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The South China Sea 'V-I-P' solution

By Stewart Taggart - posted Monday, 9 March 2015


Arguably, the positive potential for China in its global infrastructure outsourcing drive industrial policy is larger than any expansive territory grab in the South China Sea.

Forced to choose, China will almost certainly back down in the South China Sea if it jeopardizes the internal social stability that continued economic growth brings to the Communist Party's political legitimacy.

China's industrial state infrastructure champions' 'going out' strategy is providing this all important economic growth. Without it, destabilizing unemployment in China will rise because infrastructure is a huge employer.

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It's only a slight exaggeration to call this China's geopolitical jugular vein.

Consider recent developments with State Grid in the Philippines. This is where China's 'going out' strategy is now colliding with South China Sea tensions. There, the Philippines has flipped a big potential 'kill switch' on this tidy scenario.

In late February, the Philippine government announced it was sending home State Grid's Chinese technicians and replacing them with Filipinos in running the Philippine electricity grid the Chinese expensively revamped.

The Philippine government said the decision was taken because Filipino workers can now do the work performed by the Chinese, but also hinted the move was due to national security concerns.

Regardless of which it was, the move relegates State Grid to being a mere minority shareholder in the National Grid Corp., the Philippine corporate entity that runs the grid.

Bringing in Chinese infrastructure state champions to rebuild national grids, and then booting them out - as the Philippines has done - creates an unattractive precedent for State Grid elsewhere, like in Australia, Portugal and Brazil, to name three.

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Ironically, the Philippines is applying a highly-successful strategy used by the Chinese themselves over the past few decades. This has involved inviting inward investment, but limiting foreign companies to minority stakes and requiring technology transfer as a condition of access to the domestic market.

If this playbook is applied in reverse in Southeast Asia (and elsewhere) to offset worries over potential Chinese expansionism, it has major implications for China's economy.

In China, economic growth is the key opiate damping down domestic social discontent over things like corruption, pollution and the dominant role of the Communist Party.

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This article was first published on the Grenatec website.



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About the Author

Stewart Taggart is principal of Grenatec, a non-profit research organizing studying the viability of a Pan-Asian Energy Infrastructure. A former journalist, he is co-founder of the DESERTEC Foundation, which advocates a similar network to bring North African solar energy to Europe.

Other articles by this Author

All articles by Stewart Taggart

Creative Commons LicenseThis work is licensed under a Creative Commons License.

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