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International relations

Duterte's China policy faces test in summit with Xi

Oil and gas development deal in South China Sea top of leaders' agenda

Philippine President Rodrigo Duterte, left, with Chinese President Xi Jinping in Beijing in April, says he will raise the issue of his country's 2016 victory in an international court ruling that rejected China's ownership claims over the South China Sea when he meets Xi this week   © Reuters

MANILA -- Philippine President Rodrigo Duterte and Chinese President Xi Jinping are set to meet in Beijing this week to work out an oil and gas deal in the South China Sea, after the presence of Chinese ships near Philippine waters has strained ties between their countries.

Under pressure at home to confront China, Duterte insists that he will address his country's 2016 victory in an international court ruling that rejected China's expansive ownership claims over the South China Sea when he discusses joint development of resources with Xi on Thursday.

"Whether you like it or not, make you happy or not, angry or otherwise, I'm sorry, but we have to talk about the arbitral ruling," Duterte said last week at a public event.

The Philippine president, who kicks off his five-day trip to China on Wednesday, also plans to advance Beijing's infrastructure pledges and may also discuss Manila's booming online gambling industry that has become a headache for Beijing.

Duterte embraced China when he took office in June 2016 and set aside the South China Sea ruling -- made by the Permanent Court of Arbitration at The Hague the following month -- in exchange for economic assistance from China. But three years into his presidency, doubts have mounted over the effectiveness of his China policy.

Activists and opposition leaders march to protest against the presence of Chinese vessels in the South China Sea at the Chinese Embassy in Manila in April.   © Reuters

A Chinese ship in June sank a smaller Philippine vessel carrying 22 fishermen in the Reed Bank, an area in the Philippines' exclusive economic zone, while the Philippine military has said that Chinese militia ships were "swarming" the Philippine-controlled Thitu Island in the Spratly Islands early this year and that Chinese survey ships were operating in waters near the Philippines.

Senior Philippine security advisers have hit out at Beijing over the incidents, while Manila's foreign minister, Teodoro Locsin Jr., has announced multiple diplomatic protests against China via Twitter.

"Duterte found it necessary and politically expedient to raise the PCA [Permanent Court of Arbitration] ruling," said Collin Koh, a research fellow at the Institute of Defence and Strategic Studies in Singapore. "That appears more for domestic consumption -- to placate critics back home."

But doing so risks provoking Xi, who is already dealing with the monthslong protests in Hong Kong and an escalating trade war with the U.S. During a meeting with Duterte in Beijing in April, Xi rejected the ruling, which stemmed from a complaint filed during the previous administration in the Philippines.

In November last year, Xi and Duterte signed a memorandum of understanding for joint oil and gas development in the South China Sea, but they left specific details of the venture to future talks.

Duterte is aiming for a 60% share in an oil and gas deal, but Chinese Foreign Ministry spokesperson Geng Shuang said last week that China's position on the arbitration ruling "has not changed a bit." Beijing insists "indisputable sovereignty" over the South China Sea.

"There's no way Xi can compromise on the Chinese position without incurring an unimaginable cost to the [Chinese Communist] Party's credentials in the eyes of the domestic constituents," Koh said.

Still, Koh said that Duterte's meeting with Xi on Thursday offers an opportunity for the Chinese president to show how China can cooperate with other countries with territorial claims in the South China Sea amid mounting criticism against Beijing. Infrastructure funding support from China's Belt and Road Initiative and business deals are expected to be announced during Duterte's visit.

Last week, the U.S. accused China of blocking Southeast Asian countries' access to $2.5 trillion worth of oil and gas resources after a recent standoff between Vietnam and China in the Vanguard Bank, an energy-rich area in the South China Sea. Apart from the Philippines and Vietnam, Brunei and Malaysia also have claims in the South China Sea.

"The meeting with Duterte, hence, is in no small part designed to alleviate the pressure on Beijing and give it some positive press in the South China Sea," Koh said.

Meanwhile, Xi could also use his meeting with Duterte to call for the banning of online casinos, which Beijing says target Chinese gamblers.

The Chinese embassy in Manila early this month accused the Philippine offshore gaming operators, known as Pogos, of fueling money laundering and social problems in China and illegal immigration into the Philippines.

Manila's gaming regulator last week announced a freeze on new Pogo licensees, but Beijing's foreign ministry responded by saying that the Philippines should ban all offshore gambling companies.

Cambodia, which is heavily reliant on China for investments, has signaled that it would start winding down its online gaming industry, which also targets the Chinese market, by not renewing online gambling licenses.

"Xi will press for the bursting of the Pogo bubble," said Lucio Pitlo, a lecturer in the Chinese program of Ateneo de Manila University. "China wants to end Pogos as soon as possible, as it corrupts their people at home."

The Philippines expects to collect 8 billion pesos ($152.4 million) in fees this year from offshore gaming companies, which have also propped up the country's real estate sector. "But the Philippine side may request for a soft landing, because the real estate [sector] may take a hit," Pitlo said.

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