President Ferdinand Marcos Jnr reviews honour guards during the Philippine Air Force (PAF) anniversary at Clark air base in Angeles City, Philippines on July 3, 2023. Photo: EPA-EFE
Opinion
Lucio Blanco Pitlo III
Lucio Blanco Pitlo III
South China Sea: Philippines must softly manage disputes or miss out economically
Manila’s ‘assertive transparency’ strategy is touted as a model for managing maritime disputes but it diminishes key economic opportunities
As Chinese investment pours into other Southeast Asian countries, the Philippines can reduce geopolitical risks without acquiescing to Beijing
The Philippines is going all in with the United States and bracing itself against lost Chinese largesse. President Ferdinand Marcos Jnr will fly to Washington next month to attend the US-Japan-Philippines trilateral leaders’ summit. It will be his fourth visit to the US since taking office as president less than two years ago.
His trip comes as tensions in the South China Sea intensify and economic ties with Manila’s top trade partner begin to suffer. A recent report by the Griffith Asia Institute at Griffith University indicates a 100 per cent drop in China’s construction and non-financial investments in the Philippines last year. Based on the data, the only other Southeast Asian country in this category is strife-torn Myanmar, proof of how much the maritime dispute between China and the Philippines has affected economics.
This gives a whole new meaning to Marcos’ visits to the US, Japan, Australia and Germany to court investments and diplomatic support. It also raises the salience of the recent American trade and investment mission to Manila led by US Commerce Secretary Gina Raimondo.
Chinese finance and supply chains are transforming Southeast Asia’s infrastructure, renewable energy, mineral processing and electric vehicle landscape. But the Philippines is being left out. Does Manila’s drive to reduce China’s role in its economy come at the price of losing out to its peers in the Association of Southeast Asian Nations?
The Philippines’ “assertive transparency” regarding disputes in the South China Sea has imposed reputational costs on China. Having done so without suffering backlash was hailed as a vindication, making Manila’s approach worthy of emulation by other claimants. But this faulty view discounts lost opportunities.
China not openly employing economic coercion does not mean the Philippines did not take a hit. Funding for three major railway projects was scuttled. Chinese inbound tourism dropped from a record high of 1.7 million arrivals in 2019 to fewer than 264,000 last year.
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Chinese EV maker BYD launches electric cars in Indonesia
Chinese EV maker BYD launches electric cars in Indonesia
Chinese investors are looking elsewhere in the region. Chinese company BYD, the world’s largest electric vehicle maker, is reportedly planning to invest US$1.3 billion to produce EVs in Indonesia. Chinese battery giant CATL invested in Indonesian state-owned miner Antam to process nickel and make EV batteries.
In this context, it’s worth noting that the absence of Chinese import curbs on Philippine fruits, despite worsening ties, has more to do with former president Rodrigo Duterte than Marcos. Known for fostering friendly ties with Beijing, Duterte visited China last year and met Chinese President Xi Jinping.
His daughter, Vice-President Sara Duterte-Carpio, is seen as a likely contender for the 2028 presidential race. The Dutertes differ from the Marcos family on foreign policy. The Duterte family comes from the Davao region of Mindanao, the centre of the country’s plantations, whose biggest market is China.
Hence, the Dutertes help insulate the country’s fruit exports from Chinese reprisal. The elder Duterte’s ascent to power in 2016 paved the way for the return of Philippine bananas to China after a hiatus triggered by a stand-off over the contested Scarborough Shoal in 2012.
Philippine President Rodrigo Duterte and Chinese President Xi Jinping wave to the press during a welcoming ceremony at the Malacañang palace grounds in Manila on November 20, 2018. Photo: AFP
But even with this accommodation, competition from neighbours is chipping away at Manila’s position in the lucrative Chinese market. Vietnam and Cambodia have upped their banana exports, as have Thailand and Malaysia when it comes to other fruits such as pineapples. Logistics works to their advantage, while geopolitics puts Philippine produce at a disadvantage.
China needs critical raw materials for its production. However, Chinese firms may not be keen to invest in Philippine mineral processing, given the political climate. Overall, commodities remain prone to external shocks from weak demand and price fluctuations.
This highlights the importance of climbing the value chain. Taiwan’s indispensable role in producing advanced chips has made other countries invest in its security. Indonesia is leveraging its enormous nickel reserves to be an EV battery production powerhouse. However, in the Philippines, the bandwidth expended on the South China Sea leaves little room to focus on the burgeoning economic and technology game.
This stands in stark contrast with the Philippines’ neighbours who have plans and the grit to carry them out. Such competition should shape a more nuanced outlook on maritime tensions.
BYD is expected to follow the lead of Chinese consortium SAIC-GM-Wuling to produce EVs in Indonesia. BYD also has a factory in Vietnam that makes electronic devices and parts. Chinese carmakers SAIC and BYD are joining Great Wall Motor to manufacture EVs in Thailand as the country becomes major hub serving the region’s bustling market.
Workers assemble electric cars at a VinFast factory in Hai Phong, Vietnam on September 29, 2023. Photo: AP
Vietnam’s VinFast has entered into strategic partnerships with Chinese battery makers CATL and Gotion to improve its own EVs. Last year, it was announced that Chinese carmaker Geely is set to invest $10 billion in Proton to produce EVs in Malaysia.
Chinese solar module makers have been moving to Vietnam, Thailand and Malaysia, bypassing US sanctions and helping boost sustainable energy transitions in these fast-developing countries. Laos, riding on the back of Chinese-built dams, is becoming the battery of Southeast Asia, supplying hydroelectric power to Thailand, Vietnam, Cambodia and Singapore.
China’s unsettling behaviour in the South China Sea does not invite approval. But neither does the Philippines’ gung-ho line. Subtlety does not equate to acquiescence. Noise does not necessarily translate into productive outcomes.
Unfettered clatter may even raise the stakes for accidents and stymie much-needed investment. Beijing’s transformative economic role in the region should temper sharp views towards it, shaping more delicate approaches to handling stubborn disputes.
Lucio Blanco Pitlo III is a research fellow at the Asia-Pacific Pathways to Progress Foundation
