UPDATE 4-U.S. says room for sanctions in response to China in South China Sea

(Updates with Chinese response to possible U.S. sanctions,
paragraphs 6-7)
By Humeyra Pamuk and David Brunnstrom
WASHINGTON, July 14 (Reuters) - The top U.S. diplomat for
East Asia warned on Tuesday that Washington could respond with
sanctions against Chinese officials and enterprises involved in
coercion in the South China Sea after the United States
announced a tougher stance to Beijing's claims there.
"Nothing is off the table ... there is room for that. This
is a language the Chinese understand - demonstrative and
tangible action," David Stilwell, assistant secretary of state
for East Asia, told a Washington think-tank when asked if
sanctions were a possible U.S. response to Chinese actions.
Stilwell spoke a day after the United States rejected
China's claims to offshore resources in most of the South China
Sea as "completely unlawful," a stance denounced by Beijing.
The United States has long opposed China's expansive
territorial claims in the South China Sea and has sent warships
regularly through the strategic waterway, through which about $3
trillion of trade passes each year, to demonstrate freedom of
navigation. But Monday's announcement was the first time it
declared Chinese claims illegal.
China claims 90% of the potentially energy-rich sea, but
Brunei, Malaysia, the Philippines, Taiwan and Vietnam also claim
parts of it. Beijing has built bases on atolls in the region but
says its intentions are peaceful.
Chinese foreign ministry spokeswoman Hua Chunying said on
Wednesday the U.S. threat of sanctions was its latest attempt to
stir up trouble and destabilise the region.
"The U.S. arbitrarily talks about sanctions ... this is very
pathetic," she told reporters during a daily briefing in
Beijing. "We are not afraid of sanctions."
Greg Poling, a South China Sea expert at Washington's Center
for Strategic and International Studies, said declaring China's
claims illegal opened the way for a tougher U.S. response, such
as through sanctions, and could also lead to more U.S. naval
presence operations.
A Chinese foreign ministry spokesman earlier condemned the
tougher U.S. stand on China's claim, saying it "destroys
regional peace and stability and is an irresponsible act."
A U.S. Navy destroyer carried out a freedom of navigation
operation on Tuesday near the Spratly Islands in the South China
Sea, the U.S. military said.
"This freedom of navigation operation upheld the rights,
freedoms, and lawful uses of the sea recognized in international
law by challenging the restrictions on innocent passage imposed
by China, Vietnam, and Taiwan," the Navy said.
Such operations have been increasingly common in recent
years.
The U.S.-China relationship has grown increasingly tense
recently over various issues, including China's handling of the
novel coronavirus and its tightened grip on Hong Kong.
Stilwell said the tougher U.S. position meant "we are no
longer going to say we are neutral on these maritime issues."
"When a (Chinese) drilling rig plants itself in Vietnamese
or Malaysian waters, we're going to be able to make a positive
statement," he said.
Stilwell had a particular warning about the Scarborough
Shoal, an outcrop 200 km (124 miles) from the Philippines
claimed by Beijing and Manila that China seized in 2012.
"Any move by (China) to physically occupy, reclaim or
militarize Scarborough Shoal would be a dangerous move ... and
would have lasting and severe consequences for
(China's)relationship with the United States, as well as the
entire region," he said.