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Economy

The Implications of COVID-19 on China’s Belt and Road in the Philippines

Mar 27 , 2020

The Coronavirus Disease 2019 (COVID-19), which has killed more than 3,000 and infected around 80,000 people in China, forced dozens of Chinese cities into lockdown, and caused the suspension of the annual Two Sessions, was classified by Chinese President Xi Jinping as China’s “biggest emergency” since the founding of the People’s Republic, prompting him to declare a “People’s War” against the epidemic. When COVID-19 broke out and was claimed to have originated from bats and wild animals in Wuhan, China, the common reaction from Filipinos on social media was displeasure of Chinese dietary practices and contempt for illegal wildlife trading. This worsened China’s already unpopular image in the Philippines, which was already cast negatively from the Chinese-run Philippine Offshore Gaming Operations (POGOs). 

In the Philippines, some Chinese nationals tested positive for COVID-19 when the virus first spread and resulted in one fatality. This incident sparked public uproar and frustration over the Philippine government’s failure to contain the spread of COVID-19 in the country. The public faulted President Rodrigo Duterte for not issuing an immediate travel ban from China, allegedly prioritizing diplomatic ties with China at the expense of public health. As the situation worsened, public discourse in the Philippines teetered between racial prejudices against Chinese people, and compassion for the public health crisis that China was struggling with. 

The Filipino-Chinese community, through the Federation of Filipino-Chinese Chamber of Commerce and Industry Incorporated (FFCCCII), cautioned the Philippine public on the dangers of xenophobia against Chinese nationals. Moreover, in the wake of the virus outbreak in China, the Catholic Bishops Conference of the Philippines (CBCP) have issued “Operatio Imperata”, or “obligatory prayers”, for those afflicted with COVID-19. 

The serious toll of the COVID-19 on China’s health security has evidently spilled over into economic security. The delays in the resumption of operations of China’s labor force – amidst continuing hazards of infection – has caused supply chain disruptions for multiple countries. With limited productivity and mobility of the Chinese economy and people, China’s grand Belt and Road Initiative (BRI) has unsurprisingly accrued economic costs. 

The BRI in the Philippines 

Based on the 2015 State Council Action Plan on the BRI, there are five major areas of cooperation, namely policy coordination, trade and investment facilitation, infrastructure development, financial integration, and people-to-people ties. Apart from trade, the Chinese Embassy in the Philippines had identified BRI projects to include steel plants, liquified natural gas (LNG) stations, industrial parks, transportation, agriculture,  irrigation, fishing ports, water resources management, railways, bridges, information and communications technology (ICT) and telecommunications (i.e., China Telecom as third mobile service provider and Safe Philippines Surveillance System), renminbi clearing arrangements, panda bonds issuance, Peso-Yuan cash market, tourism, expansion of commercial flight operations, and other employment opportunities in China for Filipinos (e.g., English teachers). 

Given these, the high risk areas of the BRI in the Philippines are arguably trade and investment and people-to-people ties. In terms of trade, a March 4 report of the United Nations Conference on Trade and Development (UNCTAD) indicated that the Philippines is the 18th most exposed country to disruptions in Chinese production, as at least 13 Philippine industries (worth $300.4 million USD) could face export declines. In addition, ANZ Research finds that the Philippines’ exposure in terms of export goods to China is around 1.6 percent of its GDP. 

The Philippine semiconductor industry, which accounted for around 40 percent of the country’s merchandise exports last year, is under threat of shutting down plants if supply delays from China persist. Similarly, infrastructure projects are likely to encounter delays if raw materials or key components like steel, of which China is a big exporter, incur supply shortages. The Philippine National Bank (PNB) estimates that the COVID-19 outbreak could take off as much as two percent of the Philippines’ total production due to supply chain operational challenges. 

With regard to investment plans, the commercial operations of the telecommunications project with China Telecom has been delayed to March of next year because of the inability to ship the necessary material inputs out of China. Also, it has been reported that its Philippine partner (Dito Telecommunity) has started  to look for “alternative sources” of technology and raw materials. High-level meetings and bureaucratic talks on Chinese Official Development Assistance (ODA) projects have likewise been postponed, which means implementation delays and a possible rechanneling of slow-moving China-funded projects to other donors like Japan. 

As for people-to-people ties, due to travel and visa restrictions, two-way tourism and exchanges have been suspended. As a consequence, the Philippines is projected to lose $8.4 billion in tourism revenues for the short-term, or 0.24 to 0.68 percent of GDP given that China is the Philippines’ second largest tourist market and comprises nearly 20 percent of total arrivals. This is aggravated by the fact that there is also a sharp decline in visitors from other major tourist markets plagued by COVID-19, such as South Korea and Japan. Relatedly, COVID-19 has halted China’s “conference” and “think tank” diplomacy as major events such as the Bo’ao Forum have been cancelled. 

From Biological to Economic Contagion 

The downturn and delays in trade, investment, and people-to-people exchanges between China and the Philippines undermine the primary objective of the BRI, which is to deepen interstate connectivity through increased economic and social interdependence. With less bilateral commercial interaction, it cannot be discounted that BRI partner-states might be forced to look for alternative partners and markets, which could lead to “unintended decoupling”. 

Even as China gradually recovers and renormalizes its economic activities, the risk factors to the BRI are not one-sided – given supply and demand-side shocks – and could be prolonged due to the volatility of the COVID-19 outbreak in the Philippines, which has already dampened market and consumer sentiment, and forced hundreds of factories into closure. This is especially true now that President Duterte has declared a “State of Calamity” in the Philippines and has placed the entire island of Luzon under lockdown or “Enhanced Community Quarantine” due to cases of sustained local transmission. Going forward, the COVID-19 pandemic could press China to include security cooperation (particularly non-traditional security) as an added agenda in the BRI. 

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