October 21, 2016

Dindo Manhit, President of Stratbase-Albert Del Rosario Institute (ADRi) for Strategic and International Studies

The Philippines is waiting for the outcome of President Rodrigo Duterte’s trip to China, which promises to be an important moment for promoting more trade between the two countries. For several years, Chinese direct investments in the Philippines have lagged behind Filipino investments in China, and the Duterte administration has set on a course to correct that imbalance.

For its part, China’s Foreign Ministry spokesman has said that China could play an “active part in the Philippines’ economic and social development,” in a shift from the political winter between the two countries during the previous Philippine administration.

To ensure both sides stay open to improving relations, the government has focused on what could be considered the most promising areas of the Philippines-China relations and quarantined the most difficult parts, such as the two countries’ disputes over the West Philippine Sea. China has not budged on its position on the international ruling, but it has welcomed Duterte’s preference for a “soft landing” for both sides. As part of that “soft landing,” Duterte has voiced his appreciation for Chinese support in his signature initiative, the war on drugs.

Thus, although the president has not ruled out the possibility of raising the Philippines’ successful case in The Hague, there is no expectation for concessions on these matters as a result of the visit. Instead, the Department of Foreign Affairs has dusted off its long-ago statements about how the disputes do not comprise the entirety of the Philippines-China relationship.

Fresh investments for the private sector

Perhaps as a concrete sign of both sides’ focus on the overall relationship, the state visit has included a China-Philippines economic and trade forum. The change in relations between the two countries could translate into good news for the Philippines’ business sector, which can take advantage of this thaw to pursue more opportunities with counterparts in China. By early indications, the president and his business delegation will be bringing home a new package of investment commitments totaling in the billions.

Total trade between the two countries amounted to USD 9.84 billion, jumping by 26 percent from USD 7.8 billion in the same period last year. China is still the country’s largest source of imports, with total imports from the first semester of this year reaching USD 9.72 billion. Meanwhile, China is only the fourth-largest export destination for the Philippines, behind Japan, the US and Hong Kong; revenue from Philippine exports to China reached only USD 2.7 billion for the first half this year.

“China is only the fourth-largest export destination for the Philippines, behind Japan, the US and Hong Kong.”

Two-way trade eclipses the amount of foreign direct investments from China, which as mentioned have trailed behind Philippine investments in China. The total approved foreign investments from China only amounted to PHP 376.9 million for the first semester of 2016, representing a 30 percent drop from the same period last year.

Giving China a chance

While the state visit is an important step, the promise of the Philippines-China economic relationship will be seen over the longer term, when the promises are fulfilled and their benefits are felt by everyday Filipinos. It will be important to look at the specifics of any Memoranda of Understanding or Agreement signed between the two governments to see the prospects of these agreements. Nevertheless, if the agreements are sound and other deals, such as in infrastructure investments, are put in place, then the benefits could be felt in underserved areas even within the President’s time in office.

Although the effects of China’s commitments are not to be taken for granted, Duterte has done one important thing: give China the chance to show whether it can be a good partner for the country, especially in the long term. For goodwill to persist between the two governments, China’s companies investing in the Philippines should take care to avoid the kinds of corruption scandals that have sullied the country’s reputation in the past, to include the failed ZTE-NBN project during the time of President Gloria Macapagal-Arroyo. This is particularly important for any cooperation in support of the National Broadband Plan, which is being revived by this administration in order to ensure better connectivity for Filipinos nationwide.

“Duterte has done one important thing: give China the chance to show whether it can be a good partner for the country, especially in the long term.”

Lifting suspensions and warnings

In advance of the president’s visit, China also lifted its suspension on Philippine bananas, which had been handed down in 2012 for exporters’ alleged lack of compliance with phyto-sanitary standards. The persistence of the ban had been linked to the chilly atmosphere between the two countries—with China reportedly lowering the number of bananas it would import from the Philippines right after the favorable ruling from The Hague in July.

The lifting of the suspension will be good for Filipino banana growers, and they and other growers in the agricultural sector could also benefit from increased interest from China in Philippine crops. At this time, Filipino exporters can also take advantage of the expected weakening of the peso over the coming months to send their more-attractive goods to the opening Chinese market.

“The lifting of the suspension will be good for Filipino banana growers and other growers in the agricultural sector could also benefit from increased interest from China in Philippine crops.”

Part and parcel of the warming trend, China’s ambassador announced that the travel advisory against the Philippines will be lifted while Duterte is in China. After the warning was raised in 2014, the Department of Tourism reported a decrease in the number of Chinese tourists to the Philippines; by reversing the advisory, the tourism industry nationwide could also see some benefits from an influx in visitors.

Conclusion

There are a number of positive and possible developments in the Philippines-China relationship. As Duterte and his team seek to warm up the bilateral relationship, promoting trade and investments could be one way to ensure that both countries experience concrete benefits to their new political understanding.

At the same time, Filipinos would do well to proceed with some caution and not yet plan for the long term on this relationship. At present, China’s overtures to the Philippines appear to be political reversals of similarly political decisions it made during the last administration. In this situation, it can be easy-come, easy-go.