China’s promised infrastructure billions yet to arrive in the Philippines, five years on

Only a fraction of the US$9 billion in soft loans and US$15 billion worth of direct investments Beijing promised Manila in 2016 has been paid out
Japan’s official development assistance dwarfs China’s aid to the Philippines, with US$8.5 billion in 2019. Beijing also charges higher interest rates on loans

China-Philippines relations

Bloomberg

Published: 3:59pm, 5 Jul 2021

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Near the centre of Manila, construction workers are now rushing to complete a US$69-million China-funded bridge by the end of this year after repeatedly missing deadlines.

The Binondo-Intramuros Bridge is set to be among the first to be completed out of the 14 China-funded infrastructure projects in the pipeline. Back in 2016, Philippine President Rodrigo Duterte travelled to Beijing and dramatically embraced China. “I announce my separation from the US,” Duterte said at the time to a packed room of business leaders in Beijing after meeting Chinese President Xi Jinping.

Still, not everyone was convinced the US$24 billion in Chinese investments would come without strings attached.

Chinese President Xi Jinping, right, shows Philippine President Rodrigo Duterte the way during a welcoming ceremony in Beijing in 2016. Photo: AP

The pledges caused some “reservations” from the start, said former Philippine Economic Planning Secretary Ernesto Pernia, who was among the top officials who signed deals with Beijing. “The quid pro quo seemed logically slanted in China’s favour, the super-powerful one.”

Five years later and about 10 months away from the next election, most big-ticket projects funded by China have yet to break ground or have not been approved, with only three under construction. Even worse, Chinese vessels this year have swarmed disputed territory claimed by the Philippines in the South China Sea – exactly the kind of aggressive moves that Duterte had hoped to avoid by getting closer to Beijing at the expense of the US, a long-time treaty ally.

Now, potential candidates to succeed Duterte are attacking his China policies. Boxer-turned-senator Manny Pacquiao criticised the president’s response to Chinese incursions, while Vice-President Leni Robredo – the opposition’s possible bet for the top post – has blasted Duterte for “selling out” to China and throwing away the nation’s sovereignty by describing as “a scrap of paper” the 2016 international arbitration ruling favouring the Philippines’ territorial claims.

“Duterte’s policy of tilting toward China has only produced false Chinese promises of development and of Beijing’s friendship while it tries to take more island territory from the Philippines,” said Paul Chambers of Naresuan University’s Centre of Asean Community Studies in Thailand.

China originally agreed to provide US$9 billion in soft loans, yet Beijing’s loans and grants to the Philippines were at US$590 million in 2019, up from US$1.6 million in 2016, according to data from the National Economic and Development Authority. It also pledged US$15 billion worth of direct investments, yet approved investments totalled $3.2 billion from 2016 to 2020, according to data from the Philippine Statistics Authority.

Japan’s official development assistance dwarfs China’s aid to the Philippines, with US$8.5 billion in 2019. Beijing charges higher interest rates on loans that “have clauses on strict confidentiality,” according to Philamer Torio, professor at the Ateneo School of Government in Manila.

“Our traditional allies Japan and the United States continue to be our best funders for official development assistance,” said Torio, who has researched infrastructure funding.

Duterte’s government has defended the country’s China policy, with Trade Secretary Ramon Lopez saying last month it has reaped economic benefits.

Beijing’s significance to the Philippines has increased in the past five years, he said by phone, with China now its top trading partner and with a China Telecom venture becoming one of the nation’s mobile service providers.

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Philippine coastguard sends strong warning to Chinese vessels during South China Sea patrol

China-funded projects “were negotiated to promote the national interest,” Finance Secretary Carlos Dominguez said in April in response to a newspaper report about these deals. Contracts have been disclosed and can be scrutinised by the public, he added.

Describing the relationship as “win-win,” Duterte said last month: “I am confident that my administration’s Build Build Build programme, together with the Belt and Road Initiative, will reap long-term benefits for our peoples.”

Duterte’s administration has also said its policies have helped in the South China Sea, even as their coastguards had several “dangerous” encounters and officials have recently protested against the presence of Beijing’s “maritime militia.” The US has backed the Philippines and expressed concerns over China’s recent actions, which Beijing has said were normal and legitimate.

Presidential spokesman Harry Roque said the Philippine leader succeeded in preventing China from occupying more areas claimed by Manila.

“No new occupation, no new reclamation, we’re at status quo,” Roque said in May. “That’s the legacy of the Duterte administration.”

Duterte has maintained friendly ties with China, recently calling Beijing a “benefactor” and praising it for supplying Covid-19 vaccines. Throughout his term, his positive stance toward China has not hurt his own popularity even though sentiment toward Beijing has plummeted.

A Social Weather Stations poll in July last year found trust in China fell from poor to bad, hitting a new low under Duterte.

The hype that was supposed to sell the idea that engaging with China is for our benefit is now backfiring

Tina Clemente, University of the Philippines’ Asian Centre

Chinese Foreign Ministry spokesman Wang Wenbin on Friday defended the value of the projects. “China and the Philippines always work together to promote cooperation on the basis of mutual respect and mutual benefit,” Wang said. “Relevant projects have also made positive contributions to the Philippines’ economic and social development.”

One big problem the projects face is the Philippines’ lengthy approval process, according to Tina Clemente, a professor at the University of the Philippines’ Asian Centre.

Chinese investors are also staying away from the country and investing more elsewhere in the region because of structural problems in the business environment such as foreign ownership restrictions, high power costs and poor infrastructure, she said.

“Economic engagement with China is inevitable, but expectations could have been managed better,” said Clemente, who has researched China’s economic diplomacy. “The hype that was supposed to sell the idea that engaging with China is for our benefit is now backfiring.”