US and Philippine navy personnel prepare to launch an unmanned aerial vehicle from a boat off the naval base in Sangley point, west of Manila. The six-day exercises were held last month, close to Scarborough Shoal, which China insists it owns. (TED ALJIBE/AFP/GETTY IMAGES)

China’s most daring adversary in Southeast Asia is, by many measurements, ill-suited for a fight. The Philippines has a military budget one-fortieth the size of Beijing’s, and its navy cruises through contested waters in 1970s hand-me-downs from the South Vietnamese.

From that short-handed position, the Philippines has set off on a risky mission to do what no nation in the region has managed to do: thwart China in its drive to control the vast waters around it.

Analysts say the Philippines’ strategy, in standing up to Asia’s powerhouse, is just as likely to backfire as succeed. But it provides a crucial test case as smaller countries debate whether to deal with China as a much-needed economic partner, a dangerous maritime aggressor, or both.

The Philippines doesn’t view China exclusively as a threat, officials here say, noting that trade between the countries is growing. The Philippines has also used caution at times, most notably by holding off on provocative plans to drill in what could be the nation’s richest oil and gas field. But analysts point to a series of steps taken in recent months that suggest that Manila is increasingly willing to confront Beijing. They also note that the Philippines has suspended or canceled several development deals that depended on generous Chinese aid.

Earlier this year, the Philippines filed a case with the United Nations contesting China’s maritime claims. More recently, the Philippines has increased its manpower on disputed islands, approved upgrades to decrepit military equipment and discussed plans that would give the United States expanded access to Philippine air and naval bases. Speaking to his armed forces in May, Philippine President Benigno Aquino III said the nation needed to protect its maritime territory from “bullies.”

South China Sea dispute (The Washington Post/Source: Staff reports)

Battles over territory in Asia go back centuries, but China has made an increasingly aggressive play in recent years to recover land that it says fell wrongly into foreign hands. China has made a case for ownership of nearly the entire South China Sea, marking its territory with a nine-dash line on a map that it submitted to the United Nations in 2009.

At least four other neighbors — Brunei, Malaysia, Taiwan and Vietnam — are skirmishing with China over the tiny islands and the waters within that boundary. They covet sovereignty not just as a matter of pride but also to claim rich fisheries and underwater oil and gas resources.

But they have reason to tread cautiously. China is Malaysia’s largest trading partner. Brunei depends on China as a market for its fossil fuel exports. Taiwan’s president, Ma Ying-jeou, has fostered a major improvement in relations with Beijing.

Comparatively, Vietnam has been more willing to anger China. The two nations have a legacy of centuries of animosity, including a brief border war in 1979 and more recent clashes at sea. But the two are also communist partners, capable of patching up frayed ties.

Some Filipinos say their country is more suited than others in the region to play tough with China. The Philippines has deep ties to Washington, stemming from a U.S. colonial period that ended in 1946. China and the Philippines took opposite sides in the wars in Korea and Vietnam, as well as in the Cold War.

Political experts here say the Philippines’ strategy on China is being mapped out by its foreign affairs secretary, Albert del Rosario, a former ambassador to Washington. Aquino is said to be fully on board with the policy.

Del Rosario last year called on the Philippines to “take a position of patriotism that what is ours is ours.”

“It is possible that we may be tested,” he said, “and if we are tested, it is possible that everyone would need to make a sacrifice.”

Collapse of goodwill

Just a few years ago, China tried to make friends with the Philippines — and nearly succeeded. The reason it fell short indicates the limits of soft power — namely, aid and investment deals — at a time when China has made a priority of expanding its foreign influence.

Under the previous Philippine president, Gloria Macapagal Arroyo, Beijing showered Manila with more than $2 billion in loans. Some of the money was meant for railroad projects. An additional $330 million was designed to fund a broadband network that would connect 25,000 municipal offices. As the money was flowing, the Philippines signed off on what Arroyo called a “diplomatic breakthrough” — a tripartite deal that allowed China and Vietnam to survey contested maritime territory near Philippine shores, in the hope of joint oil and gas development.

The goodwill collapsed in short order. The broadband deal was laced with kickbacks for Philippine officials, as a congressional investigation revealed. The joint surveying deal came under even fiercer attack, as opposition politicians and many prominent Filipinos said Arroyo had violated the constitution by essentially giving away territory. Although the Joint Marine Seismic Undertaking (JMSU) was never described by Arroyo as a quid pro quo for economic cooperation, it was signed in 2005, when relations with Beijing were at their best.

“In my opinion, it was a sellout,” said Rommel Banlaoi, chairman of the Philippine Institute for Peace, Violence and Terrorism Research. “The terms of the JMSU were so biased. Only areas of the Philippines were allowed for exploration.”

Arroyo, under domestic pressure, allowed the initial three-year JMSU contract to lapse in 2008. But the collapse of the deal reopened a decades-long debate between the Philippines and China over the rights to seabed hydrocarbons. The Philippines worked out unilateral deals to prospect for oil and gas. And China, in turn, increased its surveillance of the waters, badgering Philippine vessels in places where they had previously gone unbothered.

None of the standoffs have turned violent, but in March 2011, Manila accused two Chinese coast guard boats of harassing a Philippines-commissioned oil exploration vessel near Reed Bank, a promising drilling site about 80 nautical miles off the coast of Palawan, the Philippines’ western­most major island. The Philippines has since put the project on hold, citing political tensions.

That holdup has proved to be the most costly repercussion of the row with China. The Philippines had been exploring the Reed Bank for nearly four decades and considered it crucial to the energy security of a nation that imports most of its fossil fuels from the Middle East.

“This site could be earning $1 billion per year for the Philippines,” said Ismael Ocampo, assistant director at the Energy Department in Manila. “So, yes, this holdup is costly.”

A vocal minority in the Philippines says that Aquino should re-embrace China and again pursue joint development. “Right now, nobody’s getting rich,” said Jose de Venecia, speaker of the House under Arroyo, who helped broker deals with China. “Here, we are getting zero resources. And not only that, but also a lot of stress and problems.”

Island disputes

Aside from standoffs between vessels at sea, China and the Philippines have only the most furtive maritime contact, as each monitors the activities of the other around the South China Sea’s tiny islands, reefs and sandbars.

China and the Philippines, along with Vietnam, have spent recent years establishing settlements on these islands on a first-come basis. The Philippines inhabits nine of the 53 such rocks or islands that it considers its own, citing a U.N. maritime treaty. The Vietnamese have claimed 22, though without eliciting quite the same scorn from Filipinos as China. Meanwhile, China has placed an estimated 1,000 troops on seven islands. It has turned one tiny reef into a concrete fortress with a windmill and a basketball court.

Philippine officials see little chance that the Chinese will withdraw.

“It’s like they have already invaded us,” said Eugenio Bito-Onon, mayor of the Philippine-claimed islands, which are an official municipality.

Carmela Cruz contributed to this report.