THE PHILIPPINES has the most to gain from China’s Belt and Road Initiative (BRI) by way of infrastructure investments, a global bank said, even as it cautioned that geopolitical tensions and construction delays could weigh on benefits to the country.
In an April 16 report, titled: Belt and Road: Globalization China Style, Nomura said the Philippines and Malaysia have the most to gain from warmer ties with Beijing, with the Belt and Road agenda expected to support the ambitious infrastructure development plan of the government of President Rodrigo R. Duterte.
At the same time, Nomura economists cautioned that it could take long for China-funded projects to go from blueprint to actual rollout, citing the track record of construction firms.
“As mentioned, progress of China-funded infrastructure projects is unlikely to be smooth sailing as is evident in delays of even the smaller projects,” Nomura said in the report which it released on Tuesday.
“Most of the big-ticket multi-year projects in the pipeline are still under consideration and may therefore be susceptible to the risk of another pivot when a new president takes over in 2022, unless they get under way soon.”
China has pledged around $7.34 billion in soft loans and grants for the Philippines over the next two years, according to the Department of Finance. The Duterte administration is counting on such easy financing to support its ambitious “Build, Build, Build” infrastructure program that needs some P8 trillion until 2022.
Nomura noted that Beijing’s investment pledges account for 10.5% of gross domestic product.
Mr. Duterte announced a “pivot to China” during his first visit to Beijing as president in October 2016, initially shocking the Philippines’ traditional partners and reversing decades of US-aligned policies.
Last week saw the Philippines sign six agreements at the Boao Forum in China, which include a $62-million credit line for the Chico River Pump Irrigation Project and a 500-million renminbi economic and technical cooperation grant to finance infrastructure and other projects.
Other big-ticket projects eyed for Chinese funding are the P10.9-billion New Centennial Water Source-Kaliwa Dam Project and the P151.3-billion Philippine National Railway South Commuter Line.
However, Nomura flagged that unresolved maritime tensions between the two nations could affect the future of investment commitments and funding.
“[A] lot will hinge on whether tensions in the South China Sea remain contained, which in turn may also depend on the next administration,” Nomura added.
“Even today — amid President Duterte’s high popularity ratings — there are growing concerns about the mismatch between the speed with which China has built structures on disputed islands and how little progress has actually been made on infrastructure projects or the FDI inflows that the Philippines has received from China so far.”
China has been building structures capable of accommodating warplanes and warships in a disputed area in the South China Sea even after the Permanent Court of Arbitration in July 2016 junked Beijing’s claims to much of the waters as being without legal basis.
On trade, the global bank said Philippine trade links to the Mainland will likely remain limited.
“[T]here are no major port development projects — which would have been more in line with the BRI’s thrust of increasing regional connectivity and allow the Philippines to be linked to the Maritime Silk Road — and as such we believe the project will actually somewhat limit the prospects of new trade linkages,” Nomura said.
China (excluding Hong Kong) was the fourth-biggest market for Philippine goods in 2018’s first two months after the Japan, the United States and Hong Kong, as well as the Philippines’ biggest source of imports in the same period, according to latest available Philippine Statistics Authority data.
Foreign direct investments from China nearly tripled to $28.79 million in 2017 from 2016’s $10.77 million. The figure soared to $151.27 million in January alone to account for 16% of the $919.22-million inflows that month. — Melissa Luz T. Lopez