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The Philippines

Philippines must strike a balance when China’s Xi Jinping comes to visit, analysts say

  • Sides will sign ‘at least five economic deals’ when Xi meets President Rodrigo Duterte in November, Manila says
  • But leaders are expected to skirt a long-standing dispute over the South China Sea
PUBLISHED : Thursday, 01 November, 2018, 6:16am
UPDATED : Thursday, 01 November, 2018, 9:22pm

The Philippines will court Beijing for further investment when Chinese President Xi Jinping visits Manila next month, temporarily sidestepping issues in the South China Sea as it hedges its bets in the ongoing trade and strategic tussles between China and the United States, observers say.

While the nation’s strongman President Rodrigo Duterte has made waves with his pivot towards Beijing – including making proclamations of “love” for Xi and a tongue-in-cheek suggestion the Philippines be made a Chinese province – his administration has said it pursues an “independent foreign policy” that does not rely on any one power.

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That geopolitical dance with China and the US, its traditional ally on defence, will be put to the test when Xi heads to Manila after this year’s Asia-Pacific Economic Cooperation forum in Papua New Guinea, which wraps up on November 18.

At least five economic deals are expected to be signed during Xi’s trip – his first to the country since Duterte took office in 2016 – including more loan agreements for infrastructure projects under Manila’s “Build, Build, Build” development initiative, according to Philippine Finance Secretary Carlos Dominguez.

Analysts say there may also be progress on bilateral consultative mechanisms and joint energy development projects in the South China Sea.

“The trip will further cultivate relations between the Philippines and China,” said Aries Arugay, an associate professor of political science at University of the Philippines-Diliman. “There’s going to be more economic deals and more cooperation. The Philippine government under Duterte will take advantage of this; as China can help to alleviate some of the inflation the country is experiencing.”

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Despite the closer ties, a 2016 international tribunal ruling in favour of the Philippines in its territorial dispute with China in the strategic waterway had not been forgotten, Arugay said.

“The arbitration ruling is only temporarily put aside, with an emphasis on temporarily,” he said.

Duterte has flip-flopped this year between praising Beijing and stressing the need for cooperation, to saying he is prepared to go to war over the South China Sea’s natural resources.

On his visit to Beijing in October 2016, he secured US$24 billion worth of investment and loan pledges from China. Critics, however, have said that much of that money has never seen the light of day, due to the cancellation of or delay to Chinese-funded projects.

Anwita Basu, an analyst at the Economist Intelligence Unit in Singapore, said Xi’s trip would be a “major milestone” in Duterte’s foreign policy shift towards Beijing. Under his predecessor, Benigno Aquino, China and the Philippines became embroiled in a stand-off over the Scarborough Shoal, which was the subject for the international tribunal.

“The discussions will certainly skirt the South China Sea issue and focus more on economic cooperation, some of which has yet to materialise,” Basu said.

Expect big deals and some choppy waters to navigate when Xi Jinping goes to Manila

Amid the Duterte administration’s warmer ties with Beijing, the bilateral economic relationship has grown, with China now the Philippines’ top trading partner. Bilateral trade totalled US$13.9 billion in the first half of this year.

China’s investments in the Philippines have also surged under Duterte, rising 67 per cent last year to US$53.8 million, with money earmarked for major infrastructure projects including the Chico River Pump irrigation project, the Kaliwa Dam, and the southern railway line from Manila.

“For President Xi’s visit to Manila, I think the aim for both countries is to keep the positive and constructive momentum going,” said Aaron Rabena, an associate fellow at the Philippine Council for Foreign Relations. “Neighbours are important because China does not want a hostile periphery.”

But even after China’s foreign direct investment in the Philippines nearly doubled year on year in the first three months of 2018, it still accounted for only 3 per cent of the total entering the country, according to the Philippine Statistics Authority. The top investors in the second quarter of the year were Japan, the US and Indonesia, it said.

While Washington and Manila have long been strategic partners, relations have been bumpy under Duterte, who has made headlines with his anti-Western diatribes.

He has also blamed accelerating inflation in the Philippines, which reached a nine-year high of 6.4 per cent in August, on the US trade war with China, even though the country’s central bank attributed it to higher government taxes and tighter rice supplies.

But Duterte’s expletive-prone rhetoric against the US has softened in recent days. Manila has moved to strengthen military relations with Washington by increasing the number of joint exercises they hold to 281 next year, up 20 from this year.

The two sides also recently announced a trade and investment framework agreement and as a gesture of goodwill, the US agreed to finally return the Bells of Balangiga to the Philippines, three church bells that were seized decades ago as war trophies during America’s colonial occupation.

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But Luke Lischin, a researcher specialising in Southeast Asia at the National War College in Washington, said that while the US was focused on military to military ties with the Philippines, it had remained silent on Duterte’s bloody drug war, which rights groups say may have claimed as many as 20,000 lives.

“The primary failing of the US’ Philippine policy is that it lacks a positive vision for future US-Philippine cooperation, and resorts to the policy equivalent of treading water in changing tides,” he said.

“It accepts token gestures from the Duterte administration as it impotently watches the Duterte administration gut the Philippines’ democracy, slaughter so-called drug addicts and pushers, strengthen ties with China, and ineffectually pursue counter-insurgency against several insurgent threats.

“Duterte’s orientation has not changed much over the years; no one should anyone expect a volte-face.”

Within the Philippines, the perception of the US remains positive. A recent survey by Pew found that 77 per cent of respondents in the Southeast Asian country favoured the US as the global leader, compared with 12 per cent who preferred China.

It was this perception that was behind the backlash against China-funded projects, said Alvin Camba, a researcher on Beijing-led investment in the Philippines.

The fact that not all of the US$24 billion worth of Chinese investment had materialised was down to domestic actors, like governors, mayors and civil society organisations, as well as the broader issue of a lack of transparency, he said.

“There is a lot of scepticism about Chinese projects, people thinking it’s a debt trap, it’s all Chinese workers, it’s going to be the Chinese government imposing its will in the Philippines,” Camba said.

While the assumptions were not always justified, the “perceptions are there”.

“With China, because of the territorial issues, whenever you accept economic capital, there’s always this perception … that you’re selling the country out,” he said.

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As the US and China have exchanged blows on trade, in the contentious waters of the South China Sea and beyond, smaller regional powers such as the Philippines have sought to remain neutral. While Southeast Asia stands to gain from the shifting of manufacturing supply chains away from China, many are also fearful of the blowback from the broader conflict.

The Philippines’ Dominguez said in September that the country was “experiencing headwinds” from the trade war.

“The country is part of the global value chain, primarily for electronics,” said Eric Jurado, managing director of the investment and advisory firm ECJ Capital. “We’re definitely going to be negatively affected by the US-China trade war. I can’t tell you exactly how much, but I can tell you it will.”

To mitigate the risks of the Sino-US tensions, the Philippines has also pursued relations with “middle powers”, venturing into defence and security cooperation with Russia, India, Japan and Israel.

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“Unfortunately for the Philippines, given it is a small state, its positioning needs to constantly change given the developments of the strategic competition,” Arugay said. “One thing that the Duterte government will do is not pick a side, and try to get the most out of cultivating relationships with one power while maintaining relations with the other.”

But it was a demanding strategy that required “a lot of political savvy and strategic thinking”, which the current government was lacking, he said.

“The Philippines at the end of the day is just trying to survive,” Arugay said. “Just like the other small countries, it’s one of the most affected victims of increasing strategic competition between the US and China.”