Philippines Analytical Update | December 4, 2018
Xi Jinping’s 2-day visit to the Philippines on November 20-21 drew Manila and Beijing closer smoothing once-frayed ties over territorial disputes with the signing of 29 deals heavy on infrastructure, energy, and finance. Half of the 8 infrastructure deals directly address infrastructure gaps in Mindanao, with three focused on President Duterte’s southern hometown Davao and one on post-conflict Marawi. The other four infrastructure deals cover the Belt and Road Initiative, a general Infrastructure Cooperation program, a railway in the north, and a bridge in central Philippines. Six agreements on finance outlined a customs and container inspection equipment project, feasibility studies on development projects, panda bonds issuance, a Renminbi Clearing Arrangement, the Renminbi-Philippine Peso Foreign Exchange Trading Market, and the authority to operate a Manila branch of the Industrial and Commercial Bank of China. Energy cooperation on oil and gas development and a water source dam project were also signed.
However, strong calls for transparency by Vice President Leni Robredo and accusations of betrayal and treason by nationalists, academics, and prominent individuals across the political spectrum like senior Supreme Court justice Antonio Carpio, former Ombudsman Conchita Carpio-Morales, former National Defense College president Clarita Carlos, and Communist Party of the Philippines founder Jose Maria Sison surfaced around the Memorandum of Understanding (MOU) on Cooperation on Oil and Gas Development. In plain text, the MOU states that the Philippines and China have decided to negotiate, on an accelerated basis, arrangements to facilitate oil and gas exploration and exploitation in relevant marine areas consistent with applicable rules of international law. An Inter-governmental Joint Steering Committee is established to negotiate “cooperation arrangements”, agree on the maritime areas to which they would apply (“cooperation area”), and decide for which part of the cooperation area each Working Group is established (“working area”). One or more inter-enterpreneurial working groups, composed of authorized enterprises, will negotiate inter-entrepreneurial technical and commercial arrangements that apply to the relevant working area. China designated China National Offshore Oil Corporation as its authorized enterprise. The Philippines would authorize the enterprise(s) that has/have entered a service contract with respect to an applicable working area or the Philippine National Oil Company where there are no such enterprises. Any information shared under this MOU will be kept confidential unless the two governments decide otherwise. This MOU, coupled with President Duterte’s earlier statements, notably his “China is already in possession” comment at the sidelines of the ASEAN summit in Singapore, angered critics who view the MOU as putting China at par with the Philippines’ sovereign rights over the West Philippine Sea and a backpedaling of the Philippines’ victorious Law of the Sea claim. While Foreign Affairs Secretary Teddy Boy Locsin cites that the MOU is without prejudice to legal positions and Presidential Legal Counsel and Spokesperson Salvador Panelo explains that the MOU is just an agreement to agree, these have done little to persuade observers who see Duterte’s approach to China as capitulation bordering on treason. It is unclear how the Philippine military, traditionally close to the US, views this pragmatic posture. The future implementation of the recently signed MOU on Defense Cooperation with China may be a barometer for the Philippine military’s sentiment. ASEAN countries (Brunei, Indonesia, Malaysia, Philippines, Vietnam), China, Japan, and Taiwan have overlapping competing claims in the South China sea. China has been ramping up its artificial installations in the area. The Philippines’ assumption of the role of country coordinator for the China-Association of Southeast Asian Nations (ASEAN) Dialogue, crucial to the creation of the Code of Conduct in the South China Sea (COC), could not come at a more strategic juncture in 2018.
Manila’s gambit with Beijing has already made President Duterte vulnerable to criticism that he may have been left dry while being complicit in allowing China to pose threats to Philippines' sovereignty. In 2016, he left Beijing with $24 billion of Chinese loans and investment pledges but so far only three have broken ground - two bridges and an irrigation facility worth a combined $167 million. Furthermore, foreign policy circles perceive a change in orbit of Washington’s oldest ally in Asia. The Philippines appears to move further from Washington and closer towards Beijing. Perhaps symbolic of this change is a Framework Agreement between Chinese construction firm Gezhouba and the Bases Conversion Development Authority (BCDA), a Philippine development corporation established to convert Clark Air Base and Naval Base Subic Bay, the largest overseas military installation of the US before their closure in 1991. Clark is now an international airport and Subic, the size of Singapore, is now a freeport or special economic zone. Secretary Dominguez has been earlier quoted to say that Americans “do not seem to be interested” in infrastructure projects of the Build, Build, Build program.
Nevertheless, these concerns had no effect on the praiseful 8-page Joint Statement issued during the visit. Aside from signing 29 deals, the Philippines welcomed the official launch of the Chinese Consulate-General in Davao. China reiterated its strong support to President Duterte’s tough stance on drugs and funded the construction of two drug rehabilitation centers in Mindanao, the President’s home region. In his 3rd trip to China as President in April 2018 for the Boao Forum for Asia in the Hainan province of China, President Duterte was reported to have said, “I simply love Xi Jinping. He understands my problem and is willing to help, so I would say, ‘Thank you, China.’ He has accepted President Xi Jinping’s invitation to visit China in April 2019 for the second edition of the Belt and Road Forum for International Cooperation. Equally effusive is President Xi Jinping who stated after his first state visit to Manila that relations between the two countries “now see the rainbow after the rain.”
Other signed agreements and memoranda of understanding cut across sectors including agriculture, disaster, ICT, culture, education, and industrial parks development. After the visit, the Philippines also hopes China would send more tourists, import more coconuts and frozen fruits, employ more Filipino teachers of English language, and host young Filipino scientists in China to support the Philippines’ capacity building efforts.