Take two for China

The local telecommunications industry may not seem to be a worthwhile opportunity for Chinese companies to invest in (yet), but there are many other areas in the country that are definitely enticing to them, notwithstanding – or perhaps because of – brewing tensions in the South China Sea and the Benham Rise.

The National Economic and Development Authority recently signed a six-year “development” pact covering trade and economic cooperation with Chinese officials. While this does not guarantee actual inflow of Chinese investments to the Philippines, it can sum up to a good new start.

Not that this is a totally fresh start, though. If we look at the history of Philippine-Chinese economic ties, we could say this is a take-two in a rather interesting – and rather checkered – history spanning political interests as well.

During the administration of Gloria Macapagal-Arroyo, the first big attempts to entice Chinese investments into the Philippines took shape. More than 60 bilateral agreements were signed in exchange for keeping quiet about our territorial claims in the South China Sea.

Alvin Camba of John Hopkins University wrote an interesting piece summing up the fate of more than a dozen large Chinese investors that got embroiled in crony corruption, and ultimately ended up not pursuing plans to invest.

Crony corruption

For example, according to Camba, “the Chinese Department of Transportation and Communication and the Zhongxing Semiconductor Corp. (ZTE) agreed on an investment contract worth $329.5 million to upgrade the Philippines’ telecommunication infrastructure. But pressure from opposition parties and numerous social movements forced Arroyo to cancel the project.”

There were two other big mining deals that Camba mentioned, namely the Jinchuan Non-Ferrous Metal Corp. in the Nonoc Mines and the ZTE in the Diwalwal mine, but both met resistance from Arroyo cronies whose interests were being threatened.

Camba also wrote about 18 land lease agreements that were signed with Chinese agribusiness companies, but again were not pursued because of protests by cronies who felt they were being cut out from a profitable opportunity to earn money.

In the end, Camba wrote, only the consortium involving the State Grid Corp. of China (SGCC), Calaca High Power Corp., and the Monte Oro Grid Resources Corp. successfully made it, thanks to the strong backing of tycoon Enrique Razon.

Weather-weather

We all know what happened during the term of Benigno Aquino III as his government escalated tensions involving the South China Sea dispute, which eventually led to China drastically reducing the importation of our agricultural products, banning Chinese tourists from stepping into the country, and prohibiting our fishermen from the contested areas in the South China Sea.

During Aquino’s six-year term, Chinese investments in the country dropped to zero even if Chinese businessmen were aggressively looking beyond their borders for opportunities to improve their bottom lines.

But as we like to say in the Philippines, weather-weather lang yan. With the assumption of Duterte in 2016, his strongman statements about favoring China over the United States, a long-time Western ally, had given the Chinese a relatively clean slate to start afresh.

After Duterte’s state visit to China in 2016, a pledge of $9 billion in soft loans, including a $3-billion credit line with the Bank of China, and economic deals including investments worth about $15 billion has been secured to support the current administration’s Build Build Build program.

Take note the offer for foreign aid by China is a first for us. While there has been no actual Chinese loan processed and signed, our government officials assure us the money is on its way.

Collateral

With crony involvement controlled by the autocratic leadership in Malacañang these days, and the issue involving our territorial claims in the South China Sea being managed in favor of China, the Chinese tourists are back, and trade with one of the world’s biggest economy is livelier.

In fact, government officials project China could soon become the Philippines’ largest trading partner, having purchased from us last year $1.7 billion worth of mostly agricultural products.

The Chinese are also keenly interested in investing in a number of sectors, including downstream oil, aviation, waste energy, gassification, ship repair, shipbuilding, integrated iron and steel facilities, ports, chemicals, tourism, and aquaculture – almost anything under the sun.

The Chinese loans, when they do come in, will be for a number of infrastructure projects including the Davao Expressway, bridges connecting Panay, Guimaras, and Negros islands, the $53.6-million Chico River Pump Irrigation Project in Cagayan and Kalinga provinces, the $374-million New Centennial Water Source-Kaliwa Dam Project in Quezon province, and $3.01-billion south line of the North-South Railway.

This is on top of the $9 billion loan for Philippine National Railway’s Bicol Express, which will connect the Southern Luzon provinces to Metro Manila by rail, and the Mindanao Railway Project.

High cost of Chinese loans

China is becoming one of the country’s biggest credit sources, even surpassing Japan. How this will shape up in the future given the high interest rates that often come of Chinese loans, even those that are developmental, will need watching.

China, for example, charges two to three percent interest, usurious by Japanese standards of 0.25 to 0.75 percent. The phrase debt-trap diplomacy has now become synonymous to developing countries that have borrowed from China much more than what they can pay.

Should we default, I’m sure the Chinese would only be too willing to take the rumored oil-rich Reed Bank in the South China Sea as collateral.

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