Chinese investment surge: Caution on The Dark Side

The Duterte administration’s much-vaunted pivot to China is finally showing in terms of economic numbers. Two years into the Duterte presidency, Chinese investments have surged to USD 195.25 million in 2018, 10 percent of the total and a far cry from the USD 10.77 million posted in 2016. For perspective, the USD 232.24 million in Chinese FDI amassed under Duterte has already surpassed the inflows recorded in the last two administrations combined.

This influx appears to manifest most in a couple of industries. The rise in online gaming was said to have benefited from push and pull factors. Chinese President Xi Jinping’s crackdown on corruption, which hurt the gambling industry in Macau, and the Duterte government’s strengthened effort against illegal gambling encouraged the growth of local gaming operations. The Philippine Amusement and Gaming Corporation (PAGCOR) has issued licenses to 57 operators.

The influx of workers spilled over to pressure on the real estate industry, resulting in a spike in prices. More and more floors and even entire condominium buildings are being rented out to Chinese nationals, pushing demand upward and boosting the already booming industry.

A portion of the Chinese investments also went to the power sector, with the State Grid Corporation of China pooling some USD 326 million in expanding and modernizing the Philippines’ power grids. Notably, SGCC has had no global controversies, and apart from the capital it has also invested in the transfer of skills through the training of Filipino engineers and workers.

That said, there is a “dark” character to Chinese FDI, if experts were to be believed. Stratbase Albert del Rosario Institute non-resident fellow Alvin Camba said Chinese capital is “corrosive” as it “bypasses and transforms preexisting procedures, concentrates profits in specific groups, and strengthens existing and generates new patronage networks.

The gambling industry, for instance, preys on innocent recruits and thus encourages the migration of illegal workers. The industry is also not taxable, as these gaming companies are on paper based in another country, allowing them to escape taxes on goods and services, the 5-percent franchise tax, among others, resulting in as much as Php 3 billion in lost revenues each month.

Meanwhile, artisanal small-scale mining, while supposedly directly benefiting their host community’s local government units, is notorious for child labor, environmental degradation, and even violence. Industry players also participate and encourage in a corrosive patronage system in their respective communities, where power is often concentrated on a few elite families instead of functional institutions.

China has used its wealth and economic clout to gain political influence which for some countries has resulted in disastrous penalties. This is a situation that we should never allow.

In the end, there is clearly something to be said about the supposed economic benefits of the government’s pivot toward Beijing and the government’s attempt to fix institutional structures to better take advantage of Chinese capital. But the Philippine economy’s lack of a coherent and sustainable development strategy can severely limit its ability to fully absorb what Beijing can offer. The government must do more.

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