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China and Philippines Develop Cooperation Despite Territorial Dispute

© REUTERS / Etienne OliveauChinese President Xi Jinping (R) shakes hands with Philippines President Rodrigo Duterte prior to their bilateral meeting during the Belt and Road Forum, at the Great Hall of the People in Beijing, China May 15, 2017.
Chinese President Xi Jinping (R) shakes hands with Philippines President Rodrigo Duterte prior to their bilateral meeting during the Belt and Road Forum, at the Great Hall of the People in Beijing, China May 15, 2017. - Sputnik International
The president of the Philippines has taken a pragmatic stance on Manila's claims on the South China Sea, and is ready to cooperate with Beijing. The territorial dispute will not affect China’s current investment policy in the Asian archipelago.

Experts have chimed in regarding the current state of play in the Chinese-Philippine controversy on the issue of ownership and territorial claims in the South China Sea.

China Responded to the President of the Philippines

The leaders of China and the Philippines have agreed to postpone a maritime dispute and regulate the situation through bilateral consultation and nuanced dialogue, according to the Chinese ambassador to the Philippines, Huang Xilian, in a statement last week at an online seminar on bilateral relations. These agreements must be vigorously implemented by both sides, Huang warned, to encourage the preservation and strength of interstate relations.

The announcement caught the attention of observers, as it was made shortly after the Philippine president, Rodrigo Duterte, in a video address at the 75th session of the UNGA, reaffirmed his commitment to a decision by the international tribunal brokered by the Permanent Court of Arbitration in The Hague. In 2016, the Hague court denied Beijing the right to seize disputed territories in the South China Sea.

The Chinese ambassador to the Philippines, Huang, noted that Beijing does not accept or recognize the ruling by the Hague, adding that the issue of the South China Sea is only relevant to China-Philippine relations.

Duterte Takes a Pragmatic Stance on the South China Sea Issue

Some critics were surprised by Duterte's harsh tone, as the Philippine president's friendly relations with Beijing are well documented, according to popular Philippine news outlet InterAksyon. The article suggested that the reason for the change in Duterte’s tone was a failure by Beijing to fulfill its $24 billion worth of investment commitments to Manila.

Chen Xiangmyo, of China’s National Institute for South China Sea Studies, strongly disagrees with Duterte's allegation, saying that Sino-Philippine economic cooperation is not linked to territorial and maritime disputes in the South China Sea:

“Investment and economic contacts between China and the Philippines have nothing to do with the South China Sea issue. In fact, the Duterte administration has never softened its position on the South China Sea issue, but its approach is not as aggressive as it used to be under previous governments. Duterte is more pragmatic, separating the South China Sea issue from China-Philippine economic and trade cooperation. He doesn’t reject intensive economic and trade exchanges; at the same time, he doesn’t soften his position on the South China Sea. In September, Duterte delivered a speech at the UNGA, saying that the arbitral decision on the South China Sea was part of international law. He expressed gratitude to the UK, France and Germany for supporting the Philippines at the UN on this issue. This reflects Duterte’s firm stance on the South China Sea. At the same time, he tends towards a realistic position: a temporary detente and maintaining the overall stability of China-Philippine relations. The goal is to develop bilateral economic and trade cooperation, especially in the context when he needs investment support from China and the Chinese market.”

At the online seminar, Huang claimed that in the first half of the year, new Chinese contracts for projects in the Philippines increased by 26.5%, despite the pandemic, asserting the data as evidence of a mutually beneficial relationship.

Chen pointed out that Philippine political opposition, which he described as pro-American, is trying to hinder the development of investment cooperation between Beijing and Manila.

“Duterte visited China in 2016, as he took the office. The parties signed a number of investment agreements, including cooperation in infrastructure, agriculture and the World Ocean. The projects included port construction in the Philippines and energy infrastructure modernization. These China’s investments are considered help to the Philippines. These projects are really advancing continuously. Cooperation in agriculture and marine fishing is also an important area. The rest comes from Chinese companies’ investments in the Philippines. The opposition says China’s investment is less than $1 billion. I’m not sure this is actually the case, since many investments don’t produce the expected effect immediately, and therefore it is unknown whether they are immediately included in the statistics of private enterprises’ investment. Therefore, the $1 billion figure still needs official verification. The process of many Chinese investments in the Philippines is being delayed, but an important reason for this is the Philippine opposition and pro-American forces’ intervention. They hinder Chinese investment for a variety of reasons, including labour standards, environmental protection, and using a pretext of a national security threat. Therefore, we must understand that the reason is not that China doesn’t fulfill its promises, but in the domestic situation in the Philippines. China is ready to invest, but the Philippines doesn’t want to admit China.”

What Are the Challenges Foreign Investors Face in the Philippines?

What Beijing has reportedly promised to Manila – $24 billion – is unprecedented, according to Daria Panarina of the Institute of Oriental Studies of the Russian Academy of Sciences. No other country that invests in the Philippines has offered to make that sizable an investment in such a large number of infrastructure projects. Panarina believes that it is difficult for foreign investors to work in the Philippines.

“Investing in infrastructure development in the Philippines is quite risky due to climatic challenges. This is a constant risk zone with constant typhoons; this is an annual problem. Moreover, the traditional features of Philippino business and local legislation make it difficult for foreign companies to operate. The country has quite extensive restrictions on foreign capital. Moreover, certain obstacles are created by the bureaucratic apparatus. In addition, the Philippine economy is not sufficiently balanced and reliable for foreign business to actively invest in really large economic projects.”

According to Panarina, Duterte’s controversial actions during his anti-drug campaign have also had a negative impact on the formation of a favorable investment climate.

“The president’s loud statements and the measures taken amid that struggle have created not exactly an stable security situation in the country, but a situation of uncertainty. As a person who visited the country at the height of the campaign, I can say that walking the streets was quite safe, but there was a feeling that you didn’t know what could happen and how the local authorities and law enforcement agencies would behave. In this context, doing business is probably not very comfortable. And this took its toll. Back then, foreign investors had great doubts about whether it was worth investing in the Philippine economy in that unfavourable climate.”

Philippine presidential elections are scheduled for 2022. According to Panarina, the election will not affect the development of Sino-Philippine relations. Under pressure from the political opposition, Duterte could tactically toughen his position on the South China Sea, but there will be no real conflict, since neither Beijing nor Manila wants the situation to be exacerbated. The work on the Code of Conduct in the South China Sea, as well as the Sino-Philippine agreement on the possibility of joint development of shelf deposits, are said to be anchors that could negate an attack by Duterte's political opposition.

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