US-China Military Drills Held Simultaneously in South China
In early 2026, simultaneous large-scale military exercises by US and Chinese forces in the South China Sea have pushed the risk of accidental collision to its highest level since the Cold War. This tension is not merely a military demonstration but a structural turning point that will rewrite the very order of the Indo-Pacific.
── Understand in 3 points ─────────
- • From January to March 2026, the US Navy conducted a large-scale "freedom of navigation" operation in the South China Sea, centered around two carrier strike groups. It is considered the largest since the Cold War.
- • The Chinese People's Liberation Army Navy (PLAN) conducted large-scale military exercises, including live-fire drills, around the Spratly and Paracel Islands during the same period. Over 40 vessels were reportedly involved.
- • At the ASEAN Foreign Ministers' Meeting (February 2026), negotiations over the wording of a joint statement on the South China Sea issue faced difficulties, ultimately settling on an expression of "concern."
── NOW PATTERN ─────────
The dominant pattern is a "spiral of conflict" where both the US and China interpret the other's actions as a "threat" and justify their own military responses. This is compounded by "alliance strain" within ASEAN and "power overreach" by both major powers, making a rational exit for crisis management difficult to discern.
── Probability and Response ──────
• Basic Scenario (Base case) 55% — Some resumption of dialogue between US and Chinese leaders, stabilization of the frequency of close encounter incidents, minimal consensus formation at the ASEAN Foreign Ministers' Meeting, gradual increase in South China Sea-related military spending.
• Optimistic Scenario (Bull case) 20% — Announcement of resumption of US-China military dialogue, agreement on reducing incidents in the South China Sea, substantial progress in COC negotiations, shift in Xi Jinping's administration towards prioritizing the economy.
• Pessimistic Scenario (Bear case) 25% — Escalation of physical clashes at Second Thomas Shoal, collision incident involving US and Chinese vessels, new effective control actions over islands by China, imposition of US military sanctions against China, linked tensions with the Taiwan Strait.
📡 THE SIGNAL — What Happened
Why it matters: In early 2026, simultaneous large-scale military exercises by US and Chinese forces in the South China Sea have pushed the risk of accidental collision to its highest level since the Cold War. This tension is not merely a military demonstration but a structural turning point that will rewrite the very order of the Indo-Pacific.
- Military — From January to March 2026, the US Navy conducted a large-scale "freedom of navigation" operation in the South China Sea, centered around two carrier strike groups. It is considered the largest since the Cold War.
- Military — The Chinese People's Liberation Army Navy (PLAN) conducted large-scale military exercises, including live-fire drills, around the Spratly and Paracel Islands during the same period. Over 40 vessels were reportedly involved.
- Diplomacy — At the ASEAN Foreign Ministers' Meeting (February 2026), negotiations over the wording of a joint statement on the South China Sea issue faced difficulties, ultimately settling on an expression of "concern."
- Diplomacy — By the end of 2025, the Philippines began operating four new bases under the Enhanced Defense Cooperation Agreement (EDCA), drawing strong condemnation from China, which stated it "undermines regional stability."
- Economy — The annual trade volume passing through the South China Sea is approximately $3.4 trillion, accounting for about one-third of global maritime trade.
- Legal — The 2016 South China Sea Arbitration Award (Philippines v. China) invalidated China's nine-dash line, but China continues to disregard the ruling as "a piece of paper."
- Military — The US Department of Defense reported in its 2025 "Annual Report on China's Military Power" that the PLAN's combat vessel count exceeds 370, numerically surpassing the US Navy (approx. 290 vessels).
- Technology — Multiple satellite image analyses confirmed that China has completed the deployment of HJ-12B anti-ship cruise missiles and HQ-9B surface-to-air missiles on its artificial islands in the Spratly Islands.
- Diplomacy — Japanese Prime Minister Shigeru Ishiba emphasized adherence to a "Free and Open Indo-Pacific" in his policy speech in January 2026 and hinted at considering an increase in defense spending to over 2% of GDP.
- Resources — The US Energy Information Administration (EIA) estimates that the South China Sea holds an estimated 11 billion barrels of oil and 190 trillion cubic feet of natural gas.
- Diplomacy — An informal meeting between Xi Jinping and the successor to President Biden did not materialize at the APEC Summit in November 2025, leaving direct dialogue channels between US and Chinese leaders severed.
- Military — In 2025, 15 "close encounter" incidents involving US and Chinese warships and military aircraft were reported in the South China Sea, a 50% increase from the previous year.
To understand the escalation of US-China confrontation in the South China Sea, it is necessary to grasp the historical context spanning at least half a century.
The root of China's territorial claims in the South China Sea dates back to the "Eleven-Dash Line" (later revised to the "Nine-Dash Line" by the People's Republic of China) depicted on a map issued by the Republic of China government in 1947. This line places almost the entire South China Sea under China's jurisdiction, directly conflicting with the claims of Vietnam, the Philippines, Malaysia, Brunei, and Taiwan. However, during the Cold War, the US-Soviet rivalry was the main axis of international order, so the South China Sea territorial issue remained a relatively low priority.
A turning point came in the 1990s. After the end of the Cold War, China embarked on modernizing its naval power, backed by rapid economic growth. The 1995 occupation of Mischief Reef created direct friction with the Philippines, and the South China Sea began to attract international attention as a geopolitical hotspot. During this period, the United States enjoyed post-Cold War "unipolar dominance," and its strategic interest in the Asia-Pacific was limited compared to the Middle East and the Balkans.
In 2009, China formally submitted a map including the nine-dash line to the UN, marking a new phase for the South China Sea issue. The 2012 standoff with the Philippines over Scarborough Shoal, and the large-scale construction of artificial islands in the Spratly Islands that began in earnest in 2013, demonstrated China's clear adoption of a "fait accompli" strategy. By 2015, China had completed seven artificial islands, installing runways, radar facilities, and missile launchers.
The Obama administration's "Pivot to Asia" policy in response suffered from a gap between intent and execution. With continued military commitments in the Middle East, resource allocation to Asia was limited, and China's artificial island construction could not be effectively prevented. The 2016 arbitration ruling was legally groundbreaking, but the lack of an enforcement mechanism meant it could not change China's behavior.
The first Trump administration (2017-2021) escalated US-China rivalry to a new dimension with a trade war and significantly increased the frequency of "freedom of navigation" operations in the South China Sea. The Biden administration (2021-2025) institutionalized the containment strategy against China through the creation of AUKUS (Australia-UK-US security pact) and the strengthening of the Quad. Concurrently, Philippine President Marcos Jr. shifted to a pro-US stance and agreed to expand EDCA, qualitatively changing the US presence in the South China Sea.
So, why "now"? Multiple structural factors are converging to intensify tensions in 2026. First, China's economic slowdown. Facing domestic challenges such as the collapse of the real estate bubble, persistently high youth unemployment, and accelerating population decline, the Xi Jinping administration uses a hardline stance externally as a political tool to maintain domestic cohesion. Second, the uncertainty of the US presidential transition. The new administration's China policy, following the 2025 presidential election, is not yet fully defined, creating an incentive for China to undertake "probing" actions. Third, the intensification of competition for technological hegemony. US-China technological decoupling in semiconductors, AI, and quantum computing is spilling over into military technology, simultaneously boosting both sides' military confidence and distrust.
Deeper still, there is the instability inherent in a period of international order transition. The structural contradiction between the US-led "rules-based international order" and China's desired "new type of international relations" is sharpening in the specific geographical space of the South China Sea. Historically, power transitions between an existing hegemon and a rising great power are the most dangerous phases, and this dynamic, which Graham Allison termed the "Thucydides Trap," is becoming a reality in the South China Sea in 2026.
The delta: The simultaneous US-China military exercises in early 2026 qualitatively transformed the level of tension in the South China Sea from "strategic competition" to "a realistic risk of accidental collision." The rapid increase in close encounter incidents, the severance of leader-level dialogue channels, and the entrenchment of hardline stances due to domestic politics on both sides are rapidly narrowing the margin for escalation management.
🔍 BETWEEN THE LINES — What the Reports Aren't Saying
While official statements from both nations cite "freedom of navigation" and "sovereignty defense," what is unfolding beneath the surface is a competition to establish negotiating positions for 2027 and beyond. China is accelerating the completion of military infrastructure on its artificial islands, which, once finished, would fix the "status quo" baseline in China's favor. The US recognizes that the last window to prevent this is closing and is accelerating the involvement of its allies. In essence, the 2026 military exercises are not about "deterrence" but an overt manifestation of a hidden competition: "accelerating fait accompli vs. preventing it." The silence of ASEAN nations is not neutrality but a strategic waiting game to "back the winning horse" after the outcome of great power negotiations.
NOW PATTERN
Spiral of Conflict × Alliance Strain × Power Overreach
The dominant pattern is a "spiral of conflict" where both the US and China interpret the other's actions as a "threat" and justify their own military responses. This is compounded by "alliance strain" within ASEAN and "power overreach" by both major powers, making a rational exit for crisis management difficult to discern.
Intersection of Dynamics
The three dynamics of "spiral of conflict," "alliance strain," and "power overreach" are transforming the South China Sea crisis from a mere bilateral military tension into a structurally uncontrollable complex crisis. The mechanisms by which these dynamics mutually reinforce each other are as follows:
First, the "spiral of conflict" exacerbates "alliance strain." As military escalation between the US and China progresses, ASEAN nations are forced to choose "which side to take," deepening divisions within the organization. Frontline states like the Philippines are compelled to strengthen their alliances with the US, while China-dependent countries like Cambodia clarify their pro-China stance. This polarization weakens ASEAN's mediating function and reduces opportunities for multilateral de-escalation.
Next, "alliance strain" accelerates the "spiral of conflict." ASEAN's inability to present a unified voice signifies the success of China's "divide and rule" strategy, providing an incentive to increase pressure on individual claimant states. In response, the US strengthens bilateral security cooperation to compensate for ASEAN's dysfunction, further reinforcing China's perception of "encirclement."
Furthermore, "power overreach" diminishes the ability of both major powers to find rational compromises. For both nations, having concentrated limited resources in the South China Sea, "backing down" implies the realization of sunk costs, which is politically unacceptable. As a result, both sides cling to the hopeful expectation that "if we just apply a little more pressure, the other side will yield," further accelerating the spiral of conflict.
The most dangerous aspect of this triple-reinforcing structure is that the "exit" is structurally closed. With the triple constraints of severed leader-level dialogue, weakened ASEAN mediation, and entrenched hardline stances due to domestic politics, institutional and political means for de-escalation are being depleted. Historically, such structural impasses dramatically increase the probability that an accidental incident will trigger unintended escalation.
📚 HISTORY OF PATTERNS
1914: Outbreak of World War I (Sarajevo Incident)
Spiral of Conflict + Alliance Rigidity
Structural similarities with the present: Automatic alliance participation mechanisms and rigid military plans escalated a local incident into a world war. The lack of flexible diplomatic channels to manage accidental incidents was decisive.
1962: Cuban Missile Crisis
Spiral of Conflict + Power Overreach
Structural similarities with the present: The US and Soviet Union reached the brink of nuclear war but ultimately averted it through compromise via secret diplomatic channels (the Robert Kennedy-Dobrynin Channel). This demonstrated the indispensability of backchannels for crisis management.
2001: Hainan Island Incident (EP-3 Incident)
Spiral of Conflict + Accidental Collision
Structural similarities with the present: A US reconnaissance plane and a Chinese fighter jet collided in the airspace over the South China Sea. Diplomatic resolution took 11 days. This demonstrated the risk of accidental collisions directly leading to escalation, and simultaneously, how such incidents can serve as catalysts for building crisis management mechanisms.
2012-2016: Scarborough Shoal Standoff and Arbitration
Fait Accompli + Institutional Limits
Structural similarities with the present: Despite the Philippines achieving a legal victory internationally, China's effective control remained unchanged. This exposed the structural limitations of the international order, where legal judgments alone cannot alter the behavior of great powers.
2022-2023: Taiwan Strait Crisis (Post-Pelosi Visit)
Spiral of Conflict + Domestic Political Constraints
Structural similarities with the present: China's large-scale military exercises in response to Speaker Pelosi's visit to Taiwan had a strong aspect of responding to domestic nationalism. This clearly demonstrated the mechanism by which domestic politics constrains external actions and makes de-escalation difficult.
Patterns Revealed by History
Historical precedents consistently point to three lessons. First, while a spiral of conflict does not necessarily lead directly to war, it becomes critically dangerous when the ability to manage accidental incidents (backchannels, hotlines, leader-level dialogue) is lost. Secret diplomacy functioned during the 1962 Cuban Missile Crisis, but it was absent in Sarajevo in 1914. The South China Sea in 2026, with its frozen US-China military dialogue, resembles a 1914-type risk profile. Second, a fait accompli strategy may succeed in the short term but structurally entrenches conflict in the long term. China's artificial island construction has consistently progressed since the 2012 Scarborough Shoal standoff, but this has provoked countermeasures from the US and frontline ASEAN states, accelerating the militarization of the entire region. Third, domestic political constraints operate in both directions. Not only Chinese nationalism but also the bipartisan US hardline consensus against China deprives leaders of flexibility. History repeatedly warns that a spiral of conflict without an exit is the most dangerous.
🔮 NEXT SCENARIOS
The most probable scenario is "sustained managed tension." Both the US and China will continue to conduct large-scale military exercises, and close encounter incidents will persist, but neither side will resort to actual use of force. There are three reasons for this.
First, the costs of actual military conflict would significantly outweigh the benefits for both sides. China's economy remains highly dependent on external demand, and any disruption to South China Sea navigation would also harm its own trade. For the US, a full-scale military confrontation with China is economically and militarily unsustainable. Second, on-site mechanisms for avoiding accidental collisions (CUES: Code for Unplanned Encounters at Sea) are not completely defunct. Third, there is a possibility that a US-China summit will materialize in some form during 2026, restoring a minimum communication line.
In this scenario, the South China Sea will become entrenched in a state of high tension as the "new normal." ASEAN nations will continue their "hedging" strategies, and Japan will steadily advance its defense buildup. Economic interdependence will shrink but not lead to complete decoupling. Markets will factor in geopolitical risk as "chronic uncertainty," reflecting it as a persistent risk premium rather than sharp fluctuations.
Implications for Investment/Action: Some resumption of dialogue between US and Chinese leaders, stabilization of the frequency of close encounter incidents, minimal consensus formation at the ASEAN Foreign Ministers' Meeting, gradual increase in South China Sea-related military spending.
In the optimistic scenario, some crisis management framework concerning the South China Sea will be agreed upon between the US and China in 2026. This would not be a full reconciliation but a limited set of "rules for collision avoidance."
Multiple conditions could lead to this scenario. First, if an accidental incident (such as a close encounter between aircraft or contact between vessels, without human casualties) acts as a "wake-up call," prompting leaders on both sides to recognize the reality of escalation risks. This would be similar to the establishment of the US-Soviet hotline after the 1962 Cuban Missile Crisis. Second, if China's economic slowdown becomes even more severe, forcing the Xi Jinping administration to prioritize domestic economic stability over external tensions. Third, if ASEAN achieves substantial progress in negotiations for a Code of Conduct (COC) in the South China Sea, advancing multilateral rule-making.
If this scenario materializes, the risk premium in the South China Sea would decrease, and investment in ASEAN countries would be revitalized. The pace of Japan's defense spending increase would ease, and the overall economic dynamism of the region would recover. However, fundamental territorial issues would remain unresolved, and "managed competition" would only transition to "managed coexistence."
Implications for Investment/Action: Announcement of resumption of US-China military dialogue, agreement on reducing incidents in the South China Sea, substantial progress in COC negotiations, shift in Xi Jinping's administration towards prioritizing the economy.
In the pessimistic scenario, an accidental military clash occurs in the South China Sea, and escalation management fails. Potential triggers for this scenario include:
First, if physical clashes between the Philippine military and the China Coast Guard over Second Thomas Shoal escalate, leading the Philippines to invoke Article 5 of the US-Philippines Mutual Defense Treaty. Second, if a collision incident involving US and Chinese vessels or aircraft occurs, resulting in human casualties. While the 2001 EP-3 incident resulted in only one fatality, a larger-scale collision could provoke domestic public opinion to demand retaliation, creating a risk of de-escalation becoming politically impossible. Third, if China attempts to establish complete effective control over Scarborough Shoal or Second Thomas Shoal, physically expelling Philippine forces.
The ripple effects of a military conflict would be immense. If navigation in the South China Sea is partially obstructed, approximately one-third of global trade would be affected. Energy prices would skyrocket, and supply chain disruptions could exceed the scale seen during the COVID-19 pandemic. Financial markets would experience panic-driven declines, and Asian currencies would universally weaken. Furthermore, tensions in the Taiwan Strait would rise in conjunction, and concerns over the semiconductor supply chain would further destabilize the global economy. Japan would be compelled to respond based on the Japan-US alliance, facing its largest post-war security decision.
Implications for Investment/Action: Escalation of physical clashes at Second Thomas Shoal, collision incident involving US and Chinese vessels, new effective control actions over islands by China, imposition of US military sanctions against China, linked tensions with the Taiwan Strait.
Key Triggers to Watch
- Escalation of physical interdiction actions by the China Coast Guard against Philippine resupply operations at Second Thomas Shoal: April-June 2026 (Dry season resupply period)
- Feasibility of a US-China summit (opportunities at multilateral meetings such as the G20 Summit, UN General Assembly): July-September 2026
- Signs of China commencing new construction activities around Scarborough Shoal or Second Thomas Shoal (verifiable by satellite imagery): Throughout 2026
- Progress of Code of Conduct (COC) negotiations in the South China Sea at the ASEAN Summit: October 2026 (Scheduled ASEAN Summit)
- Announcement of new strategic documents or presidential executive orders regarding US policy toward China: First half of 2026
🔄 TRACKING LOOP
Next Trigger: Second Thomas Shoal Philippine Resupply Operation April-May 2026 — The China Coast Guard's response level will be the most critical event determining the next stage of the "spiral of conflict"
Continuation of this pattern: Tracking Theme: Shifts in the US-China military balance in the South China Sea — The next milestone is the presence or absence of US-China leader contact at the G20 Summit in July 2026
🎯 ORACLE DECLARATION
Prediction Question: Will a direct physical collision (including contact, collision, or use of weapons) between US and Chinese warships or military aircraft occur in the South China Sea by December 31, 2026?
Judgment Deadline: 2026-12-31 | Judgment Criteria: YES if confirmed by official announcements from the US Department of Defense or China's Ministry of National Defense, or by reports confirmed by three or more major news agencies (AP, Reuters, AFP), that a direct physical contact, collision, or incident involving the use of weapons between US and Chinese warships or military aircraft occurred in the South China Sea during 2026. In cases of close encounters (near misses) only, or collisions solely between coast guard vessels, the answer is NO.
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