Malaysia’s Mahathir tells Philippines: ‘Be very careful’ with Chinese loans

MANILA, Philippines — Malaysia Prime Minister Mahathir Mohamad on Thursday cautioned the Philippines to carefully deal with loans from China, drawing from his country’s experience after his government scrapped what he calls “unfair” Chinese-backed infrastructure projects.

Amid worries about corruption, Mahathir last year canceled a number of Chinese-funded projects worth $22 billion awarded by his embattled predecessor Najib Razak, who is facing a massive financial scandal.

In an interview with ANC Television, Mahathir, who is in Manila for a two-day visit, said the Philippines should avoid repeating the mistakes made by other countries that suffered from unsustainable debt by accepting Chinese infrastructure investments.

“If you borrow huge sums of money from China and you cannot pay—you know when a person is a borrower he is under the control of the lender. So we have to be very careful with that,” Mahathir said.

Philippine President Rodrigo Duterte plans to spend trillions of pesos to bridge the Philippines’ infrastructure gap, and to do so he sought Beijing and other countries' help for funding to reduce strain on his government’s budget.

Despite Duterte's warm relations with China, the Philippines has a long history of mistrust of it as the two countries continue to spar over the resource-rich South China Sea.

Critics have warned that the Philippines could be the next victim of what they say is China's "debt trap diplomacy," where Beijing gives "friendly" loans to bankroll infrastructure projects in financially weak states in exchange for control over strategic assets.

But Philippine policymakers have repeatedly said the country won’t fall into an alleged “debt trap” with China.

“This (debt trap diplomacy) is something that of course China has been accused of, but it is also the country’s concern which can regulate or limit all these influences from China,” Mahathir said.

Last year, London-based think tank Capital Economics said given the "corruption problems" associated with Chinese infrastructure projects and the Philippines’ current account gap "already approaching unsustainable levels,” Chinese investment “could make problems worse” for the Southeast Asian nation.

“The upshot is that while improvements to the country’s infrastructure are desperately needed, the pace of increase needs to be managed properly in order to avoid further balance of payments strains,” Capital Economics said. — Ian Nicolas Cigaral