Philippines seen to ride out economic fallout from ruling

MANILA, Philippines – Trade is in the crosshairs of any potential economic retribution from China as a result of the historic arbitration ruling, but the Philippine economy can ride out any impact.

According to the Philippine Statistics Authority, China is the country’s single biggest trading partner, with two-way trade valued at $1.725 billion as of April.

Broken down, 10.6 percent of the country’s exports went to China, which was the source of a fifth of Philippine imports. Last Tuesday, the Permanent Court of Arbitration (PCA) ruled that China has no historic rights to the South China Sea and awarded three disputed areas in the Spratlys to the Philippines.

“China is our No. 1 trade partner,” Emilio Neri Jr., lead economist at Bank of the Philippine Islands, said in a phone interview yesterday.

He said raw materials and semiconductors, which the country sources mostly from China and then processes here, may be among the sectors affected.

Banana exports may also suffer, as in 2012 when China banned Philippine bananas ostensibly over stricter sanitary rules, but which came shortly after Manila filed the arbitration case at the PCA in The Hague.

The banana ban was partly lifted after Philippine officials talked with their Chinese counterparts.

“The bulk of our banana exports are Class C exports, which are only for local consumption and accepted only by China,” said Sergio Ortiz-Luis, president of the Philippine Exporters Confederation Inc.

“We took a hit then when from between 20 and 50 percent growth, we dropped to negative. Eventually, we were able to recover, but not fully,” he added.

Aside from trade, other possible economic channels for China seemed to be limited, although analysts were careful to read through them.

According to the central bank, only 0.07 percent or $37 million of net foreign direct investments (FDI) came from the world’s second largest economy.

There were also only $1.46 million on more volatile foreign portfolio investments, accounting for 1.87 percent of total in 2009, based on latest available data.

“Some of the flows may be coming in through Hong Kong and it’s very difficult to measure them. But overall, it may still be okay for the time being,” Neri said.

China also contributed $6 million to IT and business process outsourcing (BPO) export earnings in 2013, representing 0.004 percent of total.

“Our exposure is very negligible. China has its own BPO industry which caters to Chinese clients. Ours is more in the US,” said Genny Marcial, director for external affairs at IT-BPO Association of the Philippines.

Around 2,000 Filipinos also sent $45.31 million in cash remittances, a key economic driver, as of April, central bank figures showed. That accounts for 0.52 percent of aggregate value.

“Maybe it will be the business of Filipino-Chinese in the mainland that might be affected by nationalist backlash,” said Eduardo Araral, vice-dean of the Lee Kuan Yew School of Public Policy at the National University of Singapore.

Chinese tourists were also the country’s 11th top visitors with 285,348 of them coming in as of May, according to the Department of Tourism.

Oil, gas exploration in WPS still on hold

Oil and gas explorations in the West Philippine Sea are also still on hold despite the favorable ruling from the PCA.

Finance Secretary Carlos Dominguez III said the government is undertaking a “careful study” of the decision by the PCA.

“We are still evaluating what would be our actions in relation to the decision,” Energy Secretary Alfonso Cusi said in a text message to The STAR when asked about the prospects of oil and gas explorations after the ruling. 

“The Department of Foreign Affairs will be assessing the overall implications of the verdict in coordination with other agencies of the government, among them the Department of Energy.

“The Philippines reiterates its abiding commitment to pursue a peaceful resolution of disputes in the West Philippine Sea and promote peace and stability in the region through diplomacy and consultations,” he added.

Analysts said the ruling should be taken more as an opportunity to strengthen ties rather than cut them. 

“We can take this as an opportunity to build better economic ties with China on tourism, manufacturing and infrastructure investments,” Araral said.

“The Duterte administration has sounded a conciliatory tone and preference for bilateral talks. I think, for now, it will still be calm,” Neri added. – With Danessa Rivera