China-based lender downplays debt trap risks tied with Beijing's lending

MANILA, Philippines — The leader of a multilateral lender based in China talked down risks of a debt trap long tied to his host country’s donor status at a maiden event meant to foster deeper ties between the Philippines and Beijing.

Jin Liqun, president of the Asian Infrastructure Investment Bank (AIIB), said borrowers should not fear loans so long as they are spent on the right reasons. “Borrowing money from the outside or incurring external debt is not necessarily the source of debt problem,” Liqun said.

“It’s the use of the proceeds of the debt,” he said in an online forum.

The event dubbed as the “Manila Forum,” organized by the Chinese Embassy and the Association of China-Philippines Understanding (ACPU), was meant to showcase growing relations between the two countries which until President Rodrigo Duterte took office in 2016, were defined by a long standing territorial dispute that spelled growing discomfort among Filipinos to China.

ACPU itself is a non-government organization formed to advance this purpose. The group is led by Gloria Macapagal Arroyo as chairman emeritus, and under whose term as president from 2001 to 2010 depended on China’s aid extensively. Some of these aid like the $329-billion national broadband network with Chinese firm ZTE, was embroiled in intense corruption allegations that caught on her way beyond her presidency.

This time however, the risk is centered more on the country getting too indebted to China that paying would require surrendering natural resources like what happened in some African nations. The so-called “debt trap” is far from happening however, as only 0.002% of the government’s debt pile came from Beijing last year.

Liabilities from AIIB were bigger, although still lower than most of the Philippines’ other creditors. As of end last year, Treasury data showed only $757 million was borrowed from the multilateral agency where the Philippines was the last founding member to join back in the Aquino presidency in 2015.

Japan remains the Philippines’ largest bilateral donor, while Asian Development Bank, a Manila-based multilateral lender, is its biggest lender overall.

Liqun said AIIB, once feared to be China’s vehicle to extend its influence to the world, “attaches great importance to the use of external resources from the debt.”

“Put them to the productive sectors, making sure that all this money would be used effectively and the project should be implemented on schedule so that you can start to have revenues without delay,” he pointed out. 

On Wednesday’s event, Arroyo again batted for closer relationship between Manila and Beijing, dangling the delivery of 600,000 doses of donated vaccines from SinoVac, a Chinese drug-maker as a sign of healthier ties. 

“The relationship between the Philippines and China is priority for our country,” Arroyo, a former Pampanga representative, said.

Yet at the homestretch of the Duterte administration that befriended China, and apart from the vaccines, gains from stronger China ties have yet to be realized. Trade Secretary Ramon Lopez, in the same event, underscored growing external trade between the two nations. Beyond that however, only tourism benefited from a softer China approach, while other economic segments like foreign direct investments remain hardly up.

On top of that, a number of China-funded infrastructure projects had gone stuck in the pipeline long before the pandemic disrupted building plans. Still, Liqun said there is space for another superpower besides the US.

“You cannot work on your own. Gone are the days where nations can sit snuggly in the valley of the mountains and sustain itself,” he said.

“Multilateralism is not a panacea, it cannot solve all the problems... A country should be actively participating in international cooperation to get the most of the benefit,” he added.