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Foreign Policy

Chinese Chimera: Instead of ‘Debt Trap’, the Philippines Frets over Elusive Chinese Investments

Oct 11 , 2019

Most recently, the Philippines government described its relations with China as “better than ever”, following a years-long rapprochement under President Rodrigo Duterte’s watch. Upon his assumption of power in 2016, the Filipino leader transformed Asia’s most toxic bilateral relationship into one of the most cordial anywhere in the world.

The Chinese government has even gone so far as describing the Beijing-friendly Filipino leader as its “most respected friend.” Yet, aside from festering territorial disputes in the South China, but growing frustration over a lack of major Chinese investments threatens the future of the Philippine-China strategic partnership.

While few should have been surprised by the Philippines’ top defense officials describing China as a ‘threat’ and ‘bully,’ Manila’s open criticism of unfulfilled Chinese investment pledges is a poignant reminder of the limits of the ongoing rapprochement. The latest data shows that Japan continues to trounce China in terms of operational infrastructure projects in the Philippines.

A large number of Chinese projects have been either hobbled by bureaucratic red tape, lack of initiative, or outright controversies. While many countries are worried about a ‘debt trap’, the Philippines is fretting over ‘Chinese chimera’, the yawning gap between pledged and actual investments. As a result, many are questioning the wisdom of Duterte’s blatantly acquiescent policy towards Beijing.

False Dawn

During a high-profile event (September 26) organized by the Asia Society, and chaired by former Australian Prime Minister Kevin Rudd, Philippine Foreign Secretary Teeodoro Locsin complained about the breadth of unfulfilled Chinese investment pledges.

“We signed up [to] this and that agreement, but they hardly materialized,” he told the audience in New York event, which was organized on the sidelines of the United Nations General Assembly.  

“They [Chinese investments] hardly materialized, and if you were to compare it with Japanese investments and official assistance [to the Philippines], nothing. It seems as if Japan, if there is a thing as a rising China, apparently there’s a phenomenon – there’s a book on it – on a rising Japan. And we’re feeling that,” Locsin added.

Though notorious for his controversial remarks and hyperbole, the Philippine foreign secretary accurately reflected the cold facts on the ground. According to the latest data from Fitch Solutions, Japanese infra investments (worth $230 billion) overshadow China’s worth ($155 billion) across Southeast Asia.

In the Philippines, however, the margin is even more significant, with Tokyo pledging 29 infrastructure projects worth $43.5 billion, compared to Beijing’s 8 key projects in the pipeline worth $7.4 billion, only a fraction of Japanese investments.

Among the 10 proposed big-ticket Chinese infrastructure projects, only a handful have cleared the preliminary phase of implementation, namely the US$60 million Chico River Pump Irrigation Project. Yet, even those few projects have been mired in controversies, including accusations of ‘debt trap’ diplomacy and bidding anomalies.

The ensuring public outcry forced Duterte to call for a review of all major Chinese projects. Historically, a number of big-ticket Chinese projects were permanently derailed amid legal battles and bidding controversies. The same could happen to Chinese projects under succeeding, less friendly Philippine governments. 

Other proposed Chinese infrastructure initiatives, namely the Subic-Clark cargo train and trans-Mindanao Railway, are in limbo, with no certainty over their future prospects. Ahead of Chinese President Xi Jinping’s historic visit to Manila last November, senior Filipino technocrats complained about the need to “put pressure on the speed of implementation of all these [Chinese] projects.” 

A Fading Romance

Though dismissing ‘debt trap’ concerns, Philippine Finance Secretary Carlos Dominguez III admitted that China’s initial reluctance to team up with other development partners, and the insistence on using Renminbi and Chinese labor hobbled the pace of the projects’ implementation.

Beijing’s infrastructure footprint in the Philippines has largely been confined to a relatively few and small-sized projects (worth $198.77 million), which have already been questioned on the grounds of either redundancy or disproportionate benefiting Chinese contractors.

In contrast, Japan is not only the leading source of development aid, but has also been proactively bankrolling mega-infrastructure projects, including the Philippines’ first subway metro and the North-South Commuter Railway project connecting industrialized regions of the country. This is already on top of Japan’s large infrastructure investment footprint, which is ubiquitous in major cities.

China’s lackluster investment footprint has put into question Duterte’s China policy. Shortly before his election, Duterte made it clear that he is willing to dial down territorial tensions in favor of an economic partnership: “We have to talk and what I need from China is not anger. What I need from China is help to develop my country.” 

During his visit to Beijing three years ago, Duterte was so elated by securing $24 billion in pledged investments that he went so far as declaring his willingness to ‘separate’ from the United States, China’s rival and the Philippines’ sole treaty ally.

Philippine Presidential Spokesman Salvador Panelo has sought to downplay the growing frustration among top government officials by reiterating China’s claim that the problem instead lies with the host country’s red tape and bureaucratic processes.

If China’s dismal and declining approval ratings are any indication, the Philippine people are fast losing confidence in Duterte’s Beijing-friendly diplomacy, instead favoring a tougher approach to the South China Sea disputes. And with Duterte fast approaching his twilight years in office, the future of the bilateral relations is far from certain. 

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