Better a good neighbor than a distant cousin?

On the eve of his state visit to the Philippines last November, Chinese President Xi Jinping wrote that the two countries’ relations “have now seen a rainbow after the rain,” adding upon his arrival that friendship is “the only right choice.” He came bearing gifts for the people, from rice for typhoon victims to promises of scholarship awards, work permits for English teachers and more imports from the Philippines. At the end of the highly publicized visit, observers could only wonder, is there really a pot of gold for the Philippines at the end of the rainbow?
Philippine-China relationship in the past few years has been a complicated one. To recall, under the Aquino Administration, the Philippines took China to an international court in 2014 over disputed areas in the West Philippine Sea/South China Sea (WPS/SCS), a case that secured a sweeping victory for the Philippines, albeit belatedly. By the time the UN-backed Permanent Court of Arbitration in the Hague issued the award to the Philippines in 2016, the Duterte Administration was already in power. Unlike his predecessor, President Rodrigo Duterte had no interest in letting the territorial dispute define the country’s relationship with the regional behemoth, preferring a more pragmatic approach of broadening cultural and economic ties in the hope of securing Chinese funding for much needed infrastructure investments.
In a stunning “pivot” only a few months into his presidency, he directed Philippine foreign policy away from what many thought was an overly pro-US stance to what many say is an overly pro-China position. He opted to pursue bilateral talks with China, something his predecessor had refused to do, and followed China’s lead of simply setting the contentious WPS/SCS issue to one side. He managed to do this notwithstanding surveys showing the wide disparity in Filipinos’ trust for the US (“very good”) vs. China (“poor”), a popular sentiment against China’s control of Filipinos’ traditional fishing grounds in the WPS/SCS, not to mention the military’s close ties to the U.S.
Now, two years after President Duterte’s China pivot, the question that keeps cropping up is, what has the Philippines to show for pursuing friendship with China? Economically speaking, there have been advances although critics would say that they’re too little, too slow.

Among these are:
1. Chinese tourists are arriving in droves — almost doubling from 490k in 2015 at the height of the diplomatic chill to close to 970k in 2017. The number has reached 870k in the first 8 months of 2018, ranking second only to South Korea, and is expected to breach 1 million by yearend.
2. Bilateral trade has expanded almost 45% between 2015-17 (from $17.6 billion to $25.5 billion) and by another 16% in 1H18, not counting supply chain trade that passes through third countries. Based on this, China is now the country’s largest trading partner, accounting for over 15% of total trade. In this, China is of course as much a winner as the Philippines evident in annual import growth (>20%) far outpacing export growth (14% 2015-17 CAGR, 8% 1H18).
3. FDIs, practically non-existent a few years ago, have trickled in and from 2016 to August this year, totaled $220 million vs. about $26-billion total inflows during the period. Moreover, there are worries that some of these monies are (a) invested in the gaming industry the sustainability of which is suspect and (b) possibly, helping to fuel a real estate bubble especially with the increasing number of Chinese nationals entering and working in the Philippines.
4. As to China’s multibillion infrastructure commitments, reports indicate that to date, only two grant-financed bridges valued at $112 million have started construction and one loan agreement for an $82-million irrigation project, signed. Here, sentiments are mixed: one side criticizing the slow pace of implementation; the other side relieved at the slow pace seeing as how other countries have fallen under China’s supposed “debt trap diplomacy.”
Yet recent developments suggest that the two countries are ready to “elevate” their friendship. Right before President Xi’s visit, the Philippine government awarded the rights to operate a third telecommunications company in the country to a consortium that included state-run China Telecom. On his first day here, President Xi also witnessed the signing of 29 cooperation agreements, including the P18.7-billion ($350-million) loan agreement for the construction of a dam to provide additional water supply for Metro Manila and a Memorandum of Understanding on joint oil and gas development in the WPS/SCS.
In Manila’s small business circle, one could easily hear grumblings about the first two deals. But the third, despite providing only a framework, is perhaps the most controversial especially since President Duterte is not seen as being assertive enough about the country’s rights in the disputed waters. With it, many fear that the Philippines may play into the hands of China and validate the latter’s claims over the WPS/SCS.
For now, the President’s high popularity, which will not be challenged in next year’s midterm elections, means that he would probably get his way in dealing with China. China, on the other hand, has found in President Duterte a like-minded ally to whom it could open its doors wider to the Philippines through more trade, investments and people-to-people linkages.
I have heard President Ramos quote a Chinese saying: “Better a good neighbor than a distant cousin.” True for us? Only time will tell.
(This article is an excerpt from the GlobalSource Partners report, “Good not Great,” Nov. 13, 2018, written by Christine G. Tang and the columnist. Check out globalsourcepartners.com)
 
Romeo L. Bernardo is a fellow of the Foundation for Economic Freedom and a Governor of the Management Association of the Philippines. He was Finance Undersecretary during the Corazon Aquino and Fidel Ramos administrations.
romeo.lopez.bernardo@gmail.com