India bad economic reforms – investors moving to Indonesia, Philippines

India now is one of the worst country in terms of investment policy after series of changes occur beginning January 2012.

One of the highlights that hurt investors in India is the new policy for foreign suppliers for any EPC projects in India must fly to India in the end of the year to pay corporate income taxes even without any business activity inside India; pushing global suppliers away not to sell any Equipments and Materials for any EPC projects.

Internal revenue ruling of India dated April 1, 2012 hurts business investors mandating all equipment and materials supplies from around the world to report corporate income taxes for their income in selling supplies to any EPC project in India.

As funds flee, India's pain is Southeast Asia's gain

Southeast Asian nations are swallowing an outflow of money from India, as foreign investors lose patience with its policy paralysis and slowing growth and aim instead for more promising emerging markets such as Indonesia.

Corruption scandals and high inflation have added to India's woes, which have seen growth slow to a three-year low while the fiscal deficit widened to 5.9% of GDP in the last financial year.

"India was sold on the promise of high growth which simply hasn't panned out over the past four years," said Gautam Prakash, founder of U.S. based hedge fund Monsoon Capital.

Foreign investors pulled a net $540 million out from India in March and April, compared with $13 billion in inflows in January-February.

Foreign portfolio flows into Indian stocks have dropped 99% to just 5.17 billion rupees since a March budget that largely disappointed investors, compared with 427.36 billion rupees in 2012 before the budget.

Among the most significant developments from the shift has been the direction in which money is headed - with a big chunk flowing to Jakarta and other Southeast Asian capitals.

Two provisions put forward in the budget to tax indirect investments and combat tax evasion were the last straw for some global mutual funds, prompting an acceleration of money leaving India.

While the provisions were later put on ice, the prospect that such a tax could be proposed in India was enough for some investors to send their Asia-allocated money further east.

"You're seeing a situation where the 'I' in BRIC is being replaced by Indonesia," said Tim Condon, head of research and strategy for Asia at ING.

Left out

An emerging market brochure distributed by Franklin Templeton last month had data on India missing from a world map. From a global leader in emerging market investing, led by omnipresent guru Mark Mobius, that omission was telling.

India exposure in Asia's biggest equity fund, the $18 billion Templeton Asian Growth fund, dropped to 16% of its assets at the end of March from nearly 20% a year ago, while exposure to Association of Southeast Asian Nations countries rose to 35% from 31% during the period.

An ASEAN-focused equity fund launched by Daiwa Asset Management started with about $366 million in February and has since grown to manage about $430 million, while Fidelity Funds-ASEAN has seen a net inflow of nearly $250 million in the last year.

The bigger ASEAN markets do not necessarily offer a compelling case on valuation grounds.

"Generally we are more negative on India than we are positive on the alternatives, such as Indonesia and the Philippines where we feel the markets have perhaps run ahead of themselves," said David Baran, co-founder of Tokyo-based hedge fund Symphony Financial Partners.

"However, the ASEAN alternatives do have more positives and less negatives than India and we think that foreign investment outflows from India into the ASEAN alternatives are highly likely to increase if anything."

Indian shares trade at price to book value of 1.9 times, higher than 1.4 times for Asia Pacific shares as a whole but less than 3.1 times for Indonesia, 2.2 times for Thailand and 2.5 times for Philippines, according to data from Thomson Reuters StarMine.

The trend, nonetheless, is clear as money managers shift away from India, at least for the short-term, towards markets that offer the same favorable demographics and growth potential that had previously drawn investors to Delhi and Mumbai.

Betting on ASEAN countries

Funds from firms such as Aberdeen, Matthews and T.Rowe with mandates to bet in Asia invested a smaller percentage of their assets in India at the end of March compared with the year-ago period and more in Indonesia and other Southeast Asian countries than they did a year ago.

Part of the drop is due to a fall in the value of holdings, but fund flow data tracked by Lipper shows mutual fund clients are responding as well, giving more ammunition to funds betting on Southeast Asia and less to those investing in India.

Investors pulled out nearly $480 million from offshore India dedicated funds in April, increasing the 12-month cumulative net outflows to about $4.1 billion, according to data from Lipper.

By comparison, funds investing in Southeast Asia have seen net inflows of about $900 million in the year ending April.

The gap between the total assets under offshore India funds and that of Southeast Asia fell to a three-year low of about $13.5 billion in April, indicating investors were buying into a region that is home to nearly 600 million people.

Indonesia focused bond funds are in favour too, with eight such funds collecting a cumulative $355 million in the year ending April. HSBC Indonesia Bond Open received $200 million alone.

"We are definitely seeing more interest in ASEAN," said Matt Pecot, head of Credit Suisse's prime broking unit in the Asia Pacific.

Net exposure to India in Asia-focused hedge fund portfolios fell to 18.7% in April from 32.5% in January 2011, according to data compiled by Credit Suisse based on their client portfolios. The same measure for Indonesia surged to 51.8% in April from 24.7% in January 2011.

Net exposure refers to the difference between a hedge fund's long positions and short positions. A higher net exposure means funds are expecting the stock market to rise.

BRIC hits wall

Ten years ago, Chairman of Goldman Sachs Asset Management Jim O'Neill, then the bank's chief economist, combined the emerging market growth stories of Brazil, Russia, India and China to coin the famous "BRIC" moniker. O'Neill recently called India the "biggest disappointment" of the BRIC nations.

"India was a 9 to 10% growth economy when the BRICs were put together and now it's slowing. Indonesia was a 4 to 5% growth economy and it's moving in the other direction," ING's Condon said.

The top-three BRIC mutual funds by assets invested a smaller%age of their assets into India at the end of March than they did a year back, according to data from Lipper. They are also underweight compared with their benchmark, meaning they do not expect India to contribute to portfolio outperformance.

Templeton BRIC fund had 11.7% of its assets in India, its lowest since June 2009.

"India is getting trapped in that high fiscal deficit, high current account deficit situation and there is no easy way out of that unless it takes the tough steps," said Binay Chandgothia, portfolio manager at Principal Global Investors.

Indonesia and the Philippines, meanwhile, have neither current account nor significant budget deficits to worry about, although they do share some of India's problems such as their own fuel and food subsidies, Symphony Financial Partners' Baran said.

With combined GDP of $2 trillion, 10-member ASEAN is angling for foreign investment. Ranging from resource-rich Indonesia to impoverished Laos and financial centre Singapore, ASEAN is planning a union by 2015 to allow for free flow of goods, capital, services and labor.

"As far as stock prices go, foreigners own approximately 40% of the free float of the Indian market," Baran said.

"It will not take much of an exodus for this to have a significant impact on the market and there are clearly plenty of alternatives in ASEAN."

Read related: Business Standards

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Russia change mind – Pushing down Philippines & ASEAN for Sea Disputes

Russia Changes it's tone towards Philippines and ASEAN countries after Putin take office.

Previously, Russia pronounced its support to the Philippines and ASEAN countries for the disputes with China but after Putin took office, its changes it;s tone and giving favor to China's request to back them in the South China Sea Disputes.

Expressing "concern," the Russian Federation declared it is against any meddling by nations other than the claimant-countries in the South China Sea (or West Philippine Sea) territorial dispute, a Russian diplomat said over the weekend.

"This is our official position," said Russian Federation Ambassador to Manila Nikolay Kudashev told the Manila Bulletin at his official residence in Forbes Park, Makati City.

Kudashev said Russia is "mindful" of the fact that, like the United States, it is not a party to the dispute which escalated last month in a standoff between vessels of China and the Philippines at Panatag (Scarborough) Shoal.

"Otherwise it will sound like we are interfering in the internal affairs (of the claimant countries)," he said.

This is the first time that a Russian government official has spoken directly about conflicting claims over the islands in the South China Sea claimed in whole by China and partly by Taiwan, Vietnam, Brunei, Malaysia, and the Philippines.

However, Kudashev was quick to emphasize that the Russian government is also not "indifferent" to the situation in the area considering that the disputed region is very close to its border.

Kudashev said with regards to the freedom of navigation, Russia is one with the US in that they are both "concerned" about the said issue.

"We are continuously committed to the issue of freedom of navigation," he said. "We are part of this region and we believe the freedom of navigation is one of the aspects of the solution to the larger problem of the South China Sea which could be secured by the regional countries, first and foremost."

"We need secured trade, secured communication, that's for all countries like China, US, the Philippines, Singapore and for everyone," he added.

The Russian envoy said what Russia would favor is "a peaceful, negotiated solution by the regional countries, by the countries involved themselves, first and foremost, on the basis of talks and dialogue."

"You could regard it as favoring bilateral solution, if in the course of bilateral talks some other solutions would emerge we would not deny them," said Kudashev. "The UNLOS (United Nations Convention on the Law of the Sea) would provide a good and solid basis."

"Frankly speaking, it is impossible to come to any conclusion, to any solution without talking to one another," the Russian envoy said as he noted that the priority lies with the countries of the region themselves.

With regard to the "outsiders" or countries not directly involved in the dispute such as the United States, Russia, and Europe, Kudashev said that they all possess "convincing legal experience, legal practice and maybe even some ideas."

"If they are being invited by consensus to enrich the legal process, the negotiating process, then it is okay," the ambassador said. "Well, otherwise we would prefer the regional countries to come to a consensus first," he added.

Russia and China are known to agree entirely with each other's positions on certain issues including the crisis in Syria and on North Korea's nuclear program, including a host of other things.

Just last month, both countries undertook their first joint naval exercise following four military exercises involving the two nations since 2005.

The April 22-27 drill took place in the Yellow Sea off China's east coast and involved a total of 16 vessels and two submarines from the Chinese navy and four warships from the Russian navy's Pacific Fleet as well as three supply ships which was summoned for the exercise.

The drill was supposed to focus on joint maritime air defense and defense of marine traffic arteries, including subjects of joint escort, maritime search and rescue, anti-submarine tactics as well as joint effort to rescue hijacked vessels.

Apart from the existing fishing ban in the Panatag Shoal, Malacañang is now discouraging any "patriotic journey" to the disputed area to avoid the escalation of tension with China following the botched trip of a former marine officer in the area.

Presidential Spokesman Edwin Lacierda urged people to show their patriotism by rallying behind the government's efforts to seek a peaceful resolution to the territorial row.

Former Marine officer Nicanor Faeldon earlier planned to visit Panatag Shoal to protest China's claim over the place but was blocked by President Benigno S. Aquino III at the last minute.

The President phoned Faeldon, who had wanted to raise the Philippine flag on the shoal, and asked him to call off his voyage amid diplomatic efforts to resolve the tense standoff.

"I think we can show our patriotism by supporting the position of our government and that would be sufficient expression of support, sufficient expression of patriotism," Lacierda said.

Several recent developments suggest that the situation at the disputed shoal could be much more dangerous, noted an American conservative think tank based in Washington DC.

Dean Cheng, of the Asian Studies Center at The Heritage Foundation, said American policymakers would do well to keep a close eye on these latest developments in the South China Sea involving China and the Philippines, a formal US security treaty ally.

"It could have major implications for the US," Chen said in his paper "Standoff Between China and an American Ally in the Pacific."

Chen cited recent reports that China, the fourth largest source of tourists to the Philippines, has halted tours and called upon Manila to safeguard the safety of those Chinese tourists already in the archipelago.

At the same time, the Chinese have begun to quarantine shipments of Philippine bananas on the grounds that they may be carrying agricultural pests.

Chen said that although neither of these developments might be directly linked to the Scarborough Shoal situation, "they smack of an attempt to bring China's economic power to bear on a diplomatic cause--similar to the heavier-handed economic measures the Chinese took against Japan during the 2010 Senkaku/Diaoyutai incident."

These group of uninhabited islands located in the East China Sea are being claimed by Japan and China.

At that time, Chen said China cut off all shipments of rare earth minerals to Japan, seeking to exploit its dominant position in that market.

Thus far, Chen stated that the Chinese navy has not played a "direct role" as the Chinese vessels accused of encroaching into Philippine territory have all come from civilian agencies.

However, China has undeniable assets at sea, including a naval task force comprising two guided missile destroyers, two frigates, and an amphibious ship operating near Okinawa on exercises, he said.

"Any diversion of this force to Scarborough Shoal would constitute a major escalation of the situation," Chen pointed out.

With the Chinese leadership focused on their "internal succession struggles, to the point of possibly delaying the scheduled Party Congress when the new leadership will be officially announced, Chen said few senior leaders are likely devoting their full attention to this situation.

He said recent reports that head of internal security Zhou Yongkong has been forced to relinquish his powers as part of the ongoing Bo Xilai drama only further underscores "how many things are on Chinese leaders' plate s— and therefore how little attention they may be paying to this."

"Given the internal political situation, though, it is unlikely that anyone would be willing to appear 'weak' by being conciliatory," said Chen. "This may explain the Chinese rejection of the Philippine proposal for arbitration of the dispute under the Law of the Sea Treaty, which both Manila and Beijing have signed."

"One would hope that both parties to the dispute at Scarborough Shoal find a peaceful, face-saving way to back out of this crisis," he added. "But it bears watching by American policymakers in case this does not prove to be the case." (With a report from Genalyn D. Kabiling)

Read related: Manila Bulletin

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Scarborough Shoal, Taiwan is Part of Malay Archipelago – China later than India Exploration.

East Indian Archipelago - Prior to Han Dynasty in the early 3rd Century

The conflict between the Philippines and China over the Scarborough Shoal may appear at first sight a minor dispute over an uninhabitable rock and surrounding shallow waters. But it is hugely important because it encapsulates China's assumption that the histories of the non-Han peoples whose lands border two-thirds of the waters known in English as the South China Sea are irrelevant.

The Philippine case over Scarborough Shoal (Also called Panatag Shoal, Bajo de Masinloc  and China called Huangyan)  has been mostly presented as one of geography. The feature is 135 nautical miles from Luzon, the main Philippine island, and roughly 550 nautical miles from the mainland of China and 300 Nautical  miles from the tip of Taiwan. It is thus also well within the Philippines' Exclusive Economic Zone of 200 Nautical Miles by the United Nation Convention in Laws of Sea (UNCLOS) .

China leapfrogs these inconvenient geographical truths to come up with justifications of its claims which can be applied to the whole South China Sea and thus justify the non-famous dotted line on map which vaguely defines them. This line has never been precisely delineated but comes well within the 200-mile limits of all the other countries, and close to Indonesia's gas-rich Natuna islands.

In the case of the Scarborough Shoal, its historical justification is that this rock and surrounding shallow water is mentioned in a Chinese map of the 13th century when China itself was under alien - Mongol - rule. The fact that a vessel from China had visited the shoal and recorded its existence has thus become one basis for its claim. Very similar pieces of history are trotted out to justify claims to other islands visited by ships from China. Likewise, China's assumption of hegemony is often based on the fact that foreign merchant ships had to pay taxes to trade with China.

History, however, shows that Chinese sailors were latecomers to the South China Sea, let alone to onward trade to the Indian Ocean. The seagoing history of the region, at least for the first millennium of the current era, was dominated by the ancestors of today's Indonesians, Malays, Filipinos and (less directly) Vietnamese. Thus, as China's own records reveal, when the 4th century Buddhist pilgrim Fa Hsien, went to Sri Lanka, he travelled from China to Sumatra and then on to Sri Lanka in Malay ships.

This was not the least surprising given that during this era of sea-going prowess, people from Indonesia were the first colonisers of the world's third largest island, Madagascar, some 4,000 miles away. (The Madagascan language and 50% of its human gene pool are of Malay origin.) This was a thousand years before the much-vaunted voyages of Chinese admiral Zheng He in the 15th century.

Malay seagoing prowess was to be overtaken by south Indians and Arabs, but they remained the premier sea-farers in Southeast Asia until well into the era of European dominance of the region. Indeed, the Malay-speaking Hindu (like much of Southeast Asia at that time) mercantile state of central Vietnam dominated South China Sea trade until the 15th century. The 10th century Arab traveler and geographer al-Masudi made reference to the "Cham Sea", and trade between Champa and Luzon was well established long before the Chinese drew their 13th century map. As Scarborough Shoal not only lies close to the Luzon coast but is on the direct route from Manila bay to the ancient Cham ports of Hoi An and Qui Nhon, it was known to the Malay sailors long ago.

All in all, the Chinese claim to have 'been there first' is like arguing that Europeans got to Australia before its aboriginal inhabitants. But given China's reluctance to acknowledge that Taiwan was Malay territory until the arrival of European conquerors, and then of a surge of settlers from the mainland, such refusal to acknowledge the rights of other peoples is not surprising.

At times, China itself seems to recognize the flimsy basis of some of its historical claims. In the case of the Scarborough Shoal, it backs up its position by reference to the Treaty of Paris 1898 concluding the Spanish-American war and yielding Spanish sovereignty over the Philippine archipelago to the US. This did not mention the shoal but described a series of straight lines drawn on the map which left the shoal a few miles outside the 116E longitude defined by the treaty.

Given that China rejects "unequal treaties" imposed by western colonialists, it is remarkable to find it relying on one between two foreign powers conducted without any reference to the inhabitants of the Philippines. Vietnam can equally well claim all the Spratly Islands as inheritor of French claims over them.

For sure, China has the power to impose its will. But its aggressive stance towards the Philippines, so often seen as an especially weak state, has alerted others, including Japan, Russia and India as well as the US, to its long-term goal which is not ownership of a few rocks but strategic control of the whole sea, a vital waterway between northeast Asia and the Indian Ocean, the Gulf and Europe. The Scarborough Shoal is not just a petty dispute over some rocks. It is a wake-up call for many countries.

The writer is former editor of the Far Eastern Economic Review.

http://articles.timesofindia.indiatimes.com/2012-05-18/edit-page/31750581_1_south-china-sea-chinese-map-china-leapfrogs

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Southeast Asian Sea (ASEAN SEA) to replace South China Sea

This vast body of water can yet be transformed into a highly beneficial regional asset and ASEAN must be the one to initiate and push for this.

LOCATED in south-eastern Asia, the South China Sea is a historically recognized maritime route that acts as a gateway between the Indian and the Pacific Oceans.

It's widely acknowledged vital importance is due to the vast abundance of its natural resources with potential wells of alternative energy supplies. And for obvious strategic reasons, this prime biodiversity spot has long been a regional magnet to various littoral states and major powers within the area.

China, Taiwan and four member-countries of the Association of South-East Asian Nations (ASEAN) are contesting certain parts of the area for these same reasons. These territorial claims have highly alerted other powerful states (including the United States) and multilateral bodies to the pending disputes.

As they certainly have the potential to spark off a future military conflict that could further conflagrate the entire Asia-Pacific region, this has already become a clear global threat. Hence, this strategic regional question now needs an urgent answer.

Certainly, it is ASEAN that will have to be the one to initiate and push for an alternative balance in the region. As a regional association whose member-states are all located in South-East Asia, ASEAN must now strike an independent path.

And for it to do so, ASEAN will have to secure a more regionally focused position that is fully centered on the genuine aspirations of its peoples and not on the strategic objectives of China and the United States.

Towards this directional setting, ASEAN should now rethink and re-invent its currently accepted view of, and attitude to, the South China Sea. This becomes urgently critical after no regional unity was reached in terms of a so-called "Code of Conduct" on this question after last month's 20th ASEAN Summit in Phnom Penh. Surely, this latest regional setback has to be overcome – and soon.

For a start, ASEAN must immediately propose that the area already be declared a "Shared Regional Area of Essential Commons" or SRAEC.

Likewise, this conceptual entity must also be outlined according to its factually precise geographic location on the global map. Because it is clearly located within an area bounded by at least seven littoral South-East Asian states all belonging to ASEAN, it should instead be renamed as the "South-East Asian Sea".

In general, the SRAEC has to be recognized and upheld by all the common stakeholders presently involved in the region's long-term future.

They include state and non-state entities, together with various regional organizations and even global institutions. Its basic premise and thrust is to ensure that all the commonly essential natural maritime resources presently found (and yet to be discovered) within the parameters of the South-East Asian Sea must be collectively shared by all stakeholders. This means the region's vast humanity and not a handful of states and their ruling leaders.

Consequently, the South-East Asian Sea's strategic resources cannot be claimed by just a few and in the name of ancient empires that have long ago disappeared into the library of world history. In the context of today's global environmental realities, the South-East Asian Sea must by now be claimed by the many and in the name of a 21st century world order shared by all of humankind.

In pursuing the conceptual framework of a Shared Regional Area of Essential Commons, its independence and neutrality must always be upheld. This means that the SRAEC should assert from its declared onset that it cannot be absolutely claimed (wholly or partially) by any one state or regional entity, such as China or Asean.

And even more so, the SRAEC must not become a conflict zone under the geopolitical maneuverings of any world power, specifically the globally hegemonic thrusts of the United States.

It will certainly not be very easy to change the Beijing-Washington rivalry with respect to their hegemonic agendas over the broader Asia-Pacific region. At the same time, ASEAN is not collectively united in taking a more independent and neutral stance towards both China and the United States.

This is because some countries, such as the Philippines, are highly prone to run to the US as a counterforce to China. Alas, this divide inside ASEAN is already being exploited by Beijing.

In this regard, China continues to strongly push its demands for a more bilateral and regionally focused solution to the current regional dilemma affecting the South-East Asian Sea area. In contrast to this, the United States is pushing for a more multilateral approach to solve the regional contradiction.

In effect, the Chinese want to ensure their clear dominance over their South-East Asian neighbors without any interference from another superpower. And in an almost similar manner, the Americans also seek to once more intervene within the area by realigning pro-US countries from South-East Asia under its imperialist dictation through a geo­strategic coalition, which is aimed at enhancing American control over the South-East Asian region and containing the Chinese's expansionist actions.

Only a SRAEC with a democratically progressive direction and an openly participative process can radically alter the balance of power in this highly crucial corner of the world. And perhaps this may yet become a critically necessary step towards building a more genuinely "caring and sharing" ASEAN common area for all. — Philippine Daily Inquirer/Asia News Network

Read more http://thestar.com.my/news/story.asp?file=/2012/5/20/asia/11312135&sec=asia

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Philippines hosts Back to Back USA - ASEAN Meeting in Manila – Amidst Stand-off with China

The Philippines will host the 25th Association of Southeast Asian Nations-United States Dialogue and the first Meeting of the ASEAN-U.S. Eminent Persons Group (EPG) in Manila from May 20 to 22, 2012 as announced by the Philippine Department of Foreign Affairs – Thursday (5/17/2012).

The ASEAN-U.S. Dialogue is a regular meeting held between ASEAN and U.S. Senior Officials who will review the progress in ASEAN-U. S. cooperation and exchange views on regional and international developments, including the launching of the ASEAN-U.S. EPG and preparations for the 4th ASEAN-U.S. Leaders' Meeting in November, the Ministry said in a statement released Thursday.

The 25th ASEAN-U.S. Dialogue will be co-chaired by Philippine Foreign Affairs Undersecretary for Policy Erlinda Basilio, in her capacity as Philippine Senior Official Meeting (SOM) Leader, and by Assistant Secretary Kurt Campbell of the U.S. State Department- Office for East Asia and the Pacific, it said.

Prior to the Dialogue, the ASEAN-U.S. EPG will meet for the first time on May 21. The meeting, a recommendation of ASEAN-U.S. Leaders, is to discuss issues including reviewing ASEAN-U.S. relations and recommending future actions; strengthening cooperation and coordination in specific sectors, such as trade and investment, disaster response and energy security; and identifying new steps for the effective implementation of the decisions of previous ASEAN-U.S. Leaders' Meetings and the Plan of Action to Implement the Joint Declaration on ASEAN-U.S. Enhanced Partnership.

The role of the EPG is to review ASEAN-US relations and recommend future actions, including opportunities to enhance cooperation on regional and global issues.

It is also tasked to strengthen cooperation and coordination in specific sectors, such as trade and investment, disaster response and energy security.

The EPG will identify new steps for the effective implementation of the decisions of previous ASEAN-US leaders' meetings and the plan of action to implement the Joint Declaration on ASEAN-US Enhanced Partnership.

Philippine officials, who are hosting the May 20-22 meetings, did not immediately say if maritime issues, including the territorial spat with China in the West Philippine Sea, would be tackled.

Manila and Beijing are locked in a tense maritime standoff at the disputed Panatag (Scarborough) Shoal, which China calls Huangyan Island, since April 10.

Both countries are seeking a quick end to the impasse in the shoal 124 nautical miles off Luzon's northwestern coast and china's 472 nautical miles from its closest province in Hainan.

The Philippines has asked the ASEAN and foreign governments to take a stand against what it perceives as China's looming threat to freedom of navigation in the West Philippines Sea (South China Sea).

The Philippine Department of Foreign Affairs (DFA), in a statement, said the dialogue is "a regular meeting" held between senior officials from the two sides "to review the progress in ASEAN-US cooperation."

Both sides would also exchange views on regional and international developments, it added.

The Philippines is the country coordinator for ASEAN-US dialogue relations from 2009 to 2012.

The ASEAN is a regional bloc of democratic, socialist and aristocratic states formed in the Cold War era. Its member states are the Philippines, Thailand, Malaysia, Indonesia, Singapore, Brunei, Vietnam, Cambodia, Laos and Myanmar.

These countries, at one time or another, had been engaged in conflicting territorial claims.

China-leaning ASEAN members, like Cambodia and Laos, have generally echoed Beijing's stance of tackling the recent territorial dispute bilaterally, while US allies, such as the Philippines, Vietnam and Singapore have called for a multilateral solution to the problem.

The latest dispute that has run for almost six weeks, Philippine and Chinese vessels are facing off in the shoal, a ring-shaped coral reef with rocky outcrops encircling a lagoon in Zambales Province of the Philippines.

China's nearest Hainan province lies 472 nautical miles from the Panatag Shoal, which lies 124 nautical miles of Zambales province in Luzon.

Beijing has rejected Manila's claim and argued the shoal's proximity to the disputed area cannot be a basis for ownership.

Philippine officials said the shoal is also well within the Philippines' 200-nautical mile exclusive economic zone (EEZ), an area where coastal countries have sole rights to exploit and develop, based on the United Nations Convention on the Law of the Sea (UNCLOS).

Both China and the Philippines have ratified the UNCLOS.

But China says it owns the shoal on the basis of ancient maps, records and what Beijing says is its discovery of the area in ancient times. 

The US is one of the longstanding dialogue partners of ASEAN, having established relations with the regional bloc in 1977.

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USA fast attack submarine USS North Carolina surface in Scarborough Shoal amidst China- Philippines Standoff

US Virginia Class fast attack submarine USS North Carolina (SSN-777)

One of the most modern submarine in the United States (US) Navy, on a current deployment to ensure freedom of navigation in the Western Pacific, surfaced at Subic Bay in Zambales on Sunday.

The arrival of Virginia Class fast attack submarine USS North Carolina (SSN-777) came amid a tense territorial standoff for more than a month now between the Philippines and China in Panatag Shoal, a rock formation 124 nautical miles from mainland Zambales.

"The crew is proud of our recent contributions as part of our country's commitment to maintaining freedom of navigation, peace and stability in the region," said Cmdr. Richard Rhinehart, North Carolina's commanding officer, in a press statement released by the United States-Pacific Command (USPACOM).

USS Carolina is the fourth submarine in the Virginia Class, the Navy's newest class of submarine and the first ship designed for the post Cold-War environment.

The submarine is designed to operate with stealth, agility and endurance in the world's littoral regions, as well as the deep oceans.

Unlike the visits of other US vessels in the country, the docking of USS Carolina at Subic bolstered earlier speculations that the US government, while openly declaring that it will not interfere with any territorial disputes in the region, is also closely watching the prevailing standoff between the Philippines and the China over the ownership of the the Bajo de Masinloc or "Karburo" to the local fishermen.

The Panatag shoal is called Scarborough and also Huangyan Island by the Chinese.

The Philippines and the US are binded by the Mutual Defense Treaty (MDT), which requires both parties to come to defend any of the party in an event of an armed aggression.

While Philippine Navy (PN) officials appeared not to be fully aware of the USS Carolina presence in Subic, high-level sources said the submarine would be staying at former US Naval base for reprovisioning before leaving on May 19.

USS Carolina whose homeport is Pearl Harbor in Hawaii is 350 feet long and weighs more than 7,800 tons when submerged. The vessel is one of the stealthiest, most technologically advance submarines in the world.

"She brings to the region the capability to conduct the full spectrum of potential submarine missions including anti-submarine warfare, naval special warfare involving special operations forces, intelligence, surveillance, and reconnaissance, and mine warfare," the US Pacific Command (USPACOM) in a press statement said.

US - SSN Virginia Class Cutaway 774 

Relatedly, the Philippine Navy's flagship, BRP Gregorio del Pilar, a second-hand Hamilton Class Cutter acquired from the US, was pulled out from its maritime mission in the West Philippine Sea to undergo maintenance check.

But contrary to reports that the Frigate's weapons systems bogged down at the height of the standoff in Panatag last week, everything is working, the Navy said.

"It's just a scheduled maintenance. She underwent preventive maintenance last week," Navy spokesman Lt. Col. Omar Tonsay, said of the Frigate.

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