China May Try Cash to Buy Off Philippines

The Philippines may have handsomely won its case over the South China Sea at the Court of Arbitration, but the battle between the power of Chinese money and the Philippines' national interests has a long way to run. Politicians everywhere are susceptible to the prospect of short-term gains for themselves or their voters, and no more so than the Philippines, where ideology plays little role in electoral politics.

The appointment by President Rodrigo Duterte of former President Fidel Ramos as special envoy to China has raised concerns in some quarters that local business interests will push for deals with China, which brings the promise of economic benefits at the expense of sovereignty.

Duterte, in his July 25 state of the nation address, committed himself publicly to the Law of the Sea decision. And Ramos, 88, is unlikely to follow his own agenda at the expense of official foreign policy. However, the dangers of two-track approaches to China were well illustrated by the disastrous back-channel efforts of Senator Antonio Trillanes in 2012 when China forcibly occupied the Scarborough (Pantag) shoal and drove out Filipino fishermen while Trillanes was supposedly negotiating with Beijing. Trillanes subsequently opposed taking the matter to the Court, though this action was initially at least supported by most including Ramos.

Since the end of President Benigno Aquino’s term and the court's judgment, evidence has come to light about the pressures Aquino faced from within not to proceed with the case. That these were eventually brushed aside appears to have primarily been due the perseverance of then Foreign Secretary Alberto del Rosario and the grasp of the issues provided by Associate Supreme Court Justice Antonio Carpio, the highest-ranking Philippine expert on Law of the Sea.

As told by Philippine Daily Inquirer columnist and former Economic Planning Minister Solita Collas-Monsod, then Vice-President Jejomar Binay was among those pushing hard for a deal with China that would involve joint development of the Reed Bank, an area well within the Philippine Exclusive Economic Zone. Carpio is reported to have countered with the comment: “In proposing joint development, China in effect is telling the Philippines … ‘What is mine is mine and what is yours we share.’”

Efforts were also made to subvert the Philippines’ legal team attempt to make the strongest possible case.

The theory of joint development continues to be pushed by many and is also getting support from international lawyers based in Hong Kong who are anxious to ingratiate themselves with the PRC. One from the Hong Kong office of London-based international firm Pinsent Masons wrote an article in the South China Morning Post July 25 urging joint development. It was not clear whether the firm was acting for China in some capacity or merely trying to gain favor with Beijing.

But it clearly showed no respect for the international Law of the Sea, the subject of the court judgment that accepted almost all of the Philippine Exclusive Economic Zone and related submissions.

The Law of the Sea itself exists in part for the purpose of defining EEZs. As China claims almost the whole sea regardless of the UNCLOS rights of the other littoral states, the proposal for shared development is simply the trap that Carpio indicated.

Nonetheless, the lure remains as the Philippines is not in a position to prevent China from continuing to use force to push its will. Duterte himself has continued to hope for good relations with China, which would presumably somehow unleash a deluge of development money for railways in Mindanao and other grand projects.

It might have been recognized by now after the experiences of Sri Lanka, Myanmar and elsewhere that Chinese money comes attached to its strategic interests and many projects are more for show than because of their economic merit. As it is, the China lure needs analyzing in the context of the current, lop-sided relationship with the Philippines. China already has a large and fast growing visible trade surplus.

Indeed, the Beijing publication Global Times even recently crowed: “The first four months of the year saw exports to the Philippines grow at a record high of 27.4 percent. Such an economic structure shows that the Philippine economy is dependent on China's supply of consumer goods, capital and equipment. Unfortunately, the Philippines cannot take full advantage of the rapid import demands from China as other ASEAN members do. If the Philippines can improve its ties with China, there is no doubt that it will be good news for its economy.”

The mix of threat and condescension in that article is clear enough. But the bottom line is that China takes far more out of the country than it puts in. The Philippine deficit will probably further increase assuming Duterte’s promise to halt illegal and environmentally damaging mining. Much of this is for nickel and other ores that are shipped unprocessed direct to China. Meanwhile China is the major source of smuggled imports undermining local producers.

Almost none of the Philippines’ huge service sector earnings from remittances, call centers and business processing are from China. Most are from rich OECD nations and Arab oil exporters. Despite Manila’s casino push, China is nowhere near top of the tourism list. It ranks fourth, far behind Korea and the US and a little behind Japan, with just 9 percent of tourist numbers and less in terms of spending.

As for investment in productive capacity, whether for export or domestic consumption, and in job-generating manufacturing, China is almost nowhere to be seen. Japan, Korea and Taiwan are all big investors and will surely remain so. The Philippine aim at present should not be to focus on attracting mainland official cash but capture some of the Japanese, Taiwanese and other manufacturing investment now looking to leave China for other locations. Thus far, the Philippines, unlike Vietnam and to a lesser extent Indonesia, has attracted little of this. The Philippines does not lack for available funds for badly needed infrastructure. Its problems lie in preparation and implementation of projects – as evidenced by a decade of being a net exporter of capital!

All told, the Philippine economy is a large net beneficiary from the developed world, east and west, while China’s net impact is negative. There is scant reason to believe that the nation is so reliant on China that it has to surrender its UNCLOS rights. Chinese threats of trade boycotts in retaliation for daring to challenge China’s expansionism and illegal plundering of sea resources have little basis in economic reality.

President Duterte may admit to scant knowledge of economics, but these are simple enough facts that he needs to grasp before self-interested persons at his ear succumb to the illusion of Chinese wealth being dangled before him.