They are central to the emerging rivalry between China, the United States, Asian countries and other powers, including India and Russia, whose interests now extend from the South Pacific to the rim of Asia.
At stake are vast tracts of ocean embracing huge hydrocarbon reserves and fish stocks, and vital navigation rights over sea lanes used by more than one-third of the world's shipping, and the supply of about 90 per cent of energy imports to China, Japan, Taiwan and South Korea.
The shift in global power to Asia-Pacific and the emergence of China and India as regional superpowers lie behind the new US "Asia pivot" policy that will strengthen America's arm in the region, including a greater presence in Australia, the thaw in military relations with New Zealand, and the rotational basing of warships in Singapore.
Both New Zealand and Australia see vital interests in events to their west and north. New Zealand's most recent defence white paper notes that up to 99 per cent of the nation's merchandise exports travel by sea, much of it through volatile waters.
Australia, trying to balance its relationships with China and the US, refuses to take a position on competing territorial claims in the region . More than half its trade crosses the South China Sea, including 90 per cent of its iron ore and coal exports.
Canberra has accepted a US Marine task force on training rotations through the Northern Territory and greater US use of navy and air facilities, but has rejected an American proposal to build a carrier strike force base in the west.
Defence Minister Stephen Smith told the Australian Strategic Policy Institute the region was home to the world's four biggest armies, its largest navies, and three superpowers: the US, China and India.
"The emergence of three great strategic powers in the region will see an adjustment in the balance of power across the region and around the globe," Smith said.
Getting that adjustment wrong would have serious consequences.
"The South China Sea is the flashpoint in the Pacific where conflict is most likely to break out through miscalculation," Lowy Institute executive director Michael Wesley said.
Australian National University Professor of Strategic Studies Hugh White says in a new book, The China Choice: Why America Should Share Power, that the US and China are sliding towards a dangerous rivalry, building their forces and adapting military plans specifically with the other in mind and seeking support from other Asian countries.
The Philippines have reacted strongly to China's Sansha City move and its imposition of a new administration over the Spratly and Paracel Islands and the Macclesfield Bank. New helicopter gunships have been ordered, and other naval and air acquisitions are planned.
Vietnam, which fought China in a brief war in 1979 and stared down confrontation at sea since, faces powerful domestic pressure to resist Chinese claims and has passed a new law claiming sovereignty over the Spratly and Paracel groups.
Hanoi is modernising its forces, especially the navy, with cruise missiles, Russian warships and submarines. Vietnam is also strengthening military ties with the US, Japan, India, Singapore and Russia, which is negotiating access to the big Cam Ranh Bay naval base.
For both China and the US, the region remains an overriding priority.
Wesley said in his paper that Chinese naval strategists saw their country's coastline as hemmed in by a hostile chain of states - Japan, Korea, Taiwan, and the Philippines - and set their overriding goal as establishing maritime dominance.
Influential elites in China viewed the South China Sea as "blue territory", as much a part of China as Tibet or Taiwan and making any surrender of its claims unthinkable; its 1992 Territorial Law classified the South China Sea as internal waters.
This brings China directly into conflict with the US. Beijing demands that foreign naval vessels and aircraft seek permission to cross the sea, and that submarines surface.
China says it will respect the freedom of passage of ships and aircraft through the area provided they are en route to another destination and do not conduct military exercises or collect intelligence. Washington insists the sea lanes are in international waters and subject to freedom of navigation.
"For the US, what's at stake in the South China Sea is the viability of its entire presence in the western Pacific," Wesley said. And the region is at odds with itself over which side to take. Cambodia, Laos and Burma refuse demands to back Vietnam and the Philippines. Indonesia, Malaysia and Singapore are worried, but want to avoid confrontation with China.
Wesley said the Philippines, Vietnam, Malaysia, Singapore and Indonesia were tightening their strategic relationships with the US, while Cambodia, Laos and Thailand deepened their links to China.
In his book White said peace and stability were possible, but the risk of rivalry and conflict was also real: "Which it will be depends more than anything else on choices that will be made over the next few years in Washington and Beijing."
