Philippines may benefit from US-China rift

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Reuters photo of US-China flags caption: Sino-American relations appear to have worsened during the coronavirus pandemic. -- REUTERS

RENEWED tensions between the United States and China could prove to be a boon for the Philippines, according to Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno.

“This current wave of revamping of global supply chains opens a window of opportunity for the Philippines to benefit from trade redirection and relocation of production sites,” Mr. Diokno said in a text message to reporters on Saturday.

Mr. Diokno said that electronic exports performed well in 2019 despite the US-China trade war. “This phenomenon can be attributed to the Philippines’ low exposure to products targeted directly by US tariff actions against China. The exposure is estimated at a low of 0.5%,” he said.

In 2019, exports grew by 1.5% to $70.33 billion from the $69.31 billion in 2018, according to data from the Philippine Statistics Authority.

“Not surprisingly, the Philippines is expected to be among the least affected by the US-China trade tensions. This supports IMF’s view that the country’s low participation in global trade as well as in global value chains relative-to-peers seems to explain why the Philippines has not been negatively impacted by the US-China trade war,” Mr. Diokno said.

As the US-China trade spat continues, there may have been a shift of investments and supply chains to some ASEAN countries, according to Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort.

“Vietnam could have benefitted more in terms of FDIs (foreign direct investments) shifts because of its proximity to China’s border to realize lower tariffs,” he said in an e-mail.

FDI inflows to the Philippines dropped by 23.1% to $7.647 billion in 2019, with analysts blaming this to global uncertainties, regulatory risks, and the unclear path for the tax reform that took its toll on investor sentiment.

UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said the country should look to improve its weaknesses to attract more investments.

“Our lack of infrastructure and presence of web suppliers supporting these potential locators are keeping us from getting a decent share of investments,” he said.

To make the country more attractive for those seeking refuge from trade tensions, legislation that focuses on tax reforms could be the key for the Philippines to entice investors, Mr. Ricafort said.

“The proposed CREATE (Corporate Recovery and Tax Incentives for Enterprises Act) Bill that aims to reduce Philippine corporate income tax to 25% (from 30%) as early as July 2020 would help attract more foreign direct investments into the country and provide greater certainty for foreign investors,” he said

CREATE is a revised version of the Corporate Income Tax and Incentives Rationalization Act (CITIRA) Bill, which remains pending at the Senate.

According to Mr. Ricafort, the Philippines’ improving economic and credit fundamentals paired with favorable demographics is also one of its key strengths.

Meanwhile, Mr. Asuncion said the country should determine whether it wants to be a “manufacturing hub, a financial services center, or a digital valley of sorts.”

“The new normal is coming. It would be a disservice to the country if we wait for it to come rather than help shape it,” he added. — Luz Wendy T. Noble