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Duterte's elusive Chinese investment bonanza

Beijing has lured Manila with promises that are so far unfulfilled

| China
The plan to let China Telecom enter the market is the latest among the Philippines' moves to bring in Chinese investment.   © Reuters

Since Rodrigo Duterte's ascent to presidency, the Philippines has been abuzz with anticipation of large-scale Chinese investments. In a sign of the continuing drive to bring in Chinese money, the Southeast Asian country is now opening up its telecommunication sector to Chinese investors.

China Telecom is expected to challenge the years-long dominance of Globe Telecom, a unit of Singapore Telecommunications, as well as PLDT, which is backed by Japan's Nippon Telegraph and Telephone (NTT) and Indonesia's Salim Group.

In a late-March visit to Beijing, Philippine Foreign Secretary Alan Peter Cayetano hailed "golden period" in bilateral ties. During his trip, the two countries even skirted around the single biggest problem in bilateral relations -- the dispute over a part of the South China Sea, where Beijing has asserted its rights in the face of protests from Manila.

Cayetano said a joint development agreement (JDA) for oil and gas exploration in the area would be struck with a "suitable legal framework." His Chinese counterpart, Wang Yi, reiterated that both sides will move "in a prudent and steady way" to "advance cooperation on offshore oil and gas exploration."

By and large, a once-fraught bilateral relationship is seemingly morphing into a blossoming partnership laced with Chinese investment promises. Yet, the Philippines runs the risk of getting little money in return for the decisions it is taking to cooperate with China on Beijing's terms.

In particular, Duterte has not pressed to implement a 2016 international tribunal decision which rejected China's territorial claims in seas disputed with the Philippines. While he insists he has not given up Manila's rights, he has said he will not risk "war" and has instead focused on warming economic ties.

During his first official visit to Beijing in 2016, Duterte secured $24 billion in investment and trade pledges from his hosts.

But there are no assurances that China's promises of investment bonanza will ever come true, while Japan, the U.S. and the EU -- Manila's traditional economic partners -- still dominate investment flows into the Philippines.

China's investments are paltry. During Duterte's first year in office, Japanese investments ($490 million) dwarfed China's ($27 million) by a factor of nearly 20:1. Americans invested $160 million. Japan remained, by far, the leading foreign player in infrastructure. Chinese investments have been largely confined to casino, tourism, real estate and mineral resources. Big-ticket state-backed projects are yet to materialize.

Duterte remains eager. Unlike its Western partners, the Philippine government has largely ignored security concerns over Chinese investment in critical sectors such as telecommunications and electricity. Keen to set aside Manila's maritime territorial disputes with China, Duterte has repeatedly raised the prospect of sharing undersea natural resources projects with Beijing.

This way, the Filipino president hopes, the two neighbors can focus on a mutually beneficial economic partnership. His approach, however, divides the Manila establishment, generating both cautious optimism and anxiety.

Former President Gloria Macapagal Arroyo, a confidant and foreign policy adviser to Duterte, has been among the leading advocates of warmer ties with China. In a recent interview, she claimed that "the policy of President Duterte today" is "very similar to mine," maintaining that "China is not a rival," but instead "a market, an investor (and) a donor."

Philippines-China relations experienced a boom during her term in office (2001-2010), but were ultimately hobbled by corruption scandals and concerns over her alleged acquiescence to Beijing's claims in the South China Sea.

But other influential voices such as interim Supreme Court Justice Antonio Carpio have openly opposed any resource-sharing agreement with China as unconstitutional, if not an impeachable act of treason.

Meanwhile, the Philippine military establishment, led by Defense Secretary Delfin Lorenzana, has continued to raise alarm bells over China's creeping presence across Philippine-claimed waters in the South China Sea as well as the Benham Rise in the Western Pacific.

Yet, Cayetano has expressed his hopes that the "South China Sea disputes will no longer block the development of bilateral ties" but instead, "will be turned into a source of friendship and cooperation between our two countries."

But all this talk could yet amount to another empty promise of Chinese investment. First, it's far from clear what specific maritime cooperation deal the two sides have in mind. An actual JDA, per the United Nations Convention on the Law of the Sea (UNCLOS), faces an uphill legal and political battle.

The Philippine constitution prohibits resource sharing with another sovereign entity within the country's exclusive economic zones (EEZs). The 2016 tribunal at The Hague, which rejected China's territorial claims, also ruled that the two countries have no overlapping EEZs, a prerequisite for any JDA in international law.

Moreover, any JDA risks legitimizing China's expansionist policies to the detriment of other Southeast Asian states, including Malaysia and Vietnam, with their own claims in the South China Sea.

Finally, a JDA in a politically disputed territory could yet fuel suspicions of China in Manila and provoke a backlash in the Philippines.

A more practical way of cooperating in the disputed seas, would be for the Philippines to subcontract a Chinese company to explore and develop energy resources beyond Manila's EEZ and outside the seas claimed by China. This way, both sides can get around the intractable issue of sovereignty, while circumventing constitutional and legal obstacles to a joint exploration scheme.

Currently, there is a proposal for the Philippine National Oil Co. (PNOC) to undertake such project with China National Offshore Oil Corp. (CNOOC) in the Calamian Islands off the island of Palawan. The Philippines has had a similar arrangement with Chevron and Shell in the in the nearby Camago-Malampaya project.

JDA or not, these proposals all allow China to dampen criticism from the Philippines even as it pursues massive its reclamation activities in the South China Sea, on the Paracel and Spratly Islands. The investment plans provide a veneer of peaceful engagement for Beijing's increasingly militarized assertiveness.

But the very vagueness of these proposals boosts doubts about whether China will stick to its side of any bargain and commit hard cash.

So far, what emerges is an unmistakable picture of Chinese political savvy, with the Asian powerhouse ably extracting strategic concessions from the Philippines without (yet) committing large-scale investments on the ground. Without some concrete plans going ahead, concern will grow that Beijing has been taking the friendly government in Manila for a ride.

Richard Heydarian is a Manila-based academic, columnist and author; his latest book is "The Rise of Duterte: A Populist Revolt Against Elite Democracy" (Palgrave Macmillan).

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