Ferdinand Marcos Jr needs China's economic help. Image: Titlepress

In the clearest indication yet of his preference for maintaining warm relations with Beijing, President-elect Ferdinand Marcos Jr has described China as the Philippines’ “strongest partner.”

In a speech before the Association for Philippines-China Understanding (APCU) this month, Marcos made it clear that he would prioritize a network of “partnerships and alliances” in order to boost the Philippines’ development, yet singling out China as crucial to keeping “the stability of our economic recovery” amid the ongoing Covid-19 pandemic. 

In fact, the incoming Marcos administration has identified economic recovery and growth as its top priority in its first year in office. It has also underscored its commitment to continue outgoing President Rodrigo Duterte’s ambitious “Build, Build, Build” infrastructure development initiative.

And China, which has included the Philippines in its massive Belt and Road Initiative, is bound to become an even more crucial partner for the incoming president in light of dark economic clouds gathering over the horizon. 

On the international front, the World Bank has warned of a global “stagflation” amid a sudden spike in energy and food costs triggered by the ongoing conflict in Ukraine as well as continued disruptions to global supply chains amid the ongoing pandemic. All major international financial institutions have significantly revised their global economic outlooks accordingly. 

In response to external shocks and interest-rate hike by the US Federal Reserve, the Bangko Sentral ng Pilipinas (BSP) has made its first major policy decision in three years by raising the policy rate by 25 basis points to 2.25% in order to tackle rising inflation at home. Later this month, the BSP Monetary Board is expected to raise the benchmark rate by a further 50 basis points. 

Aside from rising inflation and interest rates, the Philippines is also grappling with ballooning debt stock, which increased from 10.991 trillion pesos (US$220 billion) last April to 12.679 trillion pesos ($260 billion) this year, an almost 20% increase.

Outgoing Finance Secretary Carlo Dominguez has warned that his successors will have to generate 249 billion pesos ($50 billion) annually in additional revenues over the next decade in order to cover 3.2 trillion pesos ($60 billion) in additional debt incurred during the Covid-19 pandemic. But the incoming Marcos administration has rejected the call for belt-tightening in favor of continued infrastructure spending and sustained economic recovery.

“We can only do it with our partners – and our strongest partner has always been, in that regard, our close neighbor and our good friend, the People’s Republic of China,” Marcos Jr told Chinese-Filipino businesspeople during his APCU speech this month. He thanked China for its large-scale donation of Covid-19 vaccines, and vowed to maintain Duterte’s “independent” foreign policy, namely less reliance on the West in favor of new strategic partnerships with China. 

“This is what we feel is best in the national interest and I think it is to be advantageous not only to our friends in China but to all our friends around the world,” said the incoming president, celebrating how he sees future ties between the two countries “developing in many ways.”

He described relations with China as “very important” and “advantageous,” and vowed to find optimal ways to overcome “difficulties and differences” and “continue to communicate and continue to be forthright in the interest of each of our countries” in light of ongoing disputes in the South China Sea. 

Former Philippine strongman Ferdinand Marcos Sr was among first regional leaders to normalize ties with Maoist China in the 1970s. And his family, who are the dominant force in the northern province of Ilocos, maintained warm commercial ties with Beijing throughout the succeeding decades. 

In the past six years, Duterte actively courted Beijing’s favor in exchange for large-scale investments from China. Yet the Asian power has hardly fulfilled its promise of $24 billion in big-ticket investments in the Southeast Asia country. 

Even Benjamin Diokno, the current BSP governor who is set to become Marcos Jr’s finance secretary, has publicly lamented the lack of concrete investments by China. 

Planned Mindanao rail network. Photo: Wikimedia Commons

“There were a lot of promises but [not] much was delivered,” Diokno admitted in a mixture of Filipino and English after his appointment as the next finance chief. As Duterte’s budget secretary, he was a staunch supporter of massive infrastructure spending, which almost doubled in recent years. Diokno nonetheless expressed hope that China would fulfill its earlier pledges, including building a railway system on the southern island of Mindanao, in the coming years. 

As the former budget secretary, the veteran technocrat oversaw almost a doubling of infrastructure spending under the Duterte administration. As the incoming finance secretary, Diokno has promised to continue the “Build, Build, Build” projects of the outgoing administration.

But the fiscal outlook doesn’t look very promising. The Philippines suffered five quarters of economic contraction between 2020 and 2021, while debt-to-GDP reached a 16-year high after a 20% jump in borrowing last year. 

Outgoing finance chief Carlos Dominguez has warned that the government will have to engage in fiscal consolidation, including increased taxes, in order to “continue to spend on socioeconomic programs, maintain our credit ratings, and grow out of our debt.” But his successor has rejected any belt-tightening. 

“Traditionally, in case of a problem like this, it would prescribe budget cuts. I don’t buy that idea. I think we should pursue our ‘Build, Build, Build’ program, and because of the pandemic, I think we should continue to invest in human resources,” Diokno said in response to the call for fiscal consolidation.

“There should be no cut in our expenditure plan, I think we should really focus on raising enough taxes,” he added. Diokno said he remained confident that that continued economic growth and more efficient tax collection can do the trick.

Back in April, the Department of Public Works and Highways (DPWH) said that of 119 infrastructure flagship projects (IFP) only 12 had been completed to date. The Marcos Jr administration is set to inherit 88 big-ticket infrastructure projects, with two-thirds of them either set to finish next year or in the initial implementation phase.

The total price tag for the infrastructure projects stands at 5.08 trillion pesos ($100 billion), underscoring the need for the Philippines to seek foreign financing, most especially from China.