A recent news report in the Nikkei Asian Review titled “Duterte struggles to sell his China pivot at home” has encapsulated the progress and reality of Philippine President Rodrigo Duterte’s pro-China policy since coming to power in 2016.
It is no surprise that many Filipinos are opposed to their president’s China policy, but it is no fault of his. In order for one to understand the vast domestic opposition to the pro-China pivot, one must look back at history.
Not too long ago, in 2016 prior to Duterte’s election win that same year, the Philippines under then-president Benigno Aquino filed a case against China in The Hague and won overwhelmingly.
The tribunal ruled that the Philippines’ claim to disputed territory in the South China Sea was valid under international laws and precedents. It also ruled that China “has violated the Philippines’ sovereign rights in its exclusive economic zone by interfering with Philippine fishing and petroleum exploration, constructing artificial islands and failing to prevent Chinese fishermen from fishing in the zone.”
China rejected the ruling as baseless and of no legal effect. Nevertheless, it was a huge blow to China’s bid to get its claims recognized internationally.
The ruling came on the backdrop of years of dispute between the two countries over territory in the South China Sea. There is a lot of distrust between the two countries and many Filipinos have watched China’s rise with alarm.
Regrettably since President Duterte’s inauguration, Beijing has failed to take full advantage of the new political situation to correct the negative perceptions of China held by many Filipinos.
Many must be perplexed as to why an exceedingly popular president who is seemingly in tune with the population on almost every issue has been remarkably persistent in pursuing a radically different foreign policy than his predecessors’.
But the Filipino people should be more understanding toward their president and recognize that he is a brilliant strategist.
It is laughable to suggest that a man who, during his time as mayor of Davao City, transformed it from one of the most crime-ridden cities in the country into one of the safest in the world does not know what he is doing.
Being pro-China does not mean Duterte is kowtowing to China; he is not betraying his country but rather he is trying to save his country.
Despite the noise generated in the last two years because of the US-China trade war, the shift in the global center of power to Asia is inevitable and irreversible. It is only a matter of time before China becomes the predominant power in Asia, and it is important for the Philippines to secure extra leeway for itself to maneuver around the big powers.
Duterte knows that if nothing is done, his country will be caught flat-footed by the changes in Asia-Pacific power structure. He is a man ahead of his time. He has spent the last three years repositioning the Philippines from a staunchly pro-American stance toward a neutral stance in order to maneuver between China and the United States.
Though he may be brash or even crude in his remarks from time to time, Duterte’s foreign policy is quite similar to Singapore’s in dealing with the big powers.
The Philippines will remain a friend of the United States but at the same time, it wants to deepen its friendship with China, especially on the economic front.
With a big market of 1.3 billion people, a deepening economic relationship with China is a sure way to bring new-found prosperity to the Philippines.
To be fair, it is true that the government has to manage investments from China carefully to avoid imperiling the security and interests of the country.
It is also true that many of the big-ticket items promised during Duterte’s state visits to China have yet to be realized.
One example is his first state visit to China in October 2016 when he secured US$24 billion worth of investments pledged from China. And to date, of the 10 big infrastructure projects promised, only one has moved toward implementation.
The currently overwhelming media narrative is that the promised investment boom from China has failed to materialize. That narrative may have some merits but to suggest that direct Chinese investments have not increased is not true.
According to data from the Philippine central bank, in 2015, Chinese foreign direct investment (FDI) into the country was just $570,000. By 2018, it had surged to nearly $200 million.
The China-Philippine trade relationship has boomed and in 2018, China beat Japan to become the largest foreign buyer of Philippine bananas, a major industry in Duterte’s home region of Davao.
There is a disconnect between the public expectation of a “major investment boom” and the actual financial changes that have occurred.
By solely focusing on the promised investment boom and the big-ticket items, the conversation has missed the bigger picture. The questions we should be asking is where these new Chinese investments go, how they occur, and who benefits.
Many non-construction Chinese firms have established branch offices in the Philippines and to be counted as greenfield investments, it requires a minimum foreign investment of $200,000 and the employment of at least 50 Filipino citizens.
For instance, Zhongxing Telecommunication Equipment Corporation (ZTE) invested in and expanded its office in the Philippines to provide telecommunication equipment and other services to major Philippine companies and call centers.
Many Filipino capitalists are seeking to do business outside the Philippines and many Chinese companies have moved in to provide service to these people.
These firms provide consultancy services and acquire contracts required for Filipino capitalists to succeed in international projects. These firms are linked not to inward foreign investment in the Philippines, but instead the outward movement of capital from the country.
In February 2018, the Industrial and Commercial Bank of China (ICBC) acquired permission from the Duterte government to open a branch in the Philippines. Rich Filipinos like Henry Sy have invested a lot in China and the branch will be of great help to them in smoothing the process of transfer of capital out of the country to China.
These investments may lack the buzz and aura of big infrastructure projects, but they generate vital relationships for Philippine companies by brokering deals across countries and link new business partners and contacts to Filipino businessmen. By making overseas investments a success, it will help to build the wealth of these Filipino capitalists and encourage more overseas investments by Philippine companies. This will help create a virtuous cycle and create jobs for many university-educated graduates back home, as these Chinese companies will require people to staff their offices and to provide consultancy and other services to these capitalists.
Chinese-funded construction projects have been largely painted in a negative manner, and there is no shortage of examples. Examples of overpriced and corruption-ridden Chinese projects include the Commission on Higher Education (CHED) cyber-education scheme and the North Rail project.
However, this media portrayal overlooks other successful Chinese-funded projects that have been completed without any controversy.
For example, the Angat Water Utilization and Aqueduct Improvement Project, a Chinese construction project, was finished eight months ahead of time and had a far better cost-overrun record than projects undertaken by other nations.
Acquiring stakes in pre-existing Philippine companies is the most common pathway for Chinese investors as it bypasses many regulatory barriers and allow them to jump upon already profitable businesses.
For example, China’s richest man Jack Ma purchased a substantial minority stake in Mynt, a financial-technology corporation co-owned by Globe Telecom and the Ayala Corporation.
Investing in these companies hypothetically helps to free up the capital of existing Filipino partners, allowing them to invest somewhere else.
Direct foreign investments in Philippine companies also provide a much-needed capital boost to expand their operations domestically and create many jobs for Filipinos.
Foreign investment in local companies is underestimated and under-appreciated in the Philippines because of the public’s fixation on large-scale infrastructure investments. Under former president Aquino, the majority of Chinese FDI occurred through purchase of controlling stakes. Hence despite a tense relationship due to territorial disputes in the Aquino era, Chinese FDI during that time surpassed the amount received during Gloria Macapagal-Arroyo’s time.
In order for the Philippines to be taken seriously and speak with a strong voice, it is vital for it to develop economically, and Chinese investments have helped in reaching the goal.
Meanwhile, the United States, which is a treaty ally of the Philippines, has clearly shown itself not to be a reliable ally.
The US is a major trading and security partner of the Philippines. However, for the United States, the Philippines has always been more important for its strategic location than for its economic potential. This is one of the reasons there is little US interest in developing the civilian economy of the Philippines. The fact of the matter is that the US is content with a poor but politically stable Philippines in order to suit its regional interests, which are aimed squarely against China.
Duterte has recognized this harsh fact and wants to avoid his country being used by the US as a pawn in its conflict with China.
Despite inking an agreement with Singapore in 1990 to allow US forces to dock at Changi Naval Base to maintain a presence in the region, the US has found it difficult to operate in the region without using the Philippines as a base. After all, the country is right beside the South China Sea.
Hence while the US no longer has bases in the Philippines in its own name as it does in Japan and South Korea, it retains the right to use many strategic Philippine naval and air bases.
As part of the wider US strategy to contain China at both ends of the South China Sea, having access to the Philippines remains important and perhaps indispensable for the US military.
Unlike his predecessors, Duterte has made it clear that he is not afraid to stand up to the US if needed.
He has forced many nations to remain on their toes in respect of trying to guess what he will do next.
His openness to new partnerships means he is taken seriously by China and other powers.
Hence with his pro-China pivot and his bid to develop the country’s economy through Chinese and other foreign investment, he has achieved something that many countries and many Filipino presidents have failed to achieve, which is to get the US to respect it and act cautiously and with respect.
By pursuing this policy despite its unpopularity, Duterte has put his country’s interests over his own political interests. He has created a great strategic political gift and legacy for his countrymen.
After his departure from office in three years’ time, it will be up to the next leaders and the people to decide whether or not to continue Duterte’s foreign policy.
The Philippines has to decide whether it wants to go back to the colonial mentality of being subservient to the US prior to Duterte’s time in office and be used by the US as a pawn, or if it will continue its current path of charting an independent, non-aligned foreign policy where it is not answerable to any powers and avoids getting entangled in big-powers conflicts.