Philippines: China Will Be the "Loser" in South China Sea

South China SeaWith some of its firmest language yet, the Philippines refused to back down from China on conflicting claims over the South China Sea.

On Aug. 30, Philippine Foreign Minister Perfecto Yasay declared that China will be the "loser" if it doesn't recognize the international court ruling handed down by The Hague.

"We are trying to make China understand especially when the dust settles that unless they respect and recognize the arbitral tribunal, they will be the losers at the end of that day on this matter," Yasay said in a congressional hearing.

You see, The Hague's July 12 decision delivered a sharp rebuke of China's aggressive activity in the South China Sea. Specifically, it condemned China's building of artificial islands and found that there was no legal basis for its claim over resource-rich South China Sea waters.

Cuarteron Reef is a 231,100-square-meter artificial island China began building in the summer of 2014. Photo courtesy of Asia Maritime Transparency Initiative and Digital Globe.

Philippine President Rodrigo Duterte said last week that he expects negotiations with China to start within a year. But until China recognizes The Hague ruling, Yasay suggested that bilateral negotiations cannot happen. He said there were "no buts or ifs insofar as our policy on this matter [The Hague ruling]."


Yasay's statements come just over a month after China publicly dismissed the international court's decision...

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China to Ignore The Hague's Ruling on South China Sea

In a short statement, Chinese President Xi Jinping said that China's maritime interests in the region won't be affected by the ruling.

China's Foreign Minister Wang Yi went even further, calling the court case a "political farce," according to the Chinese newspaper Shanghaiist.

Other nations - including the United States, which has already committed some of its U.S. Pacific Fleet naval destroyers to the region - are worried about China's fierce determination to control regions in the South China Sea.

They fear the South China Sea dispute will lead to serious global issues, including trade wars and even military backlash...

Why the South China Sea Dispute Has Such High Stakes

The South China Sea sees a whopping $5 trillion of trade annually, according to Reuters. The area is rich in natural resources, including oil reserves of around 7.7 million barrels, according to the U.S. Energy Information Administration.

And China and the Philippines aren't the only dogs in this fight...

Far from it. Five other nations have claims: Brunei, Malaysia, the Philippines, Taiwan, and Vietnam. While China says it has owned the South China Sea since ancient times, opposing countries say China's claims interfere with their economic zones and United Nations' laws.

Over the past year, the United States has become increasingly involved in the South China Sea dispute, too. It has publicly supported The Hague ruling and has ships patrolling close to Chinese-held islands.

U.S. involvement hasn't pleased China.

In fact, some of the patrols incited China to send fighter jets and naval ships to scare away American vessels.

"This is definitely a situation you want to watch closely," said Money Morning Executive Editor Bill Patalon on Dec. 30, 2015. "Any kind of a major 'incident' there will clearly have a big - and negative - impact on the world financial markets."

The Bottom Line: With its latest comment, the Philippines just dug its foot even deeper in the South China Sea. It appears neither the Philippines nor China will back off from their sovereignty claims over the region.

When the South China Sea standoff escalates, you can bet it will have a serious global impact on stocks.

But this disaster scenario also has a silver lining. Patalon sees a major investment opportunity if war sparks in the tumultuous region. Check out his strategy for investors, right here...

Up Next: Could the South China Sea dispute lead to the next world war? Many think it's possible. Here's how...

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