Philippines in a Happy and Healthy Relationship with China?

November 28, 2018

by IBON Foundation

by Sonny Africa

IBON Features – Chinese President Xi Jinping’s recently concluded state visit was hyped as historic and relationship-altering in a good way towards “comprehensive, strategic cooperation”. The joint statement released at the end spoke of a couple with a healthy relationship: reminiscing the past, establishing trust, open communication, arguing in a healthy way and reaching compromises, supporting one another, appreciating each other’s interests, and sharing things in common. Of course something could have been said about establishing boundaries but maybe later.

The costs of state visits are usually shouldered by the host country so maybe China was just being polite because its date was picking up the tab. In any case, the aftermath of the visit is a chance to put the Philippines’ debt and other ties to China in perspective.

PH debt to China

A article last year usefully drew attention to how the Philippines is falling into a debt trap with China. The article overstated its case by quite a bit but the internet is always friendly to anything with dramatic effect so it made, and continues to make, the rounds. All is fair in love and propaganda war so weaponizing statistics against China is fine.

Blunt weapons will always have their uses but sometimes it helps to be more surgical. It is probably useful to see just exactly where the Philippines is vis-à-vis China’s global trap-laying.

The Philippines is really facing an explosive China debt bomb but not yet in the way it is often made out to be. The country is still a ways from overdependence on massive amounts of expensive Chinese loans – which is not to say that current loans are not problematic, but more on that later.

Official development assistance (ODA) from China is increasing extremely rapidly under the Duterte administration – from US$1.5 million in 2016 to US$63.5 million in 2017 to US$124 million so far in the first semester of 2018. The over eighty-fold increase in such a short period of time is a huge and unprecedented increase. It also rightly prompts one to wonder what the administration did to deserve such largesse, wink wink.

But it is still not that large as ODA to the Philippines goes – US$124 million is less than one percent (0.82%) of the US$15.2 billion in total ODA commitments as of June 2018. Aid from China is still just a fragment of total aid and much less than Japan’s US$6.1 billion (40% of total), World Bank’s US$3.1 billion (21%), Asian Development Bank’s (ADB) US$2.7 billion (18%), and the United States’ (US) US$807 million (5.3%). Financing has to have an element of concessionality or below-market rates to be counted as aid or ODA.

Another measure of financing from China is how much this is of the US$47.5 billion in outstanding national government foreign debt as of September 2018. China, and specifically China Exim Bank, accounted for just US$159 million of this compared to US$6 billion debt to ADB, US$5.4 billion to the World Bank, and US$4.7 billion to Japan International Cooperation Agency (JICA) and Japan Exim Bank. There was US$29.7 billion in debt securities to unspecified creditors.

As it is, China still does not register among the biggest creditors of the country. The Philippines’ total external debt covering both public and private foreign debt was US$72.2 billion as of June 2018. China is not among the top five creditor countries: Japan (US$13.2 billion), US (US$3 billion), Germany (US$1.5 billion), United Kingdom (US$1.8 billion), and France (US$837 million).

‘Debt-trap diplomacy’

These numbers are of course already changing as financing from China becomes increasingly, many would say alarmingly, prominent. The over eighty-fold increase in ODA from China is only the beginning.

The Duterte administration’s flagship Build, Build, Build (BBB) infrastructure offensive is going to be a major center of gravity for Chinese inroads. The BBB is an Php8.4 trillion infrastructure program including 75 flagship projects costing some Php1.8 trillion.

The government is looking to China to finance a large part of these projects which, if they materialize, will dramatically change the country’s debt profile vis-à-vis China. For now, IBON estimates that the government is seeking as much as US$14.4 billion (approximately Php780 billion) in loans from China for 23 projects cumulatively worth US$16.9 billion (Php917 billion).

The 23 projects include: 10 bridge projects costing US$7.1 billion (Php387 billion); three rail projects costing US$5.6 billion (Php304 billion); four water projects costing US$1.5 billion (Php78 billion); four expressways costing US$1.4 billion (Php77 billion); one power project costing US$922 million (Php50 billion); and one communications project costing US$374 million (Php20 billion). The biggest projects are the Philippine National Railway (PNR) South Long Haul (US$3.2 billion), Panay-Guimaras-Negros Inter-Island Bridge (US$1.8 billion), and Bohol-Leyte Link Bridge (US$1.3 billion).

To date, however, China appears to have committed just around US$376 million (Php20.4 billion) in loans to three projects – Chico River Pump Irrigation and two Metro Manila Bridge Projects – with another US$4.8 billion worth of loans for five other projects still tentative or just having memorandums of understanding (MOU). The status of the balance of 15 projects is not clear.

These Chinese debt-funded projects are on top of increasing foreign direct investment (FDI) inflows from China (including Hong Kong) which have also grown rapidly under the Duterte administration. There was US$825 million during the nine years of the Arroyo administration (2001-2010) and US$1.2 billion during the six years of the Aquino administration (2010-2016) – and already US$1 billion just two years into the Duterte administration or as of June 2018.

FDI inflows are volatile on a monthly, quarterly and even annual basis. Still, it is perhaps appropriate that Pres. Xi Jinping’s visit comes on the heels of Chinese FDI inflows of US$175 million being greater than from the US (US$84 million) and Japan (US$154 million) in the first semester of 2018.

Neocolonial mendicancy

The country’s debt to China is rapidly increasing with prospects of even faster growth in the coming months and years but it is not yet the dramatic debt bomb in the way reported to be with other countries.

Sri Lanka, Pakistan, Maldives, Mongolia, Lao, Djibouti, Tajikistan, Kyrgyzstan and many other countries were widely reported to be distressed from unpayable Chinese debt – because of overpriced white elephants or because it became a disproportionately large share of national debt. China is said to have parlayed unpayable debts into concessions that the debtor countries would otherwise not give. This includes control over potentially strategic infrastructure, an expanded commercial presence, agricultural and mineral resources, and even the building of Chinese military and security facilities.

There not yet being such a China debt bomb in the Philippines only brings the problem with the Duterte administration into much sharper focus – it is already giving territorial and other concessions to China even without debt-related pressure being exerted. The country’s debts to China are still quite few and payable so the problem now is not so much China’s debt-trap diplomacy as the Philippines’ neocolonial mendicancy in the face of China’s imperialist aggression.

China certainly looms ever larger over the Philippines. This is the playing out in this little corner of the world of China’s extremely expansive global hegemonic ambitions. And as with other monopoly capitalist powers there is good reason to be wary of China.

Where is China coming from in its increasingly far-ranging involvement in the Philippines and elsewhere? Its rise as a global power has most of all been built on its powerhouse economy that, if it is to successfully challenge the US for regional and global hegemony, needs to continuously strengthen and expand. The voraciousness of capitalism for raw materials, cheap labor, markets and outlets for surplus capitalism is well-established.

The Belt and Road Initiative (BRI) in particular captures China’s ambitions to control and influence the Eurasian landmass and Indo-Pacific region up to the African continent. It uses debt and infrastructure as intertwined levers to advance China’s economic agenda overseas.

Massive Chinese-built transport, telecommunications and other infrastructure will ease domestic overcapacity in infrastructure services – and connect the Chinese economy to some 70 countries, three-fifths of the world’s population and a third of global gross domestic product (GDP). Up to a trillion US dollars (US$1 trillion) or more in Chinese loans to other countries will recycle surplus capital – and be the spearhead for greater financial penetration and integration.

The Philippines is dutifully playing its neocolonial role in all of this – the only thing China is doing is rationally exploiting the Duterte administration’s over-eagerness for China-funded and Chinese-built infrastructure and capital. There is of course the administration’s refusal to push back against Chinese encroachment to claim Philippine territory in the West Philippine Sea and on the contrary the enthusiasm for so-called joint development of Filipino oil and gas resources.

But there is also the bizarre cooperativeness in setting up China’s debt trap in the country. The scramble for Chinese aid and debt is clear. However it will probably pay to be more circumspect about the long-term effects of the Php8.4 trillion BBB program. If domestic agriculture and Filipino industry do not develop then the infrastructure stimulus will be the main driver of growth. This is dangerously fleeting though which means that the only thing that will be growing afterwards is an infrastructure glut and unpayable debt.

The legal structure of the debt trap is also being willingly created. The Chico River Pump Irrigation loan agreement for instance has provisions of serious concern. These include a provision that appears to collateralize state assets, another that gives undue primacy to Chinese over Philippine law, and another that settles disputes outside of Philippine courts and beyond public transparency and scrutiny.

Relationship goals

The Chinese president’s visit produced 29 signed deals spanning the range of measures China uses to expand its influence and advance its predatory geopolitical and economic agenda overseas. The BRI approach is very much reflected with the biggest number of deals being the twelve (12) on infrastructure followed by six (6) on financing for development.

The joint statement of the visit concluded by affirming that Pres. Xi Jinping and Pres. Rodrigo Duterte very much enjoyed each other’s company and, while not clingy with each other and able to spend time apart, there was a commitment to see each other again in April 2019 at the second Belt and Road Forum for International Cooperation in Beijing, China. The Philippines will probably be spending for itself to attend this as well – so maybe not so healthy a relationship after all. ###