The third quarter revealed more development in China’s infrastructure assistance to the Philippines’ Build Build Build program as several projects, particularly bridges, were approved by both sides for Chinese funding. Big ticket projects are expected to be ironed out in time for President Xi Jinping’s state visit in November. However as the Philippines currently enjoys the perks of the Chinese aid, its neighbors have been reviewing their own infrastructure cooperation with China. Belt and Road projects suffered setbacks, and related socio-economic problems sprouted one after the other in Southeast Asian countries during this quarter.
Sino-US trade friction continues to spiral
In order to retaliate against the United States for its failure to comply with a ruling in a dispute over dumping obligations, China in September sought the World Trade Organization to enforce $7 billion worth of annual sanctions on US goods.
A week after, China published a white paper entitled The Facts and China’s Position on China-US Trade Friction, accusing US of bullying practices on trade. “Since the new administration took office in 2017, under the slogan of ‘America first’, it has brazenly preached unilateralism, protectionism and economic hegemony” and intimidated China with tariffs, stated the document.
Nonetheless, Beijing recommended ‘mutually-beneficial’ measures and cooperation such as restarting bilateral investment treaty discussions and bilateral free-trade negotiations. The Chinese government emphasized free trade and multilateralism: “Cooperation is the only right option and only win-win cooperation can lead to a better future” for China and the US.
Foreign investments, aid modified in Malaysia, Myanmar, and Thailand
Following his earlier statement on Chinese-funded projects in Malaysia, Prime Minister Mahathir Mohamad clarified that his administration is not against Chinese companies; rather, he is concerned about having unnecessary and costly projects and borrowing money to finance these. In July, Malaysia suspended the $22 billion China-backed East Coast Rail Link projects which would connect the east coast of Malaysia to southern Thailand and Kuala Lumpur, and two pipeline projects -- one in Sabah and the other running from Malacca to Kedah. The 93-year-old president said that his administration needs to review projects prominently linked to the scandals that plagued his predecessor Najib Razak.
Myanmar, quite similarly, asked China to downsize the special economic zone project in the western park of Rakhine. Yangon’s Planning and Finance Minister Soe Win stressed that, learning from its neighboring countries, “overinvestment is not good sometimes”. He cited Kyaukpyu as being far from the capital, fearful that the project might not get good revenue which will be needed to pay back the loan from Beijing.
In Thailand, the government took steps to resist being pulled into Chinese economic sphere of influence. A rail project just began late last year after being bogged down for years. First, Beijing initially proposed to split investment but eventually Bangkok decided to take sole ownership. Second, the Thai government imposed requirements for Chinese engineers to pass examinations in Engineering, Thai law, and professional ethics. Third, instead of going farther south as what China proposed, the railway project will just end in Bangkok.
Vietnam, Cambodia: The China effect sinks in
Social and economic challenges arising from relations with China have also been felt in Vietnam and Cambodia. Recent protests in Vietnam expressed fear of losing sovereignty to China in the proposed special administrative and economic zones which include Vân Đồn (bordering China), Bắc Vân Phong (ashore of the South China Sea), and Phú Quốc island (near the Sihanoukville Special Economic Zone in Cambodia). In the draft law governing the zones, Vietnam waived visas for “citizens of the neighbouring country sharing the border with Vietnam in Quang Ninh” (Article 55, Section 4), and for “citizens of the neighbouring country sharing the border with Vietnam in Kien Giang province” (Article 57, Section 3)—these are China and Cambodia respectively. The economic zones will be officially established in January 2019.
Political economy Professor Angie Ngoc Tran enumerated environmental and labor concerns that these special zones might bring; that the likely locators are not green, high-tech, and knowledge based. Tran, a labor expert, said there is ambiguous or no protection for labor rights and interests guaranteed in the Labor Code, and there are conflicting stipulations on privileges in these zones that do not fulfill ILO obligations. In the past few years, Vietnamese public complaints include bad workplace conditions, bullying by management, environmental pollution from Chinese- and Taiwanese-owned factories, failure to protect Vietnamese fisherman, and failure “to prevent Chinese migrants from illegally occupying coastal land plots across Vietnam”.
In Cambodia, the vital port in Sihanoukville has been praised by Chinese leaders as “a model of pragmatic cooperation” (Xi 2016) and “a symbol of renewed China-Cambodia friendship delivering real benefits to the people” (Li Keqiang 2018). The mainly Japanese-funded deep-water port started to feel the effects of increased Chinese trade activity, as cargo grew 22.42% in the first six months of 2018. Garbage problems, soaring rents of real estate, strained utilities, deterioration in peace and order due to frequent clashes mostly among Chinese gangs, are among the concerns.
It is also noteworthy that Pakistan is reportedly building a city to house half a million Chinese nationals, mostly workers, in the port city of Gwadar. According to a report in The Economic Times, only Chinese citizens will live in this financial district that Beijing is planning to set up.
Philippines: Spike in bridges and other construction
In Manila, the National Economic and Development Authority’s published an updated list of flagship projects for the Build Build Build program. As of 27 July, there were seven bridges earmarked for Chinese support (including two grants), one flood control project, two irrigation works projects, and two railway projects. Sub-agreements for the Subic-Clark Railway Project, the PNR South-Long Haul, and the New Centennial Water Source-Kaliwa Dam Project are up for signature during President Xi Jinping’s state visit in November.
From August 22 to 24, a seven-person Philippine economic team led by Finance Secretary Carlos Dominguez III flew to China to solidify bilateral cooperation projects, and to discuss the progress of the first basket as well as a proposed second basket of projects. Among the documents signed during the visit was the exchange of letters for the feasibility study of the Panay-Guimaras-Negros island bridges. The delegation met with Foreign Minister Wang Yi and Vice Premier for Economic Cooperation Hu Chunhua.
In another development, the multilateral lender Asian Development Bank announced the extension of at least $7.1 billion to the Philippines for projects covering 2019-2021—two-thirds or $4.5 billion of which will be utilized to connect regions and communities, and to manage urbanization.
Tourism and business bring more Chinese to the Philippines
Due to the current friendly ties between Beijing and Manila, more cooperation agreements have been concluded, predominantly in tourism and in business. There was a marked increase in the number of Chinese nationals in the Philippines visiting for tourism, business, or employment purposes. According to Department of Labor and Employment records, 51,980 permits were issued to Chinese nationals since 2015, including 24,000 issued in 2017. The Immigration Bureau and Department of Environment and Natural Resources also issue separate permits, according to Labor chief Silvestre Bello.
The efforts and policies of the Philippine government to ease visa processing have indeed boosted tourism and the business connectivity. The Department of Justice said it would explore the possibility of shortening the period of visa processing for Chinese travelers. However, there are certain loopholes and lack of policy coordination among concerned government agencies (i.e. DOJ-Immigration, DOLE, and DOT) that emerged as the numbers of illegal Chinese workers who initially applied for tourist visas have also increased. Should there be a conflict in the application of rules, it is inevitable that we ask: Whose policy should prevail?
Department of Tourism Spokesperson Bong Bengzon said in relation to DOJ’s mandate for border control that both the Tourism and Justice departments should seek balance to try and meet their respective objectives.
In July, four airlines began adding direct flights from Cebu to China. Philippine Airlines opened a Cebu-Nanjing route, while its subsidiary PAL Express opened flights to Hangzhou. Meanwhile, Philippine low-cost airline Cebu Pacific is eyeing new flight destinations such as Chengdu and Xi’an as they acquire new aircrafts next year.
Observation and Analysis
According to Tu Xinquan, a trade professor at the University of International Business and Economics in Beijing, China’s white paper on trade frictions with the US tried to demonstrate both at home and to the international community that it is willing to talk but the US is not. The white paper came after Vice Premier Liu He’s planned visit to Washington was cancelled, after Trump continued to impose tariffs on US$200 billion worth of Chinese products.
Meanwhile, mixed opinions were raised as regards the trade friction’s impact on Southeast Asia. Some observers said China’s loss in the trade war is ASEAN’s gain—with Vietnam leading the group—but such gains differ based on each nation’s competitiveness. On the other hand, FT Confidential Research argued that Vietnam is most vulnerable among Southeast Asian countries to the trade war because of its high level of exports.
Turning to China’s infrastructure assistance, Philippine media has begun following up on Beijing’s pledges from the first state visit of Duterte in October 2016, as news came of some agreements between China and other Southeast Asian countries being modified or delayed. Scholar Alvin Camba attributed cancellations, modifications or delays after the initial signing of agreement to factors in the host state, saying this is not new or unique to China. A Chinese commentator echoed this, citing the limited absorption capacity of the Philippines as one of the reasons for slower manifestation of pledges. On the other hand, another commentator Hiroyuki Akita pointed out that Chinese investment setback in Southeast Asia is often due to poor implementation—drawing resentment from the neighboring countries.
The third quarter showed that Philippines-China infrastructure cooperation finally got off the ground with the construction of a number of bridges. Bridges are perhaps less political and easier to move forward compared to railway projects and economic zones, and are the most feasible to launch during the upcoming visit of President Xi on November 20 to 21. Although there are pledges for railway projects, these would take much more time to manifest. The Philippines can also expect that reviews, modification and delays of projects will take place just as what is happening in other Southeast Asian countries. Alarm about prospects of a debt trap, based on certain countries’ experiences, have urged Southeast Asian countries to conduct due diligence and be extra careful in borrowing money. ASEAN member states have been monitoring each other’s economic cooperation with China.
While most of the cited implications from cooperation with China are internal to the host state, China also must become aware of such issues and be able to craft responses acceptable to the host state.
There may be much benefit arising from the bold decisions to accommodate China, but based on the events of July-September 2018, many actual challenges and unintended consequences have emerged. And for the Philippines, this is just the beginning.