East China Sea Accord Reached on Two Gas-Rich Areas; Maritime Borders an Issue for Another Day

Median Line—or Continental Shelf?

Chinese and Japanese negotiators have continued to clarify details of this week's accord on the division of some East China Sea resources, although it has become clear from domestic Chinese and Japanese commentary that compromise on the actual maritime border is still far from being resolved.

What has been agreed is Japanese participation in the China National Offshore Oil Corp. (CNOOC)'s Chunxiao (in Chinese, or Shirakaba in Japanese) gas development, which is expected to yield up to 1 billion cubic metres (bcm) of gas a year, according to 2005 estimates. A further agreement has been reached on the 50:50 joint development of the Longjing/Asunaro area, which also straddles the median line between the two states (see China - Japan: 17 June 2008: East China Sea Talks Make "Remarkable Progress"). China's investment in Chunxiao so far means that revenues will be weighted in its favour, although the exact ratio of investment and offtake has still to be agreed in a subsequent round of talks.

Aside from the revenue split, what has still to be settled is the ultimate demarcation of the maritime boundary. Tellingly, a Chinese Foreign Ministry spokesperson said today that no ground had been ceded towards Japan's "median line" interpretation of the border, which would take it to the Chunxiao/Shirakaba areas. China's own view is that its border should extend to the "continental shelf", which would give it total ownership of the disputed area. In that light, the Chinese statement called the agreement "a transitional step to protect each other's legal positions till a demarcation line is set". Ownership of further gas fields in the area claimed by both sides, including Tianwaitian/Kashi and Duanqiao/Kusunoki, have also been left aside for the time being.

Nevertheless, the agreement does represent a significant step forward after four years of inconclusive negotiations. The rationale for that seems to be both economic and political, with both countries facing a rising energy import bill in the context of a US$130-plus-per-barrel oil price, and both keen to improve energy security by developing resources in their own backyard.

Everybody Needs Good Neighbours

At the political level, the rapprochement reflects a new pragmatism emerging in bilateral relations and replacing the heated historical controversies of the past. The new approach was cast following the landmark visit of China's President Hu Jintao to Japan in May. China is keen to keep tension in the region to a minimum as it seeks to take on a role as a great power on the global stage—a step symbolically made in the eyes of Chinese leaders with the hosting of the Olympic Games in August. China’s divisive relationship with Japan has been seen as somewhat counterproductive in this regard, with competition between them having pushed Japan closer to its traditional security ally, the United States. Meanwhile, the Japanese political leadership has long faced pressure from the country’s powerful business community to pursue closer ties with China, which overtook the United States as its largest trading partner last year. The Japanese government is keen to expand access to the Chinese market at a time when the economy is slowing elsewhere, making deepening political ties match closer long-standing economic and trading ties.

However, while the major progress made in the East China Sea dispute lends concrete support to the re-establishment of a formal framework of engagement, a number of challenges remain. Apart from deep-seated animosities on the part of the respective populations, notably in China, the historical issues glossed over for now are set to reassert themselves in the not-too-distant future. Over the long term the impact of China's economic and political emergence on the strategic balance in north-east Asia remains a fundamental question. Navigating the tensions between co-operation or competition will continue to define the Sino-Japanese relationship.

Outlook and Implications

As yet, domestic opposition to the agreement on both sides has been relatively muted, with negotiators keen to stress the "mutual" nature of compromises—even though China's admission of Japan's rights in the area appears to be a step down, given its previous claims. Further talks are now expected to smooth out remaining details on the Chunxiao and Longjing development, not least of which are the split of revenues from the former and the legal framework of development in the area. Ultimately, a bilateral treaty is planned—most likely on the basis of the transitional accord, rather than a complete border demarcation.

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