On August 26, the U.S. Department of Commerce’s Bureau of Industry and Security added 24 Chinese companies to the Entity List for their activities in the South China Sea. The bureau targeted these entities specifically for “their role in helping the Chinese military construct and militarize the internationally condemned artificial islands in the South China Sea.” On the same day, the U.S. Department of State announced visa restrictions on Chinese individuals involved in reclamation, construction, militarization, and coercion in the South China Sea. While these measures come far too late to halt China’s island building campaign in the Spratly Islands, Washington’s latest steps illuminate the influence of companies in these disputes. Corporate activity, particularly the corporate activity associated with Sansha City, supports China’s efforts to exercise administrative control over the South China Sea.
Sansha City is the prefecture-level city that is responsible for administering China’s claims in the South China Sea. The city is headquartered on Woody Island and its jurisdiction covers much of the area within the nine-dash line, including the Paracel Islands, Spratly Islands, and so-called Zhongsha Islands. Upon establishing Sansha City in 2012, Beijing instructed the city’s leaders to prioritize national sovereignty and security. In the years since, Sansha City has come to occupy an important policy formulation and implementation role in the South China Sea. For instance, the city’s leaders have coordinated the construction of physical infrastructure, developed the city’s paramilitary forces, built up political institutions and local governance, procured new ships, promoted tourism in the Paracel Islands, and integrated the command of military, coast guard, and maritime militia operations.
The development of Sansha City also fueled an explosion of corporate activity in the South China Sea. Publicly available corporate records indicate that, prior to the city’s establishment in 2012, fewer than 10 companies had registered with the authorities previously responsible for administering China’s claims. However, by June 2019, 446 private enterprises, state-owned enterprises, and small businesses had registered in the city, with 307 of these companies reporting a cumulative $1.2 billion of registered capital. The leaders of Sansha City accomplished this feat through shrewd economic policies. Recognizing that the physical limitations of Woody Island and other Chinese features would constrain investment, they introduced the “register in Sansha, pay taxes to Sansha, brand as Sansha, operate elsewhere” (注册在三沙、税收给三沙、品牌属三沙、经营在异地) model, allowing companies to register in the city but operate outside its jurisdiction. Roughly two thirds of the companies registered in Sansha City maintain an address outside the city. Hainan province has reported similar registration and operation statistics for the city.
Though most of the companies registered in Sansha City operate outside the city, they still contribute to its development as the center of China’s administrative presence in the South China Sea. For one thing, these entities provide much-needed tax revenue to the local party-state, allegedly generating more than $100 million for the city in 2015. More importantly, many of these companies cooperate with the city to provide crucial services, regardless of where they operate. Notably, numerous companies have designed and built telecommunications infrastructure for Sansha City, installing 4G and 5G base stations across the city’s jurisdiction, providing ship-borne communications systems, and laying submarine optical cables. Civilian administrators, residents, and companies use and benefit from this communications infrastructure, as do military, law enforcement, and maritime militia entities.
Beyond constructing telecommunications infrastructure, companies registered in Sansha City offer a number of valuable services. One company has coordinated with local fishers to develop deep-sea cage breeding, supporting an initiative that incentivizes them to transition away from traditional fishing and establish normalized residency in the city’s jurisdiction. Another has researched and developed advanced microgrid technologies to power Woody Island, improving the island’s self-sufficiency and ensuring that key capabilities such as seawater desalination facilities and radar installations remain functioning. Yet another provides financial services to residents and offers loans to entities in the city, improving the quality of life for residents and aiding the city’s development.
Sansha City has also established numerous local state-owned enterprises to support its efforts to assert China’s claims and coerce other claimants. For example, Sansha Fishery Development Company Limited is reportedly responsible for organizing maritime militia units and managing steel-hulled militia vessels via an in-company People’s Armed Forces Department. Publicly available records indicate that this company engages in a wide range of economic activity, including maritime satellite phone procurement, port infrastructure projects, and office leasing—all possibly in support of the city’s maritime militia force.
Another important municipal state-owned enterprise is Sansha City Strategic Hinterland Infrastructure Construction Investment Company Limited . Publicly available records suggest that this municipal state-owned enterprise is heavily involved in the construction of port facilities at Mulan Bay in Wenchang, Hainan. These port facilities reportedly include eight 10,000-ton berths, two 10,000-ton dry docks, and five berths for ship repair. These facilities appear intended for maritime militia use and local officials have claimed that Mulan Bay will provide a base for integrated law enforcement operations and resource development in the South China Sea.
While the companies registered in Sansha City have produced a sizeable cluster of economic activity in the South China Sea, they are not the only corporate entities active within the city’s jurisdiction; the local party-state system regularly mobilizes outside companies in support of its mission. For example, the city has turned to outside companies for port management services and greenhouse construction. Sansha City generally purchases the goods and services of these companies through a public procurement process. For instance, publicly available records indicate that the city’s propaganda department allowed companies to bid for a contract to monitor and analyze information and trends related to the South China Sea disputes. Likewise, the Sansha City Tourism, Culture, and Transportation Bureau invited bids for its ship management platform. The city’s coastguard bureau welcomed bids for a security system for its weapons room. Though sometimes mundane, such evidence illustrates how Sansha City relies on the support of corporate entities for its day-to-day operations.
Since 2012, Sansha City has systematically mobilized companies to register in its jurisdiction, established new municipal state-owned enterprises, and encouraged outside companies to bid for city contracts. This corporate activity powers Sansha City’s campaign to assert China’s claims in the South China Sea. These companies continue to build infrastructure, develop technologies, support maritime militia operations, upgrade communications, improve living standards, and otherwise help Sansha City to function as the vanguard of China’s sovereignty and security in the South China Sea.
The data and findings presented in this article are adapted from a forthcoming China Maritime Studies Institute (CMSI) China Maritime Report.