Partners

Highlighting Chinese President Xi Jinping’s state visit to Manila was the ceremonial signing of 29 agreements ranging from an oil and gas exploration deal to financing a number of strategic infrastructure projects. The agreements signal a much closer partnership between the Philippines and China.

In his speech, Xi said the Philippines and China would always be “good neighbors, good friends and good partners.”  President Rodrigo Duterte repeated the same assurance to his honored guest.

The visit signals the beginning of a close and mutually beneficial partnership between our two countries. This is of great significance at the dawn of the Pacific Century.

Not everyone is happy about this emerging strategic partnership, to be sure. Those who are unhappy about the close relationship between Xi and Duterte, as well as the nascent alliance between the Philippines and China, did not miss the opportunity to either play down the significance of the event or cast doubt on the partnership forged.

Vice-President Leni Robredo, playing out her role as chief mouthpiece of the political opposition, demanded that the agreements signed between the two countries be publicly disclosed. That was an unnecessary demand. Of course all diplomatic agreements are of public record and may be easily accessed through the appropriate websites. It was a demand meant only to insinuate ill will in the forging of these agreements. That is not how diplomacy works.

Other discordant voices wanted the South China Sea issues settled first before any progress is made in our bilateral relationship. That is an impossible position. The sovereignty issues cannot be absolutely resolved in our lifetimes. If we make settlement of these sovereignty issues a precondition for improvement of our bilateral relationship, we will consign a mutually beneficial partnership to purgatory.

The leftist groups never miss an opportunity to take to the streets to object to anything and everything. In the small protests organized during Xi’s visit, it is ironic that the leftist groups repeated the American propaganda line articulated by US Vice President Mike Pence during the APEC meeting over the weekend.

Propaganda

The last APEC summit failed to arrive at universally acceptable communiqué mainly because Pence tried to get the member countries to echo US complaints alleging China uses WTO rules to its advantage. Pence likewise warned about China luring emerging economies into a “debt trap.”

Pence’s hostile rhetoric toward China is characteristically Trumpian: they have little resemblance to the truth.

For instance, in an article published in Forbes magazine last year, a certain Anders Cors claimed China was lending money to the Philippines at interest rates of between 10 percent and 20 percent. That is a blatant lie. All our financing agreements with Beijing carry an interest rate of two percent. This is about a third of the rates charged by commercial lenders and way below our own inflation rate.

Cors is taking our economic managers for fools. We have spent the past three decades since the crippling debt crisis hit our economy patiently working down our debt load. We have been hugely successful in doing that, bringing down our debt-to-GDP ratio  much lower than most other countries.

Including all the financing due for this year, a DOF study estimates that project debt to China will be only 0.274 percent of GDP. All the project debt to China expected to be incurred by 2022 will add up to 1.8067 percent of GDP. That is not a staggering number and certainly not anything that approximates a “debt trap.”

By the end of this year, our project debt to China as a percentage of our total debt will add up to only 0.6526 percent of total debt. By 2022, that will increase to 4.66 percent of our total debt. That is hardly a debt component that will drive us to penury – especially since Chinese financing at two percent interest rate is cheaper than debt we incur from multilateral funding institutions.

American propaganda, repeated endlessly in these parts by the protest cottage industry, rails about Chinese financing based on a mischaracterization of what happened to the Hambantota Port in Sri Lanka. The propagandists claim that China took possession of the port facility after Sri Lanka failed to service its debt. That is a lie.

What happened in the case of the Hambantota Port is a routine debt-to-equity swap. By mutual agreement, China provided Sri Lanka $1.1 billion for equity. The money was then used to help pay down Sri Lanka’s debt to multilateral institutions. Sri Lanka’s debt to China constitutes only 12 percent of its total indebtedness.

Propagandists are peddling the false scenario that China is using its financial muscle to lure the whole of Africa into a “debt trap.”

A study by political economist Lawrence Freedman, however, belies that propaganda line. It is true that Africa’s external debt payments as a percentage of government revenue climbed from 5.9 percent in 2015 to 11.8 percent in 2017. But only 20 percent of African government debt is owed to China. A smaller percentage of 17 percent of African external interest payment are made to China. That indicates Chinese lending is much cheaper than others.

On the other hand, 32 percent of African external debt is owed to private lenders and another 35 percent is owed to multilateral institutions such as the World Bank. A staggering 55 percent of African external interest payments are made to private creditor banks.

By the way, in his anti-China tirade about “technology theft” during the APEC summit, Pence was complaining about the WTO rules that he now wants changed. The US was behind the crafting of those same rules.