The South China Sea 'V-I-P' solution

At this point, it's pretty clear that ongoing tension between the Philippines and China over disputed offshore areas like Scarborough Shoal is creating blow back. As a result, it can be argued China now has more to lose than to gain from aggressive tactics in the South China Sea.

This argues for a deal. The best possibility is for China and the V-I-P countries (for instance) to agree to create Joint Development Areas in the South China Sea linked by common infrastructure. This infrastructure could be built by - yes - China's state infrastructure champions under a revitalized 'social license' with her neighbors.

Creating Joint Development Areas postpones indefinitely resolution of the hard territorial issues. Meanwhile, creation of Joint Development Areas offers huge opportunities for China's big infrastructure companies - which now enjoy economies of scale that can benefit everyone.

The littoral nations, meanwhile, gain from the economic multiplier effect of various subsidiary service contracts.

The above also provides a means for China to reduce her multi-trillion dollar, globally-destabilizing dollar hoard through recycling it into infrastructure via the Asian Development Bank or China's own Asian Infrastructure Investment Bank - to name just two financial intermediaries.

Those investments will raise regional living standards. This will occur due to the economic multiplier effect as the initial investment dollars are progressively spent and respent in the regional economy.

Increased energy security, deeper economic connectivity, market-arbitrated access to new oil and gas developments and super-charged economic growth and multi-decade postponement of hot-button territorial issues until the stakes are lower.

There's a lot to like here.

Strategically, the coming year favors the Philippines. It will enjoy two big megaphones. It will almost certainly use them.

As early as later this year, a United Nations Convention on the Law of the Sea (UNCLOS) appeals tribunal may rule on the Philippines' appeal of its South China Sea maritime dispute with China.

China says it will refuse to recognize the tribunal, and won't abide by any judgment that goes against it.

Doing so, however, holds huge political and economic risks for China and her large infrastructure companies due the ugly unilateralism it will spotlight.