By Ting Shi, David Tweed and Aibing Guo
(Bloomberg) — President-elect Donald Trump’s pick for top U.S. diplomat comes with Chinese geopolitical entanglements. In his favor is years of dealing with some of the country’s biggest oil companies.
As chief executive officer of Exxon Mobil Corp. since 2006, Rex Tillerson has seen his company snared in territorial disputes in the South China Sea. An exploration venture with Vietnam has brought it into the cross hairs of China, one of the countries claiming the disputed waters.
Tensions over energy rights last came to the fore in 2014, when China parked an exploration rig near Vietnam, setting off clashes at sea with its coast guard vessels and fishing boats. The fight for access to fishing grounds, oil and gas in the South China Sea remains one of the biggest potential flash points in the western Pacific, amid a broader tussle between rising power China and established power the U.S. for influence.
Still, the South China Sea issue presents both a risk and opportunity for Chinese-U.S. ties should Tillerson pass a potentially fraught confirmation process for secretary of state. With more than a decade of experience interacting with Chinese state-owned companies and their leaders — many of them senior Communist Party officials — Tillerson could bring a fresh perspective to the region’s territorial spats.
“He’s clearly going to have to be very careful in negotiations around anything directly involving Exxon Mobil,” said Ian Bremmer, president of Eurasia Group, a New York-based political risk consultancy. “There’s going to be massive scrutiny around that,” he said. “The U.S.-China relationship is one to watch carefully in the first few months of the administration.”
Whoever takes the role of secretary of state faces an unpredictable environment with the potential for sudden policy swings. Trump’s protocol-breaking phone call with Taiwan’s president this month, and his attacks on China on Twitter, have sparked friction between the world’s two biggest economies before he even takes office. Amid Trump’s recent remarks, China flew a bomber through the South China Sea in what it called a normal flight operation.
Under President Barack Obama, the U.S. has beefed up its military presence in the western Pacific and restarted “freedom of navigation” operations in the South China Sea, which challenge unilateral claims to sovereignty. China has undertaken large land reclamation on disputed reefs in recent years to expand its military footprint.
Tillerson has rarely commented directly on the South China Sea, or on broader China matters. The company has sustained its exploration ties with Vietnam in the face of China’s efforts to get Vietnam to cede ground on territorial matters. China warned Exxon on several occasions about its activities, including in June 2008, according to leaked U.S. diplomatic cables released by WikiLeaks.
Still, Tillerson has regularly visited China and met the heads of state-run oil companies, according to Chinese state media. He went to China mid-year and saw Wang Yilin, chairman of China National Petroleum Corp. CNPC’s website showed a photo of them shaking hands and smiling.
“He’s pragmatic, decisive, and has a good reputation in the Chinese oil industry,” said Lin Boqiang, an adviser to the National Energy Administration of China and director of Xiamen University’s energy economics research center.
Exxon has been doing business in China for more than a century. Its predecessor Standard Oil sold kerosene there in the 1890s. It was one of the first multinational companies to jump when China opened its door to foreign investment in the late 1970s.
There will be some focus on how Tillerson approaches the South China Sea if he ends up as Trump’s top diplomat. That’s because in 2009 Exxon bought the rights to jointly explore almost 14 million acres (5.7 million hectares) off the coast of Vietnam, according to the WikiLeaks cables. Some of that area is claimed by China.
Exxon’s work is focused on a field in undisputed territory about 80 kilometers (50 miles) offshore from central Vietnam, spokesman Aaron Stryk said in response to e-mailed questions. He declined to comment on reports China warned Exxon against exploring in disputed areas.
“Border issues are a matter for governments to address through appropriate channels,” Stryk said. “We have a successful history of working with various governments and partners around the world to maximize the value of hydrocarbon resources.”
Fu Mengzi, vice president of the State Security Ministry-backed China Institutes of Contemporary International Relations, said a Trump-Tillerson team would shift the U.S. from the “security diplomacy” of the Obama administration toward “economy diplomacy.”
“This type of diplomacy believes in mutual business interests and transactional equality, which holds value for China,” said Fu.
Foreign Ministry spokesman Geng Shuang, speaking at a regular briefing Tuesday, said China was willing to work with whoever became secretary of state. “We hope that departments in charge of foreign affairs of our two countries can enhance communication and cooperation,” Geng said.
Exxon has limited investments in exploration and drilling in China, and invests in chemical companies in several provinces. Tillerson spoke at the opening ceremony of a $4.5 billion joint venture refinery in the eastern province of Fujian in late 2009, when then-Vice President Xi Jinping sent a congratulatory message.
“Exxon’s presence in China is not strategic, but I can’t see Tillerson supporting a deep undermining of relationships with China,” said Philip Andrews-Speed, a fellow at the Energy Studies Institute in Singapore. “That would be counter-productive.”
© 2016 Bloomberg L.P