Bernardo M. Villegas
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Dealing With An Economic Giant (Part 3)

          Another important reason why the Philippines (together with the other ASEAN countries) should try hard to have friendly relations with China, despite its provocative behaviour, is its vast domestic market for for our exports.  As mentioned above, in PPP terms, China’s domestic market is already larger than those of the US and other large countries in the developed world.  China is already the third largest export market for the Philippines after the U.S. and Japan.  Our largest export to China comprises electrical and electronic equipment, followed by machinery, nuclear reactors and boilers; mineral ores; and edible fruits.  With the huge domestic market of China today and the prospects for growth of 6 percent or over at least in the next decade, it is highly probable that China will be our number one export market by 2025.  If we do everything possible to improve the productivity of our agricultural sector, especially in such high-value products like vegetables and fruits, the Chinese market for these will be almost unlimited as more and more of their population join the middle-income categories.  With the rapidly ageing population of the Chinese, we can also aim to send very well- paid health workers, care givers and teachers.  It is, therefore, very important that we are able to maintain friendly relations with China, despite the political challenges.

         Given the importance of China to our trade prospects, we must avoid being forced to take sides between the two world powers now locked in a Cold War.  We should also avoid, however, the extreme solution first chosen by President Duterte to move towards closer relations with China at the expense of our friendly relations with our long-term ally, the United States of America.  We should seriously consider the following words of wisdom in the Time Magazine editorial already cited above:  “Southeast Asian governments have no wish to renounce trade with and investment from their prosperous neighbor.  But they also want what America wants:  peace and stability and a rules-based order in which China does not get its way by dint of sheer heft.  Like all middling powers, the big countries of Southeast Asia have an incentive to hedge their bets, and see what favors they can extract from the Goliaths of the day.”

         Towards the second half to the Duterte Administration, the Philippines actually has been wittingly or unwittingly hedging its bets.   The extreme pro-China and anti-US polemics of President Duterte has been muted.  As discussed above in the context of the objectives of the Regional Comprehensive Economic Partnership (RCEP) agreement, the following advice given to the US in the Time editorial has actual been in the minds of  our key government officials:  “To help Southeast Asia avoid slipping into China’s orbit, America should encourage it to keep its options open and build counterweights to Chinese influence.  One mechanism is more regional integration.  As it is, trade and investment among the countries of Southeast Asia outweigh the business they do with China.  Another mechanism is to strengthen ties with other Asian countries such as Japan and South Korea (and I may add Taiwan)—one ASEAN has rightly embraced  Above all, America should not fall into the trap of trying to force its members to pick sides.  That is the one thing Southeast Asia is determined to resist.”  Learning from the trial-and-error approach of the Duterte Administration, the next Philippine Government that will be elected in May 2022 should be able to perfect the balancing act, not only between the US and China, but also as regards trade and investments between China on one end and the three Northeast Asian tigers of Japan, South Korea and Taiwan on the other.

         We should not get discouraged about prospects of Chinese investments in the Philippines because of the “more bark than bite” experiences we have had so far with China during the Duterte Administration.  Compared to the Japanese investments in our Build, Build, Build program, the Chinese actual performance (versus promises) has been quite disappointing.   As also pointed out in the Time editorial, Chinese firms are often accused of corruption or environmental degradation.  Many of their enterprises prefer to employ imported Chinese workers rather than locals, reducing the economic benefits to the country.  These deficiencies should not discourage us from continuing to negotiate with the Chinese for large investments in our infrastructures, especially the Mindanao railway system.  They can replicate what they have done and are doing in the poorer provinces in the West of China, building farm-to-market roads, irrigation systems, and post-harvest facilities to address rural poverty.  As an idea, we could assign to a Chinese consortium the task of developing one of the agro-industrial hubs that the Department of Agriculture has included in its long-term strategy for addressing poverty and food security.   Some of these agro-industrial hubs can be located in the Clark-Subic Corridor, the Batangas International Port, the Iloilo International Port and the Cagayan de Oro International Port.

    We can also ask China for help in catching up with our more progressive neighbors in the 10 key high-tech industries of the 21s century that their leaders are targeting in the so-called “Made in China 2025” initiative.  These industries include artificial intelligence; electric cars and other new energy vehicles; 5G telecommunications; robotics; new agricultural technology; aerospace and maritime engineering; synthetic materials and biomedicine.  It is very possible that because of the scarcity of young people in the coming years, China may actually consider educating and training some of our most talented youth (as Singapore has been doing) in these high-tech sectors.  With the appropriate diplomatic balance in dealing with this economic giant to our north, we may still realise our dream of real agricultural development and leapfrogging  to the so-called Industrial Revolution 4.0 through Chinese investments and development aid in the Philippines .  For comments, my email address is