The Philippines’ relations with the People’s Republic of China (PRC) have gotten more multi-faceted, if not complicated, through the years. Trade relations between indigenous Filipinos and Chinese tradesmen have existed since pre-colonial times, resulting in a culturally and economically vibrant Filipino-Chinese community. Meanwhile, geopolitical tensions in the West Philippine Sea (South China Sea) have long been central in the two nations’ relations.

Beyond trade relations and geopolitical tensions, a recent study investigates another facet of Philippine-China relations: development financing. From 2000 to 2022, Beijing’s investments in the Philippines have reached a staggering US$9.1 billion in state-directed development financing, AidData reports, making China one of the largest development lenders to the country.

In partnership with Asia Society Philippines (ASP), AidData, a research lab that analyzes the influence and outcomes of China’s overseas investments at the College of William & Mary’s Global Research Institute, published Beijing’s Big Bet on the Philippines: Decoding two decades of China’s financing for development detailing the dynamics of Philippines-China relations in terms of development financing. The report reveals that while China's investments aim to boost economic ties, they come at a cost and are influenced by geopolitical tensions between the two nations.

Volatile geopolitical relations

Shifting relations between Manila and Beijing influence the flow of development financing. The administration priorities of Presidents Arroyo and Duterte received enthusiastic funding from Beijing, especially in their home regions of Central Luzon and Davao, respectively, including the National Capital Region. Meanwhile, the Aquino administration, which brought China to an international court over the West Philippine Sea (South China Sea) dispute, did not benefit as much from its frosty relations with Beijing. Still, even at the height of diplomatic relations, Beijing provided the Philippines with US$1 of aid for every US$167 in loans in 2016. By 2019, the terms had deteriorated to US$1 of aid for every US$211 in debt.

Two-track development model

Beijing bets most of its development financing on few but high-risk, high-reward infrastructure projects to also reap economic returns, while several social development projects receive funding to cultivate goodwill among Filipinos and positively contribute to the Philippine economy. However, Filipinos are not easily won over by China’s development financing, a symbol of their generosity and solidarity. Filipino approval of China’s leadership declined by about 20% between 2006 and 2023 partly due to related factors, such as geopolitical tensions and the harm caused by infrastructure projects on vulnerable sectors. Moreover, economic, environmental, social, and governance ramifications are detrimental when project implementations break down. “As PRC financing increased, Filipinos surveyed were more likely to say they struggled to afford food and shelter, an important indicator of financial health,” said the report.

Diverse funding sources and controversial implementers

Beijing relies on a network of 101 domestic and foreign financiers in implementing its global development financing to consolidate risk, evaluate borrowers, gauge project feasibility, and invest capital in large-scale infrastructure projects. However, over half of Beijing’s development funding worth US$4.5 billion was implemented by Chinese firms with a “tarnished performance track” based on AidData’s measures. The report criticizes Beijing's use of 37 Chinese state-owned enterprises for projects in the country, noting that international financial institutions like the World Bank and Asian Development Bank have sanctioned 43% of these Chinese firms. Although Chinese development financing and implementation may boost the Philippine economy overall, the report concluded that these benefits have not visibly reached the Filipino population.

Navigating the Future

In the community of nations, we may not be able to choose our neighbors, but we can be strategic in dealing with them. The report forecasts that as Philippine President Ferdinand Marcos Jr. expands diplomatic relations in search of alternative development partners, and distances himself from Beijing, the future of Chinese development financing will likely mirror the dynamics observed during the Aquino administration. Locked in a critical juncture in their bilateral relations, the future of development financing between the Philippines and China rests on how the two nations carefully balance economic interests and geopolitical realities.

For the second report, ASP and AidData consult local experts and analysts, journalists, and government officials to gather more information on China's financing and investments in key Philippine industries, along with related media narratives. Following the second report will be an interactive dashboard tracing China’s funding sources and projects and analyzing the outcomes of China’s investments. The dashboard, which is a resourceful tool for further studies and policymaking, will be introduced through a series of workshops in September 2024.

A digital copy of "Beijing’s Big Bet on the Philippines: Decoding two decades of China’s financing for development" can be accessed through this link: https://www.aiddata.org/publications/beijings-big-bet-on-the-philippines-decoding-two-decades-of-chinas-financing-for-development

The Asia Society Philippines plays a crucial role in driving meaningful dialogue, forging strategic partnerships, and conducting impactful research that fosters understanding of the Philippines and Asia. For memberships and partnerships, please email [email protected].