Fitch Solutions: Duterte’s pivot has risks

MANILA’s warming ties with Beijing will likely yield economic benefits “in the near term,” but risks lurk behind such pivot especially if executed to the exclusion of the Philippines’ traditional economic partners in the West, Fitch Solutions said in a Nov. 21 note e-mailed to journalists on Thursday.
“We at Fitch Solutions expect bilateral ties and economic cooperation between China and the Philippines to deepen further over the coming years,” the note read, citing the government’s P8-trillion “Build, Build, Build” infrastructure development program as well as export of goods and services as China shifts towards a consumption-driven economy as sources of benefits for the Philippines.
President Rodrigo R. Duterte touted his “separation” from Washington in a speech during his visit to Beijing in October 2016 and has railed against the European Union for its criticism of his bloody war on the narcotics trade.
His administration has refused to remind China of the Philippines’ July 2016 legal victory in The Hague, involving an arbitration ruling that invalidated Beijing’s vaguely defined “nine-dash line” used to back up its claim to much of the South China Sea.
Administration critics have said that the Philippines has since been short-changed for its conciliatory approach to China.
Among others, while Mr. Duterte in October 2016 received from China pledges for some $24 billion in investments and $9 billion worth of official development assistance, only a small percentage of these pledges has so far materialized nearly halfway through the president’s six-year term that ends in mid-2022.
Loan agreements which the Duterte government has so far signed with China include $62.09 million for the Chico River Pump Irrigation Project in northern Luzon and $232.5 million for the New Centennial Water Source Kaliwa Dam Project in Rizal which is designed to add to Metro Manila’s water supply.
Chinese President Xi Jinping’s Nov. 20-21 state visit to the Philippines seemed designed to make up for the slow progress in these pledges, as it was highlighted by the signing of 29 bilateral deals — most of which turned out to be in broad strokes.
“… [T]here is little to show for the Philippines’ conciliatory approach as out of 38 Philippine projects earmarked for Chinese involvement two years ago, only four were among the commitments made on Nov. 20,” Fitch noted.
It went further by warning of dangers ahead should the Philippines become overdependent on China.
“… [W]e caution that while Beijing’s economic largesse would be supportive of the Philippines’ economic growth in the near term, the Chinese economy is also struggling to sustain its growth momentum amid rising trade tensions with the US,” Fitch Solutions said further.
“A pivot towards Beijing at the expense of a relationship with the West poses downside risks to growth sustainability in the event that Chinese financing dries up,” it warned.
“In addition, a flare-up of tensions between both sides would damage economic cooperation and could see China pull out of infrastructure investments in the Philippines.”
In a separate Nov. 21 note, Fitch Solutions described the selection on Nov. 20 of a consortium formed by China Telecom, Dennis A. Uy’s Udenna Corp. and Chelsea Logistics Holdings Corp., as well as franchise holder Mindanao Islamic Telephone Company, Inc. (Mislatel) as the Philippines third major telecommunications service provider as “a clear sign of Duterte’s warming posture towards China.”
“The selection of China Telecom, which follows the almost immediate disqualification of the other two bidders, hints at the government’s bias towards Chinese involvement in the telecoms sector and is a clear sign of Duterte’s warming posture towards China,” Fitch Solutions said.
Mr. Duterte in December last year ordered state telecommunication authorities to speed up the entry of China Telecom to challenge incumbents PLDT, Inc. and Globe Telecom, Inc.
The Mislatel consortium won after its only two contenders were disqualified — Philippine Telegraph and Telephone Corp., over lack of proof for technical capability; and Sear Telecommunications, Inc., over the lack of a participation security worth P700 million.
But while “China Telecom would have been, from a technical perspective, the most feasible” choice as third major telecommunications provider “as the state-owned telco has the experience, scale and financial capability needed to disrupt the Philippines telecoms sector that is otherwise lacking in other contenders”, Fitch Solutions said the new industry player faces daunting barriers to entry.
“The lack of existing fiber assets gives the new telco an uphill task in a market that has maneuvered for years to keep new entrants out and has continuously undermined the supervisory power of the telecoms regulator,” the note read, adding that “it will have to offer very competitive pricing to grasp market share.” — E. J. C. Tubayan and D. A. Valdez