The Chinese Factor

By Carlos H. Conde
Published: October 23, 2006

During a meeting of the Philippines Development Forum at the Makati Shangri-la Hotel in August, not a few among the more than 100 diplomats, economists, technocrats, and executives from aid agencies dropped their jaws after hearing from Romulo Neri, the Arroyo administration’s chief economist, that US$2 billion had been earmarked for development projects in the Philippines from one single source.

The amount was staggering on at least two levels: one, it was way above the usual pledges of development aid (the International Monetary Fund, the World Bank, and Japan promised $1.4 billion combined, with $1 billion more still being negotiated); and, the money would come from China.

On another, perhaps more significant, level, it underscored China’s growing economic engagement with the Philippines. This is merely reflective of this economic giant’s awakening, shaking the entire world in the process.

For the Philippines, China’s increasing presence is crucial as it embarks on ambitious programs to improve the economy. During the forum, for instance, Neri, who heads the National Economic and Development Authority (NEDA), presented the agency’s Comprehensive Infrastructure Program (CIIP) for 2006 to 2010, which requires about P1.7 trillion to implement.

The bulk of the CIIP is for infrastructure projects in transportation, power and electrification, and water resources — areas that the Chinese have shown interest in funding.

“Infrastructure is the new mantra now,” says Dennis Arroyo, head of NEDA’s national planning and policy staff. Arroyo points out that the CIIP was designed so that the Philippines could catch up with its Asian neighbors in terms of infrastructure. “We’re far behind,” he adds.

This program will increase the country’s infrastructure spending vis-à-vis the gross domestic product (GDP) from the present 2 percent to as much as 5 percent in the next five years, Arroyo says. Chinese development assistance, according to him, will be crucial in achieving this.

Practically all of the China-funded development projects in the Philippines are, according to NEDA, for the “economic and agricultural development priorities” of the country.


The biggest China-funded project, so far, is the North Rail Project, the rehabilitation of the railway between Metro Manila and Central Luzon that is scheduled for completion next year. This is the single biggest China-funded project in the Philippines today. It is financed by a $503-million loan from China, payable in 20 years with an annual interest rate of 3 percent.

Other China-funded projects include:

* The Banaoang Pump Irrigation Project in Ilocos Sur, with a $35-million loan from China’s National Construction and Agricultural Machinery Import and Export Corp.

* The expansion of the General Santos Fish Port Complex, with an estimated cost of nearly $30 million.

* The establishment of farmer service centers that would enhance agricultural mechanization; this is meant to improve the competitiveness of the country’s agricultural and fisheries industries; no amount has been determined yet.

* The establishment of a non-intrusive container inspection system (NCIS) at the Bureau of Customs, which involves the installation of seven scanning equipment that will allow speedy examination and inspection of cargoes. This will help combat smuggling, facilitate trade, and prevent tariff evasion, and will be financed through a concessional loan of 200 million yuan.

* The upgrading of the Philippine National Railway’s Main Line South and the construction of an extension line from Albay to Sorsogon.

Aside from these projects, Manila and Beijing have also agreed to sign several memoranda of understanding for trade and investment, among them on fishery, hybrid corn, tourism, water supply, and energy. These agreements are scheduled to be signed during the visit of Premier Wen Jiabao to Manila in December.

The two countries have likewise signed a memorandum of understanding for mining exploration development projects in Davao, particularly the Diwalwal gold rush area.

They also intend to put up a Special Economic Zone in the Davao provinces.

A nationwide government broadband infrastructure project and the establishment of IT schools and training centers is something both countries will pursue. The Chinese have also expressed interest in funding housing projects and helping complete the two stages of the Metro Manila Skyway (Bicutan-Alabang, and Makati-Balintawak).


Analysts have pointed out that China and the Philippines have entered a “golden age” in their relationship, which was previously soured by the dispute over the Spratly Islands and the occasional love-hate episodes involving Taiwan.

President Arroyo has long considered China as “one of the key economic engines that could help pull the country out of its economic torpor,” says Ian Storey, an expert on Southeast Asia at the Asia-Pacific Center for Security Studies in Honolulu, Hawaii, in an analysis.

“Arroyo was determined to prevent the Spratlys dispute from hindering the development of bilateral ties, especially the goal of strengthening two-way trade and investment,” says Storey.

Trade between the two countries has dramatically increased, from $3.3 billion in 2000 to $17.6 billion in 2005. This growth rate makes it possible, according to analysts, to reach the annual $30-billion trade target by 2010.

In 2005, China emerged as the Philippines’ fourth largest trading partner (next to the US, Japan, and the European Union). In 2001, it ranked 12th.

“After more than a decade of strain, Sino-Philippine relations have matured, broadened, deepened and moved beyond the South China Sea dispute,” Storey says. “In terms of economic interaction, bilateral relations have certainly entered a ‘Golden Age.’ Two-way trade will continue to grow, as will (Chinese) investment in the Philippines, especially in the resource extraction sector and related infrastructure.”

Moreover, for the first time, China is aiding the Philippines militarily, promising to the Philippine military $1.2 million worth of equipment.

China’s development aid is attractive not just to the Philippines, but to other Southeast Asian countries as well, because compared to the World Bank and the Asian Development Bank (ADB), it has less stringent conditionalities. Apart from this, there are fewer strings attached, like the inclusion of expensive consultants in the implementation of projects.

China, moreover, is eager to please its neighbors and expand its economic might (owing in large part to its nearly trillion dollars in cash reserves and hundreds of billions of dollars in surplus money).


Besides, the US has become, as one analyst puts it, increasingly distracted and disengaged.

“Influence is not necessarily a zero-sum game, but the US is sending all the wrong signals,” says Tamara Renee Shie, an expert on East Asian security issues at the Institute for National Strategic Studies of the National Defense University in Singapore. “South Pacific nations want a range of options, not an exchange of one dominant partner for another.”

However, she says in a recent analysis, “the current message is that China is paying attention to the region and the US is not. If Washington continues to look the other way, Beijing will not only woo the South Pacific, but possibly win it.”

NEDA’s Arroyo says it is possible that people will be tempted to read too much into China’s generosity but the bottomline is that China has so much excess capital.

The simple fact is that, as it grows at such a frenetic pace, China will be forced to look elsewhere for resources to keep that pace. “As the new century dawned, the economic relationship between [China and the Philippines] was at last beginning to show promise, mainly due to China’s thirst for imported raw materials and other commodities,” Storey, the Southeast Asia expert, points out.

Liqun Jin, ADB vice president who was once Beijing’s vice minister for finance, told The New York Times in September, “China is attracting external capital, and as a balance China wants to help developing countries in the region by financing infrastructure projects.” He added that “helping your neighbors to have a good life is no sin.”

Tom Crouch, country director for the Philippines at the ADB, says that the impact of China’s foreign aid will be significant. “Here comes a very large new player on the block that has the potential of changing the landscape of overseas development assistance.”

About Carlos H. Conde

Researcher at Human Rights Watch (@condeHRW @hrw_ph). Former journalist (NYT, IHT, among others).
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