Philippine President Rodrigo Duterte's pro-China policies are under rising scrutiny amid reports Chinese security officials are infiltrating the country. Photo: Facebook

Keen to vindicate his Beijing-leaning foreign policy, Philippine President Rodrigo Duterte is fast-tracking long-delayed major China-backed projects, with potentially dire long-term consequences for the Southeast Asian country.

Last month, the Duterte administration awarded a US$10 billion project to China Communications Construction Company Ltd (CCCC), one of China’s largest state-owned infrastructure firms, and local partner MacroAsia Corp, owned by Chinese-Filipino tycoon Lucio Tan, to build a new international airport on the outskirts of the capital of Manila.

The Sangley Point International Airport project, to be built in Cavite to relieve pressure on Manila’s main airport, was given by the government uncontested, raising critical questions about the competitiveness and credibility of the bidding process.

CCCC, meanwhile, has a controversial past after being blacklisted by the World Bank from 2011-2017 over the bidding practices of its subsidiaries. CCCC has also been involved in controversial reclamation activities in the South China Sea, including at Mischief Reed in the Philippines’ claimed Exclusive Economic Zone.

The Philippine defense establishment has previously criticized and blocked potential Chinese acquisitions and lease agreements in key strategic sectors on national security grounds. If they do so for the Sangley Airport project, however, they are likely to face stiff presidential resistance.

Philippine Defense Secretary Delfin Lorenzana rejected last year a potential bid by Chinese shipping companies for the financially distressed Hanjin shipyard in Subic, the site of major military facilities. Instead, he proposed the establishment of a Philippine naval facility for the area.

Philippine Defense Secretary Delfin Lorenzana gestures at the military headquarters of Camp Aquinaldo in Quezon city, metro Manila, February 9, 2017. Photo: AFP

When a Chinese company, the Xiamen-based Fong Zhi Enterprise Corp, proposed last year to build a $2 billion “smart city” on Fuga Island, which lies close to neighboring Taiwan, the Philippine Navy openly criticized the move. It later built an outpost on the island to prevent and monitor any Chinese activities in the area.

“There’s no doubt that these island features [could] have strategic security impacts on us if they were to fall into the hands of other people. They have a strategic importance for our defense,” warned military spokesman Brigadier General Edgard Arevalo at the time according to media reports.

“While we approve of our economy getting a boost…we should also consider the security aspect that may be compromised if we fail to adequately study the implications of leasing these to foreigners.”

Prominent voices in the Philippine establishment have already spoken out about the security implications of the new airport project, which will be based near existing naval facilities. Former Philippine Navy chief Admiral Alexander Pama, for one, has criticized the move as “highly objectionable and even worse.”

His and other critics’ concerns center on the development of a major and strategically situated facility by a majority-owned Chinese state company.

That’s partly because the ruling Chinese Communist Party recently passed a new “provisional” regulation which effectively transforms major Chinese companies into extensions of the regime.

According to the new regulation, “All major business and management decisions must be discussed by the Communist Party organ before being presented to the board of directors or management for decision,” and that the chairman of the state-owned firm and the Party secretary should be “the same person.”

Chinese President Xi Jinping (L) and Philippine President Rodrigo Duterte (R) toast at a state banquet at Malacanang Presidential Palace, Manila, November 20, 2018. Photo: AFP/Mark R Cristino

The board of directors, according to the regulation, should include a “special deputy Party secretary” who has a purely ideological “Party building” role with no management-related corporate responsibilities.

The regulation effectively tightens the Communist Party’s grip on the decision-making of major Chinese companies, including those involved in overseas infrastructure projects under the BRI.

The new regulation, critics say, is also seemingly at odds with China’s long-term claim of corporate independence among its national champions and state companies under the so-called “competition neutrality” principle.

The US, a mutual defense treaty ally of the Philippines, has expressed concerns about the Party’s tightening hold on Chinese companies. The US National Defense Authorization Act for 2020 places strict new restrictions on interactions with Chinese state companies.

In addition to blocking Chinese acquisitions in key sectors such as energy and telecommunications, the US has also barred the transfer of federal funds for subsidizing the purchase of Chinese automobiles.

Duterte has played down such concerns and is aggressively supporting Chinese-backed projects as he enters his final years in power. Beijing had previously promised as much as $24 billion in aid and investment to back Duterte’s “Build, Build, Build” infrastructure-building drive but so far barely delivered apart from a few marginal projects.

Even those have been hounded by controversy. The Filipino president recently warned courts against blocking Chinese projects that have entered implementation phases, including the 3.3 billion peso ($66 million) Chico River Pump Irrigation project and the 12.2 billion peso ($24 million) Kaliwa Dam project.

Both Chinese-funded projects have come under heavy criticism for potentially negative ecological impacts as well as allegedly onerous debt-repayment provisions that offer strategic Philippine “national patrimony” assets, such as the energy resources at the contested Reed Bank in the South China Sea, as collateral.

Conceptual image of the Cavite airport project’s two runways and terminal. Image: Twitter

Duterte has stood firmly behind the Chinese projects and their terms, and openly threatened courts against ordering Temporary Restraining Orders (TROs) that could stall the projects, including the Sangley Airport deal.

“Do not believe in the courts because it’s all about money…The losing bidder will file a case. A TRO will then be issued and the projects will be delayed, only to realize that the losing bidder only wants some money from the winning bidder,” Duterte recently said.

“I’m warning the judges – be sparing about issuing TRO; otherwise, I will publicly announce do not follow (your decision). You follow the program of the government,” he added.

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