Benefits and cost of thawing ties with the Chinese

The red carpet had already been rolled out for Philippine President Rodrigo Duterte in China even before his plane took off from Brunei, the first stop in his two-country visit that started Sunday, and despite all the news quoting Duterte tough-talking that he would not bargain the Philippines’ sovereignty over South China Sea.

China, after all, has so much more to gain by turning the other way if the controversial territorial dispute topic crops up. This country of close to 1.4 billion people is undergoing a host of challenges as it moves forward to its “Two 100s” goal of being a “moderately well-off society” by 2021 when the Chinese Communist Party turns 100, and of becoming a fully developed country by 2049 when the People’s Republic of China celebrates its 100 year of founding.

Even the best-laid out plans are not always a rosy ride. And this is what China is currently experiencing as the global economy continues to flounder, resulting in derailing what was once heralded as the fastest growing economy in the world from its trajectory course.

In September, China once again reported a decline in exports, its sixth consecutive month this year, and with similarly weakened imports. This has only underlined that fact that the country is not immune to what is happening to the rest of developed world on which it relies so much to fuel its own growth.

Global trade, after all, has continued to show lackluster growth for the last five years at below three percent, according to the World Trade Organization. This has affected China’s overseas shipments, considered an important generator of growth, to decline in 14 of the past 15 months.

Continuing economic strength

On the other hand, the Philippines remains as the darling of the East, holding a steady climb in its growth chart for well over a decade despite the many global financial crises that have hit hard the world’s biggest economies.

Thanks to a huge overseas labor sector that commands higher-priced salaries at all levels, from blue-collar jobs to professional consultancies, annual remittance levels have allowed its 103 million citizens to look at a brighter future.

And while latest remittances have slightly declined, this is regarded as a blip caused by the tightening of global financial institutions on illicit money flows that have spawned laundering schemes, which in turn financed global crimes.

Even with the recently international reaction to Duterte’s war on drugs and an apparent disregard for due process in the case of more than 3,000 deaths related to the campaign, economists believe that the Philippine economy will continue hold out.

Reciprocal needs

For China, if it manages to play its cards right, the Philippine market is just the kind of apple that it needs to pluck, essentially to expand its sphere of influence at a critical time when the Chinese private sector is showing signs of weakness from mounting corporate debt and widespread industrial overcapacity.

The Chinese economy relies heavily on its vast and varied manufacturing sectors to bring in export earnings. While it has overtaken many countries in the manufacture of consumer goods as well as in metal and heavy industries, it has seen its traditional export markets shrinking because of global woes.

The Philippines represents for China a vibrant market for its coal, textiles, electrical machineries, medical equipment, railroad systems, infrastructure building capabilities, iron and steel, power, telecommunications, automobiles, agricultural products, and so many other consumer goods.

On the other hand, the Philippines may get all that it wants under the Duterte government, and at cheap prices, as a member of the newly-formed Asian Infrastructure Investment Bank, an initiative of the Chinese government to support the building of infrastructure in the Asia-Pacific region.

Betting on the Philippines

The AIIB is the Chinese’s response to what it criticizes as the slow pace of reforms and governance to the West-controlled World Bank and International Monetary Fund, and the Japanese-controlled Asian Development Fund.

While the Philippines relies heavily on the WB, IMF and ADB for the funding of its infrastructure projects, it is unable to maximize its loan withdrawals because of a gamut of restrictions, including making available counterpart funding.

Officially founded in 2015, the AIIB’s existence is based on the Chinese belief that long-term economic growth can only be achieved through massive, systematic, and broad-based investments in infrastructure assets.

As such, the AIIB can be regarded as an extension of the Chinese economic reform doctrine first adopted during Chinese Communist Party chairman Deng Xiaoping’s reign, and which successfully saw China rising to its current status as second fastest growing economy in the world.

Unlocking infrastructure loans

If the Philippines will successfully be able to tap the funds it needs to pursue the construction of some P8 trillion worth of infrastructure projects through the AIIB, this would ease many of the current problems that it faces as a developing economy.

Aside from more funds for roads and bridges, the Philippines is looking at all modes of fast-moving trains that many developed countries take for granted in helping their citizens travel from home to work or to other parts of the country.

Trains and the tracks will hopefully also solve the long-standing problem of airport congestions with a full utilization by Filipinos and visitors of the Clark International Airport in Pampanga.

Trains are also a major constraint of Metro Manila’s elevated rail commuter system, where the mere acquisition of new coaches continues to be a problem in allowing more people to be served.

A bigger stake in the development of the Philippine economy by the AIIB could open up local tourism to the Chinese market, definitely one that would not just bring in the numbers but also the spending power.

What’s the price?

There are many other opportunities that the Chinese are looking at with the full-force activation of trade ties with the Philippines, and these may be all beneficial to our nation.

The all-important issue will now be the price: What will we give up in all of these, and what will the Chinese forego?

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