Philippines won't benefit from cutting economic ties with China — US research group

MANILA, Philippines — Even as the Philippines and China's maritime dispute heats up, distancing from Beijing may not be in Manila's best interests due to the economic benefits and strategic leverage that the relationship offers.

While there is the "potential" for China to use "economic arm twisting" in the South China Sea dispute, the country's track record shows it has not used its economic investments as a lever against the Philippines, experts of AidData, a United States-based research group, told reporters on Wednesday, September 11. 

"It is not in the Philippines' interest to entirely decouple in dealing from China," said Samantha Custer, director at AidData. 

"I think your negotiation hand is stronger when you can have more people around the table. So you should be working with the US, you should be working with China. You should be working with Australia," she added.

Even as it continues to engage in a maritime conflict with China, the Philippines can extract the "best terms possible" with more partners at the negotiating table, Custer said. 

"I would say the fewer people around that table, the more you're kind of stuck taking whatever deal is before you," she said.

Based on AidData's study, from 2000 to 2023, China channeled $9.1 billion (roughly P5 trillion) in development projects to the Philippines. Most are infrastructure projects whose terms are "less generous" compared to other countries that provide aid or loans to the Philippines.

Besides infrastructure projects, China also bankrolled projects in physical connectivity, utilities, food and power. 

While the large sums from Chinese financing appear to contribute to the Philippines' economic gains, "these benefits do not yet appear to trickle down in a visible way to Filipinos," according to the June 2024 study, findings of which were discussed on Wednesday. 

"As [People's Republic of China] financing increased, Filipinos surveyed were more likely to say they struggled to afford food and shelter, an important indicator of financial health," the study added.

Bryan Burgess, AidData senior policy specialist, said China is looking to invest in "critical and sensitive" sectors in the Philippines, such as the telecommunications industry.

"What we found in general is that China doesn't seem to use economic investment as the lever quite as much... In most of these instances, the desire is commercial, to drive a profit sustainably in the future," he added.

Instead, China has exerted pressure in trade and access to and from Chinese markets, Burgess added.  

Whether Chinese financing can still be advantageous to the Philippines depends on the terms, context and accountability of the deals being offered, Cluster said.

"If you can use your hedging strategy to your advantage to crowd in multiple offers... such that it increases the transparency of these terms and the competitiveness of the firms, and China is the actor to do it? By all means, go for that deal," she said.

The Philippines will only benefit from being offered generous terms with higher accountability and transparency, even if these come from Chinese state firms. 

"But if you can't get that, then it is risky. Because these high-risk projects, they can succeed, but they often don't," Cluster said.

Cluster believes China will prefer to distance its economic ties with the Philippines from its ongoing maritime dispute with the country. "But that's easier said than done. People have long memories. They're not looking at it in a compartmentalized fashion. Relationships are complex," she said.