Duterte plans to diversify economy with heavy China aid

Prospect of Chinese funds and technology scores with Philippine businesses, but stokes diplomatic unease

Over the course of President Rodrigo Duterte's six-year term ending in 2022, more than 7 trillion pesos (S$200 billion) has been targeted for infrastructure development. And for the first time, financial aid and technology for these ventures will come from China. PHOTO: REUTERS

President Rodrigo Duterte is proposing to diversify the narrow- based Philippine economy with an ambitious infrastructure development programme that will carry heavy Chinese involvement, a prospect that is exciting the local business community and, at the same time, stoking diplomatic unease.

Over the course of Mr Duterte's six-year term ending in 2022, more than 7 trillion pesos (S$200 billion) has been targeted for the development of roads, railway networks, the upgrading of ports and airports, the construction of dams and irrigation networks, and the building of bridges to connect the major islands in the archipelago.

And for the first time, financial aid and technology for these ventures will come from China, which in recent months has pledged more than US$15 billion in aid to the Philippines, Asean's fourth-biggest economy by gross domestic product (GDP).

So far, three projects valued at US$3.4 billion (S$4.8 billion), all located on the main island of Luzon, have been identified by both governments during a visit to Beijing last month by a business delegation led by Philippine Finance Secretary Carlos Dominguez.

The projects are a railway network linking Manila and Legaspi City in Bicol province that is estimated to cost US$3.01 billion, an irrigation project in Cagayan and Kalinga provinces valued at about US$53 million, and a hydroelectric dam project in Quezon province costing US$374 million.


  • Projects to be led by China on Luzon

    North-South Railway from Manila to Legaspi city in Bicol province: US$3 billion (S$4.3 billion)

    Irrigation project in Cagayan and Kalinga provinces: US$53.6 million

    Hydroelectric dam in Quezon city: US$374 million

Bankers and businessmen in Manila said the China dimension could prove crucial to Manila's efforts to diversify its economy that has long been dependent on remittance from Filipinos working abroad and the business process outsourcing sector, which together inject more than US$50 billion into the economy annually.

Mr Ernesto Pernia, the Secretary for Socioeconomic Planning and a member of Mr Duterte's three-man economic brain trust, told The Straits Times that GDP is set to "expand comfortably by more than 7 per cent this year", up from the estimated 6.9 per cent last year.

That robust economic expansion, which will outstrip its South-east Asian neighbours, is against the backdrop of a comfortable debt-to- GDP ratio of 37 per cent, compared with 54 per cent in Malaysia, and a fiscal deficit of just 2 per cent to GDP against 2.5 per cent in Indonesia.

Economic expansion in Indonesia, Asean's biggest economy, is projected at 4.8 per cent this year, and 3.4 per cent in the region's third-biggest economy Malaysia, according to UBS Global Research.

The Philippines, long considered a staunch ally of the United States, is the least dependent on China in terms of economic linkages among members of the 10-nation Asean.

All of that changed when Mr Duterte made an official trip to China last October and declared that his government would set aside the territorial dispute with China over reefs in the South China Sea in favour of warmer economic ties.

Mr Duterte's China tilt is also putting the spotlight on the increasingly important role the Philippines is taking in the unfolding geopolitical tussle for influence in the South China Sea.

It is forcing other regional economic powers to woo Manila in a bid to counterbalance China's growing clout.

Last month, Japanese Prime Minister Shinzo Abe became the first foreign head to visit the Philippines since Mr Duterte took power, and pledged US$8.7 billion in aid over the next five years that will involve building a subway for Manila and aircraft and ships for the Philippine coast guard.

"We believe that because China is active, Japan is getting aggressive. We have a growing menu of funding sources for infrastructure," Mr Pernia said.

At home, Mr Duterte's cosying up to China is scoring him points with another constituency: The country's small and economically powerful Chinese community.

The community, which makes up roughly 2 per cent of the total population, controls roughly 60 per cent of the economy through some of the largest conglomerates.

"To (the Chinese) business community, the big fear is that tension in the South China Sea between China and the US will be bad for the Philippines. So what the President is doing is the right thing," said Mr Henry Lim Boon Liong, executive vice-president of the Filipino-Chinese Chambers of Commerce and Industry, who was also part of the Philippine business delegation that accompanied Mr Duterte to Beijing last October.

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A version of this article appeared in the print edition of The Straits Times on February 01, 2017, with the headline Duterte plans to diversify economy with heavy China aid. Subscribe