China Prospects: From bullish to cautious optimism
Opening Remarks at Roundtable on Philippines - China Trade & Investment Relations
Organized by APPFI and PHILEXPORT
11 June 2015
Distinguished presentors, leaders and members of business organizations including those from our event partner Asia Pacific Pathways to Progress Foundation, Inc. or APPFI, government representatives and partners, friends, ladies and gentlemen:
Allow me also to express PHILEXPORT’s honor and pleasure to welcome you all and to co-organize this timely and important roundtable discussion of Philippine-China trade and investment relations. The Philippine Exporters Confederation, Inc. or PHILEXPORT and APPFI have the common thrust, among others, of promoting development through dialogues and cooperation projects. Acknowledging China as an important trade and investment partner, we thought that this discussion will be a relevant contribution to easing and/or mitigating possible economic impacts that the current political tension maybe creating on the trade relations of both countries.
China and other neighboring Asian nations play a critical role in the Philippines’ bid for progress and prosperity. In the past ten years, our trade with East Asia has outpaced our traditional markets of the United States and Europe. Japan is reasserting itself as top destination of Philippine exports, followed by the US. Close third is mainland China whose imports started shooting up only a few years ago.
It is no secret that in recent years of our trade history with China, Filipino enterprises, even industries, find China as a threat either as competition in our home market or for market shares elsewhere. We implemented expensive upgrading programs to survive the Chinese juggernaut of “cheaper” products that are now flooding the world market. Since we cannot fight them in the low-end market, we have to capitalize on our flexibility, good quality and innovation to corner the midrange and higher end of the market.
Towards this, one of the bigger challenges that we see is how to produce more marketable and competitive products that the Chinese need. On the other hand, we believe that we can benefit most from China in the field of technology transfer. The Chinese are not as jealous as the Western capitalists over patents and copyrights. They are more willing to share their cheaper technology on food processing, manufacturing, farm mechanization and biotechnology. These can be best acquired though development assistance or joint venture projects.
The signs are very clear: as the most populous country in the world with over 1.3 billion people and counting, China will need outside help to sustain the requirements of its people. These imports will include agri-based products, metals and electronics, among others. And this projection is already supported by the increasing Chinese demand for processed Philippine food products and fresh fruits like bananas, as well as minerals and metals like iron ore, copper and nickel. Such consumption trend is also being pushed by the manufacturing boom that helped fuel China's growth, even as its expanding domestic industries and infrastructure boosted demand for metals, farm produce and electronics.
It is worth mentioning that China's rise as an economic powerhouse is one of the key factors that helped propel the Philippine export sector. Philippine export revenues in 2010 soared to a better-than-expected 33.7 percent growth, with receipts hitting $51.39 billion - the first time since 2007 that annual revenues breached the $50-billion-mark. It is also during this period when Philippine exports to China stood out compared with other country-importers, as it posted a 94.32 percent growth in export receipts to China in 2010. The establishment of the China-ASEAN Free Trade Area in 2010 further expanded bilateral trade between the two.
Since 2010, export performance has grown to about 12 percent to 13 percent. Electronics, minerals and metals and iron and steel remain the dominant exports. For now, the Philippines enjoys a favorable balance of trade with China, with the mainland as the Philippines’ second largest source of imports and third largest export destination. But it is not surprising to see Chinese exports to the Philippines growing at a rate of 50 percent as its manufacturing sector gained steam through the years.
Meanwhile, with nearly $4 trillion in foreign currency reserves, China can definitely be a major source of investments for the Philippines. Within this context, it is interesting that China’s FDIs are more and more directed at sectors such as electronics, real estate and agribusiness and food, sectors which are domestically strong in the Philippines.
And yet, there appears to be no considerable investments made by Chinese investors in the Philippines compared to other ASEAN countries since 2005. Most of China’s FDIs are in Singapore, Brunei, Myanmar, Cambodia and Laos. The Philippines’ FDIs in China were recorded at $2.5 billion in 2012, while Chinese investments in the country reached $1 billion.
Impacts of the maritime dispute
As our economies struggle to maintain at least the single digit growths in the past quarters, we pay special attention to the maritime dispute we are in with China, as it also affects economic relations with nearby countries and regions. As we are all aware, the center of the dispute is China’s 90 percent claim of the South China Sea, believed to have huge oil-and-gas deposits, fishery resources and where about $5 trillion of ship-borne trade passes every year. And as you know, joining us in the list of claimants, though relatively less vocal are fellow Asians namely, Brunei, Malaysia, Vietnam and Taiwan.
Recent developments show China asserting its position more aggressively with reclamation activities in the area. In a globalized economy characterized by free movement of goods and labor, this development is hard to understand.
We get comfort though from official statements that appear to mediate between parties, if not take our side in the case of Japan and the US. A more neutral position was taken by New Zealand Prime Minister John Key in a recent newspaper interview where he expressed concern about the tensions in the South China Sea. But he reiterated that territorial disputes should be settled peacefully, through diplomatic channels and based on international rules, adding that “any tensions in the South China Sea affect the growth and stability in the region.”
So far, there is also relief to know that other than the reported slowdown in tourist arrivals after the Scarborough Shoal standoff erupted, we only heard about trade disruptions in one agriculture sector. China imposed import restrictions of Philippine bananas in 2012, with China claiming that the banana shipments were infested with bugs. The restriction has later eased though, as Chinese quarantine officials informed the Philippines that the quality of bananas has improved. To date, China remains as the third biggest importer of Cavendish bananas, next to Japan and South Korea. We shall hear more of these experiences and insights from our banana exporters later.
In closing and as we weigh all the angles in this issue, our stand remains to be the preservation, if not fortification of our relations with China, especially economic and trade which started to flourish since the 10th century.
Even within the country, we have benefited from the local Chinese community’s civic and social contributions, as well as flourishing business activities that provide jobs and livelihood to many. For these reasons and considering what is at stake for both, we reiterate that economics, not geopolitics, should define relations between the two economies.
Given this background for more specific discussions later, I end my remarks with wishes for a meaningful exchange and closer working relationship among stakeholders in the resolution of issues at hand.
Thank you and good morning.