China’s Lawfare Is Reshaping Sovereignty And Supply Chain Security

Most business risk analysts are focused on US-China tech competition and the probability of war in the Taiwan Strait. Meanwhile, threats of legal and kinetic warfare–and corresponding threats to global commerce–continue to rise in the South China Sea. After a US aircraft carrier drilled neared Scarborough Shoal, China sent warships and aircraft to confront a routine Philippine patrol supporting the Philippines’ sovereign rights at the Shoal on November 24. Such confrontations are increasing in the South China Sea, the waterway through which one-third of global shipping flows. Business leaders should recognize the threat that China’s legal warfare, otherwise known as lawfare, poses in the maritime domain. Failure to understand these risks will have disastrous commercial consequences.

Scarborough Shoal is not a commercial chokepoint, but it is China’s laboratory for its maritime lawfare strategy. The shoal has been a flashpoint between the Philippines and China for decades. The maritime feature is a traditional fishing ground for both Filipino and Chinese fishermen. Under international law, the feature lies in the Philippines’ Exclusive Economic Zone, giving the Philippines sovereign rights over its natural and economic resources. After a standoff at the shoal between Philippine and Chinese vessels in 2012, China seized control over the Shoal. The Philippines prevailed in a 2016 arbitral ruling affirming its sovereign rights over the shoal, invalidating China’s sovereignty claims, and finding China had severely damaged the environment surrounding the shoal. China rejected the Tribunal’s ruling. After allowing the Philippines access to the shoal for a few years, it blocked most vessels again starting in 2019. Meanwhile, China expanded its administrative laws to make its Coast Guard part of its military and allow its Coast Guard vessels to operate at the shoal and other locations far off its mainland. It also expanded its maritime militia–civilian fishing vessels that serve military purposes–to expand its presence around the shoal. China thus enacted domestic laws to give a veneer of legitimacy to its violations of international law. This is a form of lawfare: using law as a weapon of war and strategy.

This September, China invoked its domestic environmental laws to establish a nature reserve at Scarborough Shoal. Under Chinese law, foreign vessels are now forbidden to enter restricted areas of the Shoal. By declaring a nature reserve, China seeks to cast itself as an environmental protector rather than a violator, flipping the narrative of the 2016 arbitral ruling on its head. China is using employing lawfare by using its conservation laws to assert sovereignty.

Why China’s Lawfare at Scarborough Shoal Matters for Supply Chain Risk

China’s behavior at Scarborough Shoal is not just a nuisance for Filipino fishermen and a threat to Philippine sovereignty. The lawfare tactics China began to employ at Scarborough Shoal in the 2010s and continues to develop there have migrated outward to waters that carry critical global trade flows. All over the South China Sea China is asserting domestic law, deploying its Coast Guard to enforce it, and normalizing its jurisdictional authority, including areas of its neighbors’ exclusive economic zones. Elsewhere in the South China Sea, China is already requiring ships to give prior notification when they enter waters and airspace claimed by China, engaging in unsafe and unprofessional conduct against those that refuse to do so, redirecting maritime traffic as part of its unilaterally-imposed “Summer Fishing Ban,” and reserving the right to board and inspect ships in any waters that it claims. Lawfare presents risk for anyone doing business that transits the South China Sea—especially in the manufacturing, technology, and energy sectors.

Companies doing business in the South China Sea need to understand China’s lawfare strategies. Companies have already suffered from China’s pressure to alter their commercial activities to avoid retaliation from China. In just two high-profile incidents, Delta Air Lines removed Taiwan and Tibet from the list of countries on its website after China demanded an immediate correction and an apology, and Marriott had its Chinese website suspended for a week for listing Tibet, Taiwan, Hong Kong, and Macau as separate countries in a customer questionnaire. In the maritime domain, companies may face even more coercion. Critical supply chain routes crisscross the South China Sea. Over 20 percent of global maritime commerce transits the Taiwan Strait, which lies at the Sea’s northermost tip. As potential conflict over Taiwan looms, China may seek to protect its own supply chains while exploiting vulnerable nodes in those of the United States and its allies. China can also increase shipping costs and leverage delays to its strategic advantage—and to the detriment of U.S. businesses.

As lawfare escalates in Great Power Competition, corporations’ ability to stay neutral is fading. Silence becomes acquiescence with a claim; compliance becomes recognition. Companies may begin to comply with China’s requests for permission to enter certain maritime or air zones, inadvertently giving credence to China’s jurisdiction over those areas. Companies operating in disputed waters or regions may choose to file Beijing’s mandatory reporting to comply with China’s administrative laws, bolstering China’s claims to jurisdiction over those areas. Companies who request liquified natural gas or exploration permits from China’s neighbors in contested areas may face retribution from China. China may otherwise use lawfare to coerce corporations’ behavior and enhance its legal claims to disputed areas.

Businesses Must Understand China’s Lawfare to Avoid Risk

Companies doing business in the South China Sea need to understand China’s lawfare to avoid being mired in tensions between the U.S. and China. Businesses should incorporate lawfare into their geopolitical risk models. They should audit risks from their maritime routes and build diversified routing and port access alternatives if current access routes are affected by maritime and territorial disputes. Scenario planning and wargaming of sudden supply chain disruptions will be crucial. US companies should coordinate with US and partner nation government channels regarding use of contested waters to understand changing risks.

Manipulation of law and legal norms is not traditionally studied as part of geopolitical risk models. But corporations doing business anywhere near the South China Sea would be wise to factor in China’s lawfare. China is not waiting for kinetic war to assert control over the South China Sea. It is already doing so through domestic administrative law, regulations, non-standard interpretations of international law, and by fait accompli. China has been subsuming critical trade routes through its expansive maritime claims. Companies that fail to recognize lawfare as a core business risk may find themselves unintentionally helping to redraw the map of one of the world’s most critical trade reasons. They may also find themselves at risk from great power ire.