Chinese capital in the Philippines under Duterte – The Diplomat


With the end of Philippine President Rodrigo Duterte’s administration in sight, a thorough reassessment of his China development policy seems warranted. According to some journalists and analysts, large-scale Chinese projects under Duterte did not come to fruition. For these observers, major Chinese infrastructure projects come in two forms. On the one hand, they can generally refer to Chinese-funded infrastructure such as dams, bridges, railways and airports. On the other hand, they could point to Chinese projects negotiated with and implemented by the National Economic Development Authority (NEDA).

While it is true that Chinese state-funded infrastructure projects have been rare under Duterte, we argue that the fixation on large-scale Chinese projects obscures the various modalities of Chinese capital – including special purpose vehicles (SPV), Foreign Direct Investment (FDI), and Flexible Capital – in the Philippines. Since the Duterte administration joined forces with China, breaking with the confrontational policy of the Benigno Aquino administration, China’s strategic banks, central state-owned enterprises and large private enterprises have been encouraged to invest or operate in Philippines. Furthermore, Duterte’s coalition elites have been inviting Chinese billionaires to transfer their savings to the Philippine online gambling industry. In other words, the Duterte administration led to the rise of different types of Chinese capital, which had enormous political, developmental, and social implications beyond large-scale infrastructure.

The first and most obvious form of Chinese financing is Overseas Development Assistance (ODA) projects, which are defined by the OECD Development Assistance Committee as foreign projects financed at concessional rates. with longer than normal grace periods. The most recent NEDA report shows that there were only five Chinese ODA projects underway or completed in 2021. Compared to Japan (45), the Asian Development Bank (52) and the World Bank (29), the number of Chinese projects has been dismal. An interesting tidbit is that the Chinese projects in the NEDA report do not meet ODA project standards. Chinese capital deviates from the definition of ODA and takes different forms, including hidden debt created by SPVs, FDI or flexible capital in illicit sectors. NEDA underestimates these forms of Chinese capital, which have had enormous effects on Filipino development and society.

SPVs are host country entities that receive money from PRC political banks to maintain the host country’s debt to GDP ratio. This is the case of Dito Telecommunity’s Foreign Direct Investment (FDI) worth at least $5.4 billion with dozens of new networks currently under construction across the country. Chinese political banks lent money to the Dito consortium, including Udenna Corp and Chelsea Logistics, companies owned by Dennis Uy, one of Duterte’s own cronies, and China Telecom, to invest in Dito Telecommunity. While some argue that China Telecom might divest itself of Dito due to the second or third year of operations without profit, what they forget is that making short-term profits is not the goal. objective of large state-owned enterprises like China Telecom. On the contrary, the investment of capital in a sector ripe for competition and the strategic gains of telecommunications are already major gains for China Telecom and the Chinese state.

While the Philippine government is not directly beholden to the PRC for this loan, Duterte and his coalition’s support for Uy created implicit support that the Philippine government will bail out Dito if the investment fails. In other words, it is unlikely that the PRC would have financed Uy to co-invest in Dito without Duterte’s positive relations with China and the assurance that he will protect Chinese business interests. SPVs have been called carriers of “China’s hidden debt” by AidData.

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This is also the case of loans from the Chinese Development Bank to Kereta Cepat, a Chinese Indonesian consortium in charge of building the high-speed Jakarta-Bandung Railway. Joko “Jokowi” Widodo’s administration was able to shield itself from accusations of Chinese “debt trap” and reliance on Chinese loans by hiding the Jakarta-Bandung deal through SPV. While the Jokowi administration’s debt-to-GDP ratio has been kept to a minimum, this deal has huge implications for making Chinese companies – the partners of the Jakarta-Bandung deal – long-term players in Indonesia’s rail sector. .

The second thing to note about Chinese investment under Duterte is the extent to which FDI is a major vector of public finance. Sometimes the Chinese state facilitates large FDI projects by organizing high-level meetings and making Chinese financing available to companies. At other times, Chinese companies and their host country partner companies start by working together before coming back to their governments on possible ventures. In either case, state-facilitated FDI is available to companies to invest in countries to improve China’s diplomatic reach and political capital.

It is logical to interpret that Chinese FDI, especially the larger and more valued projects, acquired direct and indirect state support to invest in the Philippines due to Duterte’s positive predisposition towards the PRC. For example, Ant Financial, a holding company directly managed by the People’s Bank of China, entered into a joint venture with Globe Telecom to launch Myth, a billion-dollar company in the Philippines. China Telecom in Dito Telecommunity and Ant Financial in Myth are major companies linked to some of China’s most central institutions. The two deals, which are worth billions, are not considered ODA or large-scale government-led projects, but nonetheless would not have happened without the approval of senior Chinese officials.

If FDI is included, it is clear that Chinese investment under Duterte has been considerable. Between 2016 and 2022, data from the Central Bank of the Philippines shows that companies from China and Hong Kong invested $1.7 billion in the Philippines, trailing Japan with $2.8 billion. American, Korean and Taiwanese firms lag behind Chinese FDI, having invested $1.3 billion, $1.1 billion and $580 million respectively. Moreover, the Philippine Security Exchange Commission’s company registration database, a much more robust dataset than the Central Bank, shows that Chinese citizens have invested far ahead of all other nationalities. From 2016 to 2018, 3,634 companies were created with Chinese investors, which was far higher than the number of new companies with Japanese and American investors (1,091 and 1,317, respectively).

Many of these related to wholesale and retail trade, construction, transport and services, including hospitality and tourism, financial and loan services, language and translation, among others. As these are joint ventures, the Chinese investors either used Filipino business “screens” to represent them to the Philippine government, or they legitimately worked with Filipino companies. In both cases, large or smaller Chinese FDI inflows have increased the inflow of capital into the country, contributing to growth and employment. There are also negative implications such as distribution problems or a crowding out effect. In both cases, there has indeed been an increase in Chinese FDI under Duterte, which has clearly been linked to the easing of the conflict in the South China Sea.

Third, there has recently been a worldwide increase in what academics have called “flexible capital”. China’s rise as a global power has been accompanied by a simultaneous rise in the number of Chinese billionaires. In recent years, the sources of capital accumulation – manufacturing for export, heavy industries and infrastructure construction – have been constrained by overcapacity due to the slowdown in the Chinese economy and the depreciation of the renminbi. Many of these capital holders have responded by extracting their savings from China and transferring them to countries in the South. Flexible capital moves into illicit sectors over which host countries have little regulatory control. In Cambodia, Laos and Myanmar, flexible capital can be found in plantations owned by Chinese private investors. In sub-Saharan Africa, artisanal and small-scale mining operations that hire children for the mines and local rebel groups to protect their properties have been reported.

In the Philippines, flexible capital is particularly found in online gambling. About 129 online game companies started their business by legally or illegally importing hundreds of thousands of Chinese-speaking workers. Online gambling companies have bought up a huge stock of condominiums in Metro Manila, which has pushed property prices beyond the range most Filipinos can afford. Land prices in Manila increased by an average of 6% in 2017, with the Manila Bay Area registering the highest increase at 27%. Along with online gambling, on-site casinos with escort services have developed in Metro Manila, booked through WeChat, the Chinese chat client, to meet the needs of Chinese, East Asian, Filipino and Westerners. Unregistered online gambling companies, which frequently commit internet fraud, have also proliferated in the capital. Despite the divestment from online gambling due to COVID-19 in 2020, online gambling has become a vital economic sector in the Philippines.

In sum, focusing only on NEDA’s large-scale infrastructure projects and asserting that Duterte gained nothing from China is simply wrong and may fail to understand important processes at work. Instead, analysts could look at projects that fall outside the formal category of ODA, including huge FDI ventures worth billions or smaller companies in legitimate industries, as well as the creation of hundreds of new companies in illicit sectors. Duterte’s failure was not that he could not bring Chinese money into the country, but rather that he could not make Chinese projects more developmentally inclusive for Filipinos. This trend, along with Chinese Coast Guard abuses in the South China Sea, is generating lingering negative feelings toward the PRC.


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