China seen playing greater role in Philippines project financing

MANILA, Philippines — Fitch Solutions Country Risk & Industry Research said China would play a greater role in project financing, with the dominance of Japan in funding likely to slowly erode over time, as the incoming administration of President-elect Ferdinand Marcos Jr. continues the massive infrastructure push of the outgoing government.

The research arm of the Fitch Group, in a commentary titled “Infrastructure to Remain Key Focus Under Marcos Administration in the Philippines,” said infrastructure would continue to be at the forefront of the country’s economy under the incoming administration.

Fitch Solutions said sources of funding would gradually shift to China,  with the country’s participation in China’s Belt & Road Initiative, as well as the warming of ties between the two countries under the Duterte administration.

“Chinese funding still pales in comparison with Japanese funding, but we expect Japanese dominance to slowly erode over time and for Chinese funding to play a greater role in project financing,” it said.

At present, Japan is the largest foreign contributor of funds to the Philippine infrastructure sector.

Based on its Infrastructure Key Projects Data, Fitch Solutions said Japanese entities account for 29 percent of the share of foreign financiers, with the Japan International Cooperation Agency (JICA) being a key provider of funds.

JICA has historically been active in providing official development assistance to the country – the agency has close to 80 ongoing projects as of July 2021, of which more than a third are related to infrastructure developments.

A large pipeline of projects is planned for the next decade, with China pledging $24 billion of investments, an indication of the strengthening cooperation between the two countries.

“We believe that Marcos will also remain receptive to Chinese investors for infrastructure projects and prioritize the market’s economic interests, although he is likely to maintain a more delicate balancing act between the US and China, adopting a more moderate stance against the West compared to Duterte,” Fitch Solutions said.

According to Fitch Solutions, Chinese companies are well positioned to undertake transport and power projects in the country and grow their market share, but may face some risk of policy uncertainty.

Marcos has reiterated his commitment toward infrastructure developments, and to continue on with President Duterte’s Build Build Build program.

“The program has been, and will remain, a key policy driving investments in the construction sector, while the progress on the execution of projects will have a heavy influence on growth of the sector over the near to medium term,” it said.

Fitch Solutions maintained its robust 16.1 percent growth outlook for Philippines construction and infrastructure market over the coming decade in real terms this year partly due to base effects.

The sector is seen growing by an average of 8.2 percent to the end of the forecast period in 2031.

“This will see the Philippines as one of the fastest-growing markets in the region,” it said.

The unit of the Fitch Group believes that foreign investors are likely to adopt a wait-and-see approach in the very short term for the Marcos administration to provide more certainty on his plans.

“While Marcos has signaled his support for infrastructure, he has yet to reveal members of his economic policy team and has provided few policy details on his campaign trail,” Fitch Solutions added.

According to Fitch Solutions, the Philippines is running significant budget deficits and it is unclear how Marcos intends to fund his infrastructure plans.