Thomas Shoal of the Spratly Islands, which lies within the Philippines’ 200-mile EEZ.

Ferdinand Marcos has agreed to increase base access, joint exercises, and weapons exchanges with the United States. In March 2024, US Secretary of Defense Lloyd Austin affirmed that the United States’ Mutual Defense Treaty with the Philippines covers both countries’ armed forces, public vessels, and aircraft in the South China Sea. Meanwhile, Japan has also enhanced its influence by supplying military weapons to the Philippines and Vietnam to enhance maritime security.

End Note

Beijing may wish to refrain from using overt force against Manila in order to resolve territorial and maritime conflicts due to its previous policy preference, regional strategic interests, and the effectiveness of gray zone tactics. Beijing does not, however, intend to forgo using military action as a means of settling conflicts. There is a chance of an armed conflict, especially if Manila takes more drastic measures to make China’s “gray area” strategy ineffectual. The best measures to keep tensions and conflict from turning into war would be to defuse the South China Sea crisis and reopen bilateral talks between Beijing and Manila. Together, Beijing and Manila’s policymakers should take into consideration the ambitious but intriguing idea of creating a maritime park at Second Thomas Shoal with the goal of advancing environmental preservation, scientific study, and cooperative fisheries. For the past ten years, experts from China and Southeast Asia have discussed this topic on occasion, but at the official level, it has not yet been addressed. This possibility might have a favorable effect on regional peace and stability if China and the Philippines give it some thought.

The Philippines and China have reached a significant agreement aimed at mitigating tensions in the fiercely contested Second Thomas Shoal, a hotspot in the broader South China Sea dispute. The Philippine Foreign Ministry announced that both nations have established a provisional arrangement to ensure the resupply of essential goods and the rotation of personnel to the BRP Sierra Madre, the beached warship that serves as Manila’s outpost in the disputed area.

Context of the Agreement

Second Thomas Shoal, known as Ayungin Shoal in the Philippines and Ren’ai Jiao in China, has been a flashpoint for increasingly hostile maritime confrontations. The shoal is situated approximately 200 kilometres from the Philippine Island of Palawan and over 1,000 kilometers from China’s Hainan Island. Despite being occupied by the Philippines, China also lays claim to this territory, leading to a series of dangerous encounters at sea.

Tense Maritime Encounters

Recently confrontations at the shoal have escalated, raising concerns about potential broader conflicts that might draw in the United States due to its mutual defense treaty with the Philippines. Chinese Coast Guard and other maritime forces have repeatedly used aggressive tactics, including powerful water cannons and dangerous blocking maneuvers, to prevent supplies from reaching the BRP Sierra Madre.

The June 17 Incident

One of the most severe incidents occurred on June 17, when Chinese forces in motorboats rammed and boarded two Philippine navy boats. This confrontation aimed to stop the transfer of supplies, including food and firearms, to the Filipino personnel stationed on the shoal. The violent clash resulted in the seizure of the Philippine boats and their supplies, injuring several Filipino navy personnel.

Diplomatic Efforts and the Provisional Agreement

Following the June 17 incident, diplomatic efforts between China and the Philippines intensified. Over a series of meetings in Manila and through diplomatic exchanges, both sides worked towards a mutually acceptable arrangement. The Philippine Department of Foreign Affairs emphasized that the agreement does not prejudice either country’s claims in the South China Sea and underlines the need to manage differences through dialogue.

Regional and International Reactions

The United States and its key allies, including Japan and Australia, have condemned China’s aggressive actions at the shoal. These nations have called for the rule of law and freedom of navigation to be upheld in the South China Sea, a vital global trade route rich in fishing areas and undersea gas deposits. The international community views the agreement as a potential model for resolving other disputes in the region.

China’s Position and Global Implications

While China has not publicly commented on the agreement, the deal could signal Beijing’s willingness to forge similar arrangements with other rival claimants in the South China Sea. However, skepticism remains about the long-term viability and successful implementation of the agreement. The provisional deal represents a rare instance of cooperation between the two nations amidst a backdrop of broader regional tensions.

Historical Background

The Second Thomas Shoal has been a longstanding point of contention between China and the Philippines. The BRP Sierra Madre was deliberately grounded on the shoal in 1999 to reinforce the Philippines’ maritime claims. Over the years, the shoal has seen numerous confrontations, making it a symbol of the broader territorial disputes in the South China Sea.

The Role of the United States

The United States, while having no territorial claims in the South China Sea, plays a crucial role due to its defense commitments to the Philippines. Washington has conducted freedom of navigation operations in the area, challenging China’s expansive claims. The U.S. has also reiterated its obligation to defend the Philippines in the event of an armed attack, including those in the South China Sea.

Impact on Regional Stability

The agreement between China and the Philippines could contribute to regional stability by reducing the frequency and intensity of confrontations at the Second Thomas Shoal. However, the broader issues of sovereignty and territorial claims remain unresolved, posing ongoing challenges for regional peace and security.

The Role of ASEAN

The Association of Southeast Asian Nations (ASEAN) has long advocated for a Code of Conduct in the South China Sea. The agreement between China and the Philippines is seen as a step towards de-escalation, which could encourage similar initiatives among other ASEAN member states with competing claims in the region.

Legal and Sovereignty Issues

Despite the provisional agreement, the legal and sovereignty issues surrounding the South China Sea remain contentious. In 2016, an international tribunal in The Hague ruled in favor of the Philippines, invalidating China’s claims in the strategic waters. Beijing, however, has refused to accept the ruling, complicating efforts to resolve the disputes through legal means.

The Future of the BRP Sierra Madre

The BRP Sierra Madre, now a rusting symbol of Philippine sovereignty, continues to be a focal point in the South China Sea dispute. The agreement includes provisions for resupplying and rotating personnel without fortifying the ship, reflecting ongoing negotiations about the future of the outpost.

China’s Maritime Strategy

China’s actions in the South China Sea are part of a broader strategy to assert control over the region. The use of coast guard and maritime militia forces to enforce its claims has been a hallmark of this approach. The agreement with the Philippines may represent a tactical adjustment rather than a strategic shift in Beijing’s long-term objectives.

Potential for Broader Agreements

The success of the provisional agreement could pave the way for similar deals with other claimant countries, such as Vietnam, Malaysia, Brunei, and Taiwan. However, each dispute has its unique complexities, and replicating the agreement’s terms may prove challenging.

The Role of International Law

Adherence to international law, particularly the United Nations Convention on the Law of the Sea (UNCLOS), remains a critical issue in the South China Sea disputes. The Philippines has consistently called for resolutions based on international law, and the agreement reflects a mutual recognition of the need to manage differences peacefully.

Challenges to Implementation

While the provisional agreement is a positive step, its implementation will require ongoing commitment from both China and the Philippines. Past agreements have often faltered due to changing political dynamics and on-the-ground realities. Sustained dialogue and trust-building measures will be essential for the agreement to hold.

Domestic Reactions in the Philippines

In the Philippines, reactions to the agreement are mixed. Some view it as a pragmatic step to ensure the safety and well-being of Filipino soldiers, while others criticize it as potentially yielding to Chinese pressure. Public opinion remains divided, reflecting broader concerns about national sovereignty and security.

Long-term Prospects

The long-term prospects of the agreement will depend on the evolving geopolitical landscape in the Asia-Pacific region. Both China and the Philippines face domestic and international pressures that could influence their adherence to the agreement. Monitoring and verification mechanisms will be crucial to ensure compliance.

End Note

The provisional agreement between China and the Philippines marks a significant development in the ongoing South China Sea disputes. While it represents a step towards de-escalation, broader issues of sovereignty and territorial claims remain unresolved. The agreement’s success will hinge on sustained dialogue, mutual trust, and adherence to international law, setting the stage for future negotiations in one of the world’s most strategically important regions.

“Manila is trying to modernize its armed forces significantly, but the difficult economic climate right now is making that difficult”

The Philippines is working to enhance its defense capabilities, striving to catch up with neighboring countries while dealing with periodic conflicts with Beijing over disputed waters. In 2024, the defense budget was increased to 278.1 billion pesos ($4.8 billion). Recently, Philippine President Ferdinand Marcos Jr. approved a “wish list” of military acquisitions valued at over $35 billion (2 trillion Philippine pesos), to be financed over the next decade. This effort is part of an ongoing military modernization initiative that began in 2012.

Since President Marcos has adopted a more assertive stance against China compared to his predecessor, there has been heightened demand for improved defense capabilities. In recent years, the Philippines has made significant acquisitions, including $375 million worth of Indian BrahMos cruise missiles. Additionally, contracts have been signed with Hyundai Heavy Industries, a South Korean shipbuilding company, for two operational Jose Rizal-class frigates, six offshore patrol boats, and two missile corvettes, all to be delivered over the coming years. These patrol boats and corvettes have a combined price tag of around a billion dollars.

Despite these efforts, increasing the defense modernization program to $35 billion over ten years would represent a significant rise over current and historical spending levels. For perspective, 40 billion pesos is allocated for defense modernization in 2024, funded by a special fund legally distinct from the Department of National Defense budget. At current exchange rates, this is equivalent to $694 million, up from $477 million in 2023. Thus, to achieve the $35 billion target, the government would need to rapidly and substantially increase spending.

A critical question is whether the Philippines can afford to modernize its military at a cost of several billion dollars annually. Given the current budgetary position for 2024, the answer is likely no. Planners made optimistic economic assumptions for 2024, predicting GDP growth of 6.5 – 7%. However, with first-quarter growth at 5.7%, it seems the actual growth may be closer to 6%. Additionally, they anticipated lower borrowing costs and interest rates, with a 364-day Treasury bill yield expected between 4 and 5.5 percent in 2024. Currently, it stands at 6%.

Slower growth and rising borrowing costs will strain government financial resources. The 2024 budget forecasted a fiscal deficit of 5% of GDP, assuming central banks, led by the US Federal Reserve, would ease interest rates this year. However, it appears the Fed will maintain stable interest rates for some time. This makes it an inopportune time to embark on significant military spending due to slower economic growth, an impending deficit, higher interest rates, and borrowing costs. Consequently, taking out loans now is not ideal for the government.

On the other hand, given China’s growing territorial incursions, the Philippines cannot afford to delay military upgrades. This implies that the Marcos Jr. administration will likely continue pursuing large-scale purchases to enhance air and naval defense capabilities.

Rising Tensions in the South China Sea

“Tensions between China and the Philippines are raising the prospect of an armed clash in the South China Sea”

The escalating maritime tensions between the Philippines and China have highlighted the potential for armed confrontation in the South China Sea, posing significant threats to the international trade. Recent incidents between Beijing and Manila have heightened concerns. In February, the Philippines reported that a Chinese Navy ship used its “fire control radar” to target a Philippine Navy ship near Commodore Reef in the Spratly Islands, a claim that China disputes. Furthermore, China established two new research stations in the Spratly Islands’ Fiery Cross Reef and Subi Reef in March, featuring military-grade runways and defense silos. In April, Beijing created two new municipal districts to enhance its maritime claims in the South China Sea, increasing military patrols and operations in the area.

The historical context adds layers to the current tensions. Efforts to increase Japan’s military budget and involvement may evoke memories of its invasions during World War II, including the Philippines. Nevertheless, defense and security ties between Japan and the Philippines have been strengthening, with both nations seeking to counterbalance China’s assertiveness. Philippine President Marcos and Japanese Prime Minister Kishida are working to build security coalitions to enhance the Philippines’ limited capacity to defend its territorial claims. The South China Sea, a vital global commerce route, is largely claimed by China, despite partial contestation from the Philippines, Vietnam, Malaysia, Brunei, and Taiwan. The United States, aiming to reassure its Asian allies and counter China, has been fortifying a network of military alliances across the Indo-Pacific.

In the South China Sea, since last year, Chinese and Philippine coast guard and naval ships have had several heated encounters. The most violent clash occurred on June 17, when two Philippine naval supply vessels were repeatedly attacked and damaged by Chinese coast guard personnel armed with knives, spears, and an axe near the disputed Second Thomas Shoal. Several Filipino sailors were injured, and Chinese coast guard staff seized seven navy firearms. The Philippines lodged a strong protest, demanding $1 million for damages and the return of the firearms. China, however, claimed the violence was provoked by the Philippines entering what it considers Chinese territorial waters.

International responses were swift, with Japan and the United States among the first to express concern and urged Beijing to adhere to international law. These conflicts signify the fragile balance of power and the urgent need for diplomatic resolutions to prevent further escalation in one of the world’s most crucial maritime regions.

Maritime Challenges

Beijing aggressively advances its claims and Manila continues fishing and resupply activities for Filipinos at the disputed shoals. Within its 200-mile Exclusive Economic Zone (EEZ), the Second Thomas Shoal in the Spratly Islands is central to the Philippines’ most acrimonious conflicts with China. In 1999, the Philippines deliberately grounded a ship to claim the region, which it refers to as the West Philippine Sea. Since then, the Philippines Coast Guard has conducted monthly resupply operations to the ship, known as the BRP Sierra Madre, for its military contingent onboard the rusting vessel. Conflicts escalated in 2023 when Chinese Coast Guard warships began using risky methods to stop Philippine resupply trips, leading to an increase in collisions and the use of water cannons and military-grade lasers by the Chinese Coast Guard.

Amid rising tensions with China, the Philippines has strengthened its alliances with other nations in the Indo-Pacific region. President Marcos has signed agreements to expand arms exports, joint exercise training, and base access with the United States. The Mutual Defense Treaty between the United States and the Philippines covers both nations’ armed forces, public vessels, and aircraft operating in the South China Sea, as confirmed by U.S. Secretary of Defense Lloyd Austin in March 2024. Meanwhile, in this picture, Japan as a key player has also increased its influence in maritime security in recent years by providing military hardware to Vietnam and the Philippines.

Budgetary Expansion

In response to ongoing tensions in the disputed South China Sea, the Philippines plans to continue increasing its defense spending while seeking private sector cooperation to safeguard the nation’s maritime rights. Defense Secretary Gilberto Teodoro has been advocating for the defense budget to exceed 1% of GDP, excluding military pensions. This initiative aims to enhance the country’s defense capabilities and narrow the gap with its regional neighbors, particularly as periodic conflicts with Beijing inflict damage on the Philippines’ military assets. For 2024, the defense budget has been raised to $4.8 billion.

Teodoro has called on the private sector to facilitate the sale of debt instruments to generate funding for the Philippines’ claims in the South China Sea. Speaking at a business roundtable on July 10, he emphasized the role of investors in determining market appetite for these instruments. He noted that the target buyers are investors seeking to benefit from a potential upgrade in the country’s credit rating and other defense industry projects. Teodoro highlighted the importance of finding “creative ways” to secure funds, stressing that the primary goal is to alleviate the government’s fiscal burden without compromising modernization efforts.

Modernization Goals

The Philippines aims for sustained economic growth to catch up with its regional neighbors, targeting robust GDP growth similar to countries like Vietnam and Indonesia. In 2024, the Philippine economy is focusing on diversification, reducing dependence on remittances by expanding its industrial and services sectors. The “Build, Build, Build” infrastructure program remains a cornerstone of this strategy, aiming to enhance transportation, energy, and communication networks, which are critical for improving productivity and attracting foreign direct investments.

The Philippines is also prioritizing defense modernization to address both internal and external security challenges. The Armed Forces of the Philippines (AFP) are undergoing significant upgrades, including acquiring modern military equipment and enhancing capabilities in cybersecurity and maritime defense. This modernization is crucial for protecting the country’s territorial integrity, especially given the rising tensions in the South China Sea and the broader Indo-Pacific region. The Philippines aims to align its defense capabilities with those of regional allies, such as Japan and Australia, to strengthen its strategic position.

Balancing fiscal stability with defense upgrades is a critical challenge. While defense modernization is essential, it must be pursued without compromising economic stability. This requires careful fiscal management to avoid excessive debt while ensuring adequate funding for defense projects.

To achieve its modernization goals, the Philippines is enhancing regional cooperation and strategic partnerships. Engaging with ASEAN and QUAD countries, as well as strengthening bilateral ties with the United States, Japan, and Australia, provides access to advanced technology, training, and defense systems. These partnerships also offer economic benefits, such as trade agreements and investment opportunities, which are instrumental in supporting the Philippines’ overall modernization efforts.

Challenges and Prospects

China’s numerous confrontations with South China Sea (SCS) countries have become a testing ground for assessing its military capability in the Pacific and the politico-security resolve of successive US administrations. The most recent incident involved dangerous maneuvers by Chinese ships, which fired water cannons at Philippine Coast Guard (PCG) ships carrying supplies for Filipino soldiers stationed on the Second Thomas Shoal (known as Ayungin Shoal in the Philippines) in the Spratly Islands. In June of this year, Chinese ships attempted to stop two PCG vessels from entering the Second Thomas Shoal while escorting two wooden resupply boats. Similar incidents occurred in February and July this year.

At the center of this controversy is the BRP Sierra Madre, a Filipino ship that ran aground on May 9, 1997. Since then, the Philippines has utilized the ship as a sovereign outpost, stationing eight soldiers onboard to counter China’s claims. China wants the ship removed, but Philippine President Ferdinand Marcos Jr. has indicated that the Philippines will not withdraw or “pull out a World War II-era ship from the Ayungin shoal in the South China Sea.” According to National Security Council spokesperson Jonathan Malaya, “China’s increased presence at the Second Thomas Shoal will not deter the Philippines’ resolve to protect its position there.” He emphasized that “the Philippines will not give up the Ayungin Shoal or remove the warship from the atoll which was intentionally grounded in 1999 to reinforce the Philippines’ sovereignty claims.”

A joint statement released by the National Task Force of the Philippines on the Ayungin Shoal incident pointed out that China had once again violated the 2016 Arbitral Award, which clearly stated that the Ayungin shoal “can neither be a subject of a sovereignty claim nor is it capable of appropriation under international law.” As such, China’s aggressive tactics in preventing Filipino vessels constitute a blatant breach of the United Nations Convention on the Law of the Sea (UNCLOS), to which both nations are parties.

On the other hand, China claims that after learning of the Philippines’ resupply plan, the Chinese Coast Guard warned the Philippines not to send “construction materials used for large-scale repair and reinforcement of the warship” because this would violate the Declaration of the Code of Conduct of the Parties (DOC). China’s strategy has always been to interpret international law, such as UNCLOS and the 2016 Arbitral Award, in ways that justify its assertiveness and expansionary claims in the disputed waters. Relations between the Philippines and China have significantly deteriorated during Marcos Jr.’s administration, which has not shied away from criticizing China’s conduct in the South China Sea. The Philippines is perceived as tilting towards the United States, as seen by the expansion of the Enhanced Defence Cooperation Agreement (EDCA), under which the Philippines granted the US access to four more military facilities in April 2023.

The expanding US-Philippines relationship is irritating China, prompting it to use forceful and coercive measures to assert its presence and push the Philippines to comply with Chinese demands. According to a US statement, an assault on Philippine military vessels, aircraft, and armed troops, including its coast guard, operating in the SCS would trigger mutual defense commitments. As China’s challenge to the US in the Pacific intensifies, the US tries to orient its security strategy in the Pacific around partnerships with the Philippines, as China seeks to dominate subregions such as the South Pacific. The South China Sea is gradually becoming a theater in the US-China great power confrontation. 

End Note

The Philippines is significantly increasing its defense spending to safeguard its territorial integrity against China’s assertiveness in the South China Sea, modernize its armed forces to address contemporary security threats, and strengthen regional security alliances with ASEAN and other partners. Despite economic challenges, the country is committed to balancing fiscal stability with defense modernization to create a credible defense posture, enhance regional cooperation, and contribute to stability in the South China Sea. The Philippines’ efforts aim to ensure a secure and prosperous future in the rapidly evolving Indo-Pacific region, advocating for a peaceful resolution to conflicts through sustained dialogue and collaboration with global partners.