Escalating tensions in the South China Sea pose a threat to global trade.

• Beijing boats have been clashing with vessels of the Philippines and Vietnam in the South China Sea, where China has almost all the claims.
• The escalating events have ignited concerns about a potential disruption to international commerce.
• According to Marko Papic, the South China Sea is the world's most valuable shipping lane in terms of the value of trade that passes through it.

The South China Sea's rising tensions pose a threat to some of the world's busiest shipping lanes, experts caution.

The highly-contested South China Sea, a crucial trade route for three of the world's biggest economies - China, Japan, and India - has seen an escalation of skirmishes in recent months.

Beijing's claim to almost all of the sea and overlapping claims by other countries have led to conflicts between China, the Philippines, and Vietnam, raising fears of a disruption to global trade.

According to Marko Papic, chief global geo-macro strategist at BCA Research, global markets and supply chains should monitor the developments in the South China Sea due to its significance in international trade.

According to Papic, the South China Sea is the world's most valuable shipping lane due to the high value of trade that passes through it. He also pointed out that any conflict in the region could pose significant risks to global shipping.

The seaway is crucial for the transportation of commodities and input goods to China, and for the export of Chinese manufactured goods to other parts of the world.

The escalating conflicts in the region have increasingly drawn the focus of governments globally, including the U.S., which has a mutual defense pact with the Philippines.

Despite CNBC's inability to obtain specific data on the volume of trade in the South China Sea, the CSIS China Power Project estimates that $3.4 trillion in trade flowed through the region in 2016, accounting for 21% of global trade.

In 2019, the United Nations Conference on Trade and Development reported that 60% of maritime trade flowed through Asia, with the South China Sea accounting for one-third of global shipping.

Rising tensions

The South China Sea, situated in the western Pacific Ocean, is bordered by China, Taiwan, the Philippines, Vietnam, Indonesia, Thailand, Malaysia, and Cambodia, all of which have contested territorial claims in the region.

Beijing, specifically, asserts almost all of the South China Sea as its own under its "nine-dash-line," despite a 2016 ruling by an international arbitration court in The Hague, Netherlands, stating that Beijing's claims lack legal and historical basis.

The escalating friction with China's neighbors is due to their belief that the country's coast guard has encroached upon their exclusive economic zones.

The Philippines accused Chinese missile boats of pursuing Philippine vessels and directing lasers at patrolling aircrafts near the contested Half Moon Shoal, following other clashes that have involved boat collisions, water cannons, and injuries to Filipino sailors, according to Filipino officials.

At a regional summit on Thursday, Philippine President Ferdinand Marcos Jr. urged for a faster negotiation on a code of conduct for the South China Sea, while accusing Beijing of harassment and intimidation.

The Vietnamese foreign ministry has recently condemned China's actions in the South China Sea, accusing Chinese vessels of carrying out a "violent attack" on Vietnamese fishing boats.

Richard Heydarian, a policy adviser and senior lecturer of international affairs at the University of the Philippines, stated that tensions are not only increasing between China and the Philippines but also with Vietnam in the past few weeks.

He stated that it is only a matter of time before ASEAN countries speak out and we witness more troubling clashes.

Salami slicing vs. bulldozing

Despite the growing geopolitical risks in the South China Sea, experts believe there are still reasons for all parties to prevent a larger conflict.

Analysts claim that China has employed "gray zone" tactics, which are coercive actions that fall short of an armed conflict but exceed normal diplomatic activities, in asserting its claims.

Heydarian stated that China's use of gray zone tactics, although concerning, demonstrates its strategy to gradually assert control over the South China Sea through incremental actions, rather than through direct confrontation.

The South China Sea is also beneficial to the economies of countries involved in the clashes through shipping.

If China restricts civilian shipping in the South China Sea, the U.S. may increase its involvement, as stated by Abdul Yaacob, a Southeast Asia research fellow at the Lowy Institute.

At present, all parties, including China, are against the escalation of the situation into a full-blown military conflict, as stated by him.

The Chinese embassy in Singapore declined to provide a comment on the request.