In 1992, China passed a law in which it decided that the entire South China Sea basin belongs to them. It ignores the following facts. The region is not historically theirs. In the 1920s, the government of China explicitedly stated that the Paracel Islands were its southernmost territory. The French had sovereign rights to that territory until at least the 1950s. Their claim totally contradicts international law. Despite how illegitimate their claim is, they insist on their right to the territory and have initiated armed clashes with other claimants (namely Taiwan, Viet Nam, the Philippines, Malaysia, and Brunei.)
China uses the claim that Chinese fishermen have fished those grounds for hundreds of years as their justification for their claim. However, this ignores the fact that Vietnamese, Philippine and others have also fished these grounds. In addition, China never settled the islands nor did it ever govern them. The International Law of the Sea does not recognize historic fishing claims as legitimate grounds for claims of sovereignty. Furthermore, the Law of the Sea also does not allowed islets and reefs that are not able to sustain permanent human habitation to be used as the base line for the exclusive economic zone. In short, none of the reasons China gives for its claim over the region is valid.
The Chinese government established a commission in 1928 to reaffirm Chinese sovereignty over the Paracel (ªF¦è¨F) archipelago (far to the north of the Spratly Islands). Shen Pengfei, the head of the commission noted in his report that "(t)he Paracel archipelago is our nation's southernmost territory." It is clear that at this time, the Chinese government made no claim whatsoever on the Paracel Islands. In fact, at the time, the islands were administered as a part of the French colony in Viet Nam.
The United Nations Law of the Sea (1982) does not give China any backing for its claims. Article 3 of the law allows a state to declare up to 12 miles from its coastline as its sovereign territory. Articles 55-75 discuss the ability of states to declare an Exclusive Economic Zone (EEZ). Article 121 states that rocks that are not capable of sustaining human habitation or economic activity on its own may not be used for the establishment of an economic zone. There is nothing here that allows China to claim any sort of control over the Spratly Islands (sovereignty or EEZ) as it is far more than 200 miles from any permanantly habitable Chinese territory.
This has not stopped the Chinese from aggressively attacking its neighbors over this vital stretch of the high seas. In 1995, the Chinese attacked the Philippine-claimed and held "Mischief Reef". Mischief Reef is far closer to the Philippine island of Palawan than to the Chinese island of Hainan (see map at the link above). China has since built a military base on the island just off the coast of the Philippines. China now has its eyes on Scarborough Shoal. As of 2000, they were sending spy boats into the region and looked poised to follow up on their illegal seizure of Mischief Reef.
To the north, the Chinese have been encroaching into Viet Namese territorial waters. This is also going to be a flashpoint in the future. Keep an eye on this. The Chinese have already claimed territorial waters that encroach well into Viet Nam's territorial waters.
Links:
ICE Case Studies
A map of the overlapping claims and occupied reefs and islands
Naval Power Play Sets off Alarms From cnn.com
Federation of American Scientists
The Race of Southeast Asian Countries for the Spratly Islands A pretty good summary of the dispute
Mischief Reef: A Double Betrayal Global Beat
ANTI-CHINA RESOLUTION GAINS SUPPORT IN THE HOUSE - Philippine legislature condemns Chinese activities at Scarborough Shoal