June 6, 2013:
There’s a major fleet expansion under way in East Asia (including Australia but not India). Current plans call for some 300 large warships (corvettes and larger, including subs and large amphibious ships) and over 500 smaller patrol, minesweeper, and coast defense ships to enter service in the next decade. Some 60 percent of these ships are being built by China, with 5-10 percent of them for export.
The current naval arms race is mostly about the EEZ (Exclusive Economic Zone) overlaps, especially in the South China Sea. China seeks to seize control over all the disputed areas by patrolling these contested waters more frequently and aggressively. International law (the 1994 Law of the Sea treaty) recognizes the waters 22 kilometers from land as under the exclusive and unquestioned jurisdiction of the nation controlling the nearest land. That means ships cannot enter these "territorial waters" without permission. However, the waters 360 kilometers from land are considered the EEZ of the nation controlling the nearest land. The EEZ owner can control who fishes there and extracts natural resources (mostly oil and gas) from the ocean floor. But the EEZ owner cannot prohibit free passage by any ships (including warships) or the laying of pipelines and communications cables. China has already claimed that foreign ships have been conducting illegal espionage in their EEZ and will be expelled for that. But the 1994 treaty says nothing about such matters. China is simply doing what China has been doing for centuries, trying to impose its will on neighbors or anyone venturing into what China considers areas under its “traditional” control.
For the last two centuries China has been prevented from exercising its "traditional rights" in nearby waters because of the superior power of foreign navies (first the cannon armed European sailing ships, then, in the 19th century, newly built steel warships from Japan and the West). However, since the communists took over China 60 years ago, there have been increasingly violent attempts to reassert Chinese control over areas that have long (for centuries) been considered part of the "Middle Kingdom" (or China, as in the "center of the world").
China is particularly concerned about the nearby Spratlys, a group of some 100 islets, atolls, and reefs that total only about 5 square kilometers of land but sprawl across some 410,000 square kilometers of the South China Sea. Set amid some of the world's most productive fishing grounds, the islands are believed to have enormous underwater oil and gas reserves. Several nations have overlapping claims on the Spratly Islands. About 45 of the islands are currently occupied by small numbers of military personnel. China claims them all but occupies only 8, Vietnam has occupied or marked 25, the Philippines 8, Malaysia 6, and Taiwan one.
China prefers to use non-military or paramilitary ships (like those of its coast guard) to harass foreign ships it wants out of the EEZ or disputed warfare. This approach is less likely to spark an armed conflict and makes it easier for the Chinese to claim they were the victims.
China cannot afford a war. Currently China and its allies (North Korea and Russia) are at a disadvantage at sea because all the other neighbors oppose Chinese claims and are allied with the United States and Australia. China trades with all these nations, especially the United States, and faces economic and political catastrophe if it lets this shoving match escalate to a shooting war. But a war of intimidation and bluff is considered winnable, especially once Chinese naval forces grow larger, which they are on track to do in the next decade.