Philippines’ warming ties with China and Russia: Opportunity, not concern

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Shared values and resolve to defend territorial integrity and maritime rights had long undergirded Philippine foreign policy which may help explain longstanding ties with traditional allies US and Japan. Hence, the country’s warming relations with China and Russia was considered astonishing, if not a game changer. The country does not share affinity in political ideals with these two and, in the case of China, it even has unresolved disputes over the West Philippine Sea (WPS). One may think that the country is pivoting away from its traditional allies into the fold of incompatible partners for uncertain ends or that one of Asia’s pioneer liberal democracies is anxiously drifting away from its identity. However, despite the rhetoric, a careful examination will reveal that the new Philippine government’s move is driven more by conflict avoidance and economic considerations rather than attempts to redefine the country’s politics and international alignment though President Duterte supports federalism and a more independent foreign policy. Potential change in US government disposition towards Russia under the Trump Presidency may have also played a part.

Change has come, but trust still has to be won

Philippines and US are longstanding allies dating back to 1951 when they signed a Mutual Defense Treaty. Subsequent agreements like the 1999 Visiting Forces Agreement, 2002 Mutual Logistics Support Agreement and the 2014 Enhanced Defense Cooperation Agreement, the constitutionality of which had been challenged but later affirmed by the Philippine Supreme Court, only reinforced the 65 years of security cooperation. This deeply entrenched traditional cooperation between militaries of both sides may be difficult to upend though President Duterte threatened abrogating some of these executive agreements in response to US criticisms and interference over his domestic policies, notably his campaign against illicit drugs.

Furthermore, despite the President’s anti-American rhetoric, a popular opinion survey of four countries and two international organizations revealed that US remains the most trusted country for Filipinos, followed by Japan, another close US ally. In contrast, China and Russia are less trusted. However, notwithstanding these results, public opposition in the Philippines against the President’s tirades against the US and UN and his improving relations with China and Russia remain largely muted.  

One can say that change has indeed come in the country’s foreign policy with the assumption into office of Duterte, though it remains to be seen how the consequences of this change will pan out for the country and the region. Despite his foreign policy gambits, the President remains very popular and he can take this as a mandate for him to carry on with his independent foreign policy, some elements of which are taking more shape with the passing of the days. This includes: reducing dependence on US, especially on external defense; 2) willingness to expand engagement with other major powers, notably China and Russia, not only economically but even on the security field and; 3) strengthen connection with ASEAN and keep the Association insulated from major power rivalry. For instance, as the country assumes chairmanship of ASEAN in its golden anniversary, Duterte warned dialogue partners US, Russia and China to stop meddling in ASEAN’s affairs.

Building confidence thru engagement

Territorial and maritime disputes over the West Philippine Sea (WPS) significantly contributed to the high distrust rating of China among Filipinos. However, the experience of Malaysia, Brunei, Indonesia and even Vietnam demonstrated that unresolved disputes need not impede economic ties with the world’s second largest economy. In fact, China has become one of the biggest, if not the biggest trade partner, for these states and this was very instructive to the Philippine President - if disputes can be managed well, the country can benefit tremendously from bolstering commercial relations with China. Cornering a greater share of the huge China market and attracting more Chinese investments, especially in infrastructure, agriculture, industry and technology, are obvious considerations in Philippines’ improving ties with China.

But the security dimension should also not be overlooked – Duterte does not want to play into the hands of other powers in their pursuit of major power competition in the contested maritime spaces of East Asia. By preferring direct diplomacy with co-claimant China, he is de-emphasizing major power competition for navigational control and access as the crux in the WPS dispute. Instead, he is bringing it down to more practical, economic and even environmental concerns like access to fishing grounds and hydrocarbon resources and marine environment preservation (e.g. proposal to declare Bajo de Masinloc or Panatag Shoal as a marine sanctuary), which can garner greater national, as well as regional, appeal.

China’s environmental, social and safety record particularly in relation to extractive industries like mining, dumping of inexpensive goods that threaten local producers and poor compliance with local laws constitute other sources of discomfort with China. Channeling Chinese investments in priority sectors, addressing smuggling and corruption, strengthening regulatory and governance institutions, providing support to local producers and correcting trade imbalance can help address these concerns and engaging China may be helpful in this regard. This was manifested in the Philippines-China joint statement issued on the occasion of President Duterte’s visit to Beijing last October 2016 which stated “Both sides agree that infrastructure cooperation which are jointly undertaken will be subject to proper procurement process, transparency and in compliance with relevant domestic laws and regulations and international practices.”

Distrust in Russia, on the other hand, can be credited to several factors, such as: 1) unfamiliarity; 2) lack of affinity in terms of political ideals and governance (which can also be said of China); 3) lingering Cold War memories of communist expansion promoted by Russia (and China as well) and; 4) and perception of growing Russian expansionism/adventurism as seen in Russia’s annexation of Crimea and involvement in eastern Ukraine and in the Syrian Civil War. However, with the diminishing relevance of the clash of ideologies, mutual gain rather than shared politico-government system and values are now driving much of inter-state relations. In this context, the Duterte Administration seem bent on cultivating ties with Russia and China to achieve two of its key foreign policy goals, namely reduce US dependence and diversify economic and security partners (e.g. reports of possible Philippine-Russian military exercises) given the increasingly globalized multipolar world order. Prospects of US, under the Trump Administration, having less adversarial relations with Russia despite alleged Russian involvement in US elections and increasing friction in Syria and Eastern Europe, may have also encouraged President Duterte to warm up ties with Moscow, with reports of a possible state visit early this year.  

More opportunity than concern

Engaging China and Russia can open up opportunities for the Philippines. Both China and Russia can share valuable lessons in combatting crime, including drug trafficking, terrorism and separatism (e.g. Russia’s experience in the Caucasus and China’s in Xinjiang). Information sharing, police coordination, joint training and transfer of relevant equipment constitute areas where such cooperation can be fostered. Russia and China, the world’s second (25% market share) and third largest (5.9%) arms exporter respectively, can also contribute in broadening the country’s arms sources. Aside from competitive prices and flexible terms, it will also allow the country some leverage in dealing with traditional foreign defense contractors as it will no longer be confined to a single or few country suppliers. Moreover, Beijing and Moscow are also articulating a new form of inclusive regional security architecture which is slowly gaining traction, particularly in Central Asia. China and Russia, for one, had been increasing its security cooperation with Eurasian states through the Shanghai Cooperation Organization. China, in recent years, had also increased its maritime, air force and non-traditional security exercises (e.g. counter-terrorism) with Southeast Asian states and Russia had express similar interest as well. Recently, China and Russia have also stepped up joint naval exercises in multiple theatres – in the Black Sea, Mediterranean Sea and Sea of Japan in 2015 and in the South China Sea in 2016.

The unfolding Eurasian connectivity through such undertakings as China’s Belt and Road Initiative and Russia’s Eurasian Economic Union can also benefit the Philippines by providing a faster route to get to European and Eurasian markets, as well as to access a broader set of alternative energy suppliers from Russia and Central Asia.

China and Russia have resources, technologies and expertise that can have transformative impact on the Philippine economy and society, particularly in the fields of energy, mining, infrastructure, industry and education. According to 2016 International Energy Agency Statistics, Russia is the world’s largest net exporter of natural gas and Russian energy companies Gazprom, Rosneft and Lukoil ranked as the world’s largest, second largest and 9th largest public oil and gas companies respectively, while China’s state-own PetroChina ranked fourth. With their technology, experience and financing, Russian and Chinese participation in the country’s energy exploration, development and infrastructure can contribute to the country’s energy security. As most of these companies are state-owned or with a significant government stake, improved political relations can surely help facilitate better commercial ties between them and their Philippine counterparts (e.g. PNOC, private Philippine energy companies).

As the closest Southeast Asian state to the Russian Far East, the country can also position itself as a potential hub for the distribution of Russian energy in the region, an aspiration aired by the former Arroyo government which can perhaps be revived as a talking point in Duterte’s upcoming Moscow trip. In addition, despite being the world’s largest coal producer, a major consumer of fossil fuels and a major contributor to greenhouse gas emissions, China is in fact the world’s largest producer of hydro, solar and wind energy - renewable energy sources that are in great abundance in the country and which can provide a clean and green fuel power source for the country. Chinese companies GCL Poly, Jinko Solar, JA Solar, and Longi Silicon ranked among the world’s largest solar/photovoltaic (PV) manufacturers, while Chinese companies United Power and Ming Yang are also among the biggest and best manufacturers of wind turbines. Joint ventures with these Chinese firms can facilitate technology transfer and aid in further developing the country’s domestic renewable energy production.

In the mining sector, 12 of the top 40 mining companies in the world are Chinese - China Shenhua Energy ranked as the world’s third largest mining firm, China Coal Energy ranked 12th, Zijin Mining Group Co (which operates in the country) ranked 13th , and China Northern Rare Earth (Group) High-Tech Co. ranked 17th. Though President Duterte seems critical of mining because of their exploitative and unsustainable practices, strict regulation and a sound governance regime can actually make mining a lucrative industry for the world’s fifth most mineralized country. Chinese investments can also help in developing the country’s smelting and processing capacity creating more jobs, allowing for higher value exports and contributing to the revival of strategic industries like steel, which the President mentioned in one of his pronouncements.

Infrastructure development is another promising area for cooperation. China is the world’s largest producer of steel and cement, two key ingredients for infrastructure, and this allows it to offer very competitive bids for construction projects abroad. China and Russia have the world’s second and fourth longest railway network in the world respectively. While US is yet to have one, China already developed the world’s fastest (Shanghai Maglev at 267.8 mph) and second fastest (Harmony CRH 380A at 236.12 mph) train services in the world. Russia’s 9,289 km Trans-Siberian Railway which runs from Moscow in the west to Vladivostok in the east and with connections to Mongolia, China and North Korea is the world’s longest conventional railway, while the 2298 km Beijing-Guangzhou High-Speed Railway (HSR) is the world’s longest. After building the world’s largest dam, second tallest building, longest HSR network, highest altitude railway line, highest bridge, 4th and 10th largest airport, biggest and busiest container ports and presently completing the world’s longest sea bridge (Hong Kong-Macau-Zhuhai Bridge), China has emerged as a major global player in the infrastructure sector.

Almost a third of World Bank-funded infrastructure projects in Africa were won by Chinese companies. In early 2015, China was involved in 1,046 projects Africa, building a total of 2,233 kms. of railways and 3,350 kms. of highways, not to mention power plants, oil refinery, deep seaports, and urban real estate/property development. Aside from Africa, Chinese companies also completed contracts to build the Ankara-Istanbul high speed railway and are presently engaged in the Belgrade-Budapest, Jakarta-Bandung and Kunming-Singapore railway projects, among others. State-owned CRRC is the world’s largest rolling stock manufacturer, supplying diesel/electric locomotives, railroad cars/coaches/wagons, light rail vehicles and components to 101 countries including Australia, Canada, France, Germany, Israel, Japan, Korea, Singapore, Switzerland, US, as well as the Philippines. Recently, CRRC won contracts to supply railway cars to Boston and Chicago.

China’s demonstrated engineering and technological capacity in infrastructure is already being recognized worldwide even by developed country standards. For instance, in a World Bank scale of 1 to 7 (with 1 being extremely underdeveloped and 7 well developed and efficient by international standards), Chinese and Russian port infrastructure were ranked 4.6 and 3.9 not far from Japan’s 5.3 and US’ 5.7. This is a development that augurs well for expanding bilateral cooperation to support the “Golden Age of Philippine Infrastructure.” Furthermore, aside from transport infrastructure, China and Russia had also made tremendous advances in telecommunications, cyber and space technology which can benefit the Philippines should cooperation mechanisms be established. Russia and China have pioneering rocket and space programs as early as the late 1950s and have since become very active in space exploration and dual use satellite technologies. Chinese internet companies Tencent, Alibaba and Baidu are among the world’s 4th, 5th and 6th largest respectively in terms of revenues and market capitalization (in 2016). The existence of these online platforms can provide outlets for Filipino entrepreneurs to promote and market their goods to the huge China market. Alibaba’s 2016 Singles Day sale, for instance, became the world’s largest online shopping event in history with an estimated $20 billion sales in just one day, eclipsing US’ Black Friday and Cyber Monday sales which only generated $2.74 billion and $3.07 billion respectively in the same year.

China and Russia also represent enormous market potentials for Philippine agricultural exports and tourism. Figures from the International Trade Centre reveal that Russia and China are the world’s 4th and 7th largest importers of bananas respectively. The country already supplies about 95% of the Asian market (with China being the second largest market) and entering a new market in Russia will tremendously benefit local banana growers. The prospects for other top agricultural exports like pineapples, mangoes and seafoods also look bright. Chinese and Russian investments can also be tapped to enhance processing and packaging of these products to comply with host quarantine requirements. China is also the largest outbound tourist market while Russia is placed 6th. There is high expectation of greater Chinese tourist arrivals and more demand for Philippine tropical fruit exports in China with the improving relations.

Finally, while China and Russia remain developing economies similar to the Philippines, their performance on some metrics are surprisingly already at par and even best those of developed economies. China and Russia have higher public health expenditure than that of US. Based on the 2016 Global Innovation Index, Russia scored higher (72%) than US (62%) and Japan (52%) in ease of doing business. Russia also scored higher (33%) than Japan (22%) in education expenditure and has greater science and engineering graduates (90%) than Japan (44%) and US (17%). China’s gross expenditure on research and development (R&D) - 87% - is not far from US (92%). The average expenditure score of China’s top 3 global R&D firms (94%) are also not far from their Japanese (98%) and American (99%) peers. With its high savings and investment rates, China ranked high in terms of gross capital formation (98%) compared to Japan (48%) and US (36%). These figures suggest openings for the Philippines to bolster engagement with China and Russia in the fields of education, sciences and engineering, technical skills, and capital development. Hence, such interventions as scholarships and trainings to Russia and China or establishment of joint training institutes in the Philippines can surely benefit the country.

Different, but together

Because of divergence in political and governance values, China and Russia may not easily dislodge traditional allies of the Philippines, but they surely can be friends and partners – in the economic and even in the security dimensions. Despite some political dissonance, their fast developing economies create convergence where each side’s interests can be served. China and Russia can serve as investors in Philippine infrastructure, industry and agriculture, as well as provide tremendous markets for major Philippine exports. Financing and cooperation in knowledge, skills and technology sharing can also help the country move up the value chain – eventually graduating from exporting low-value raw materials into processed intermediate or even final goods.

The sustainability of Russia’s move to the East, China’s commitment to peace and development and good-neighbor relations, and continuity of the Philippines’ independent foreign policy will help determine how cooperation between the three will proceed in the years to come.   

  

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Mr. Lucio Blanco Pitlo III is a Lecturer under the Chinese Studies Program of Ateneo de Manila University, and a  Board Member of the Philippine Association for China Studies.