Manila is shopping, not re-aligning
Manila is shopping,
not re-aligning
WRITTEN BY DRAKE LONG
7 December 2023
In November the Philippines announced the high-profile cancellation of several key infrastructure projects included under China’s mammoth worldwide investment initiative, the Belt and Road Initiative (BRI). What observers of the region have honed in on is the termination of three ambitious rail links in particular: the Subic-Clark freight railway, the Calamba-Bicol commuter rail line, and an inter-city Mindanao railway.
For some, this could look like the death knell for the BRI in the Philippines. It creates the perception that Manila is pivoting away from Beijing’s influence after the bearhug of the Duterte years and is now ‘re-aligning’ closer to other countries.
Yet that is not necessarily true. If one takes their attention off the BRI branding and looks at Chinese infrastructure investment more broadly, it is abundantly clear that Manila fits into a regional pattern of using Chinese interest to play investors off of one another, reshuffling the money behind major infrastructure projects to their advantage. In other words, Malacanang is shopping around for better options.
Rather than celebrating each time a country publicly cancels a Chinese project, the US, Australia, the EU, and other nations competing for influence at the expense of Beijing should keep in mind the wider picture — Manila and other capitals like it are shopping around for alternatives.
Even after the termination of the railway deals, there is still roughly USD 12 billion worth of Chinese investment in the Philippines, BRI-branded or not, according to the China Global Investment tracker. Not all of those projects are going to be cancelled, and at the same time as Malacanang is re-evaluating past BRI projects, it is also inking new investment deals, just not under the BRI brand. At the beginning of 2023, Manila signed an additional memorandum of understanding with Beijing, resetting the terms for BRI projects in-country, and it is still actively courting the BRI for some infrastructure projects.
Furthermore, the shift away from Chinese funding for these three rail projects is less abrupt than one might think: in his election campaign, Ferdinand Marcos Jr. had already sent signals that one of his first policies in office would be a conscious effort to revisit infrastructure deals the Duterte administration had started, and all three projects were stropped right after Marcos’ inauguration.
What the latest announcement instead does is reignite interest from other possible investors — the Ministry of Transportation stated it was looking at Japanese, South Korean, and Indian financing to replace China’s effort.
Shopping for investors
Contrary to the ‘debt-trap’ narrative surrounding the BRI, regional governments in South and Southeast Asia have proved exceedingly savvy at renegotiating China’s infrastructure deals, or using Chinese interest as leverage to attract other investors. If one looks beyond the Philippines, for example, one would see that Vanuatu, Cambodia, Indonesia, and Vietnam have all seen an influx of interest from Western economies into long-neglected infrastructure projects — right after initial high-profile Chinese investment had fallen through. Both Sri Lanka and Laos, two highly indebted countries, have secured debt relief and debt restructuring arrangements from Beijing.
At the crux of this is an understanding in regional capitals about two key things. First, countries such as the Philippines desperately need new, expansive infrastructure, but primarily in ‘frontier market’ areas of their economy that Western and Japanese firms would not normally invest in.
The Asian Development Bank recently assessed that the ASEAN region requires roughly USD 1.2 trillion in infrastructure investment by 2030 to keep up its current rate of economic growth. For the BIMP subgrouping of countries (Brunei, Indonesia, Malaysia, Philippines), the infrastructure deficit in rural, isolated, or less-developed parts of their territory is especially acute. The Philippines, for example, has pledged to consistently boost infrastructure investment in Mindanao by five to six per cent annually and is touting its improved investment climate. But it has traditionally been shunned by outside investors due to its status as one of the poorest parts of the country and, up until recently, a conflict zone.
Second, at a certain point, Chinese companies’ onerous investments become Beijing’s headache. Because China’s overseas construction efforts are primarily done by state-owned enterprises (SOEs), Beijing literally cannot afford debtor countries defaulting. In Laos’ case, it deferred loan repayments to Beijing twice already — staving off financial collapse largely by betting that Beijing would not allow it to happen. Relatedly, China spent nearly USD 240 billion bailing out its BRI projects and companies that proved unprofitable or came close to bankruptcy between 2008-2021, according to a recent study published this year.
There will almost always be a level of government intervention to keep these investments solvent. Even the most debt-soaked Southeast Asian capitals know this and therefore, anticipate renegotiation. Manila is no exception.
The saga of Subic Bay is the most illustrative precedent for what the Marcos administration is doing now. In 2019, the mere suggestion that a Chinese company could buy out Subic Bay’s massive shipyard — a strategically located former US naval base — drove a combination of US capital and Australian shipbuilders to swoop in and offer better terms. Manila ultimately approved a bid from an American firm last year, explicitly citing the Biden administration’s involvement as being key to the deal’s success. Since then, the Subic facility has directly supported the annual US-Philippine bilateral exercise, the Balikatan, with logistical support. Before the threat of Chinese investment, Western private sector interest in Subic Bay was essentially nil.
What other options?
For the US and other like-minded countries, there is a lesson to be drawn from this. One could interpret Manila’s cancellation of some Chinese-backed deals as signalling that it is shopping around for additional investors. While this may be true, it does not preclude the Philippines from seeking out Chinese investment again, either. Manila’s attitude is not related to an ideological swing between a ‘Beijing’ camp and a ‘Western democracy’ camp but rather a pragmatic approach to economic priorities. In short, if the US and its partners cannot come up with the money Manila needs, it will revisit its options with China.
The US has made a concerted effort to show it is materially and politically invested in Southeast Asia, especially in its alliance with the Philippines. However, Southeast Asian governments are seeking an expanded US footprint in the region of a non-military nature as well.
US Secretary of the Navy Carlos Del Toro recently articulated a new policy of ‘maritime statecraft’, getting to the essence of what many countries like Manila want: a regionally-focused foreign policy that focuses on employing military means for favourable non-military outcomes, such as economic investment, commercial diplomacy, and seaborne trade. Military cooperation in the traditional sense, while appreciated, does not align with regional capitals’ policy priorities of consistent, equitable economic growth and trade. Yet, to make maritime statecraft work, the US and other like-minded countries will need to continue pushing the limits of what they normally offer as infrastructure investment and consulting in countries like the Philippines. They will need to replace China’s role as a lender and financier of more riskier projects.
Rather than celebrating each time a country publicly cancels a Chinese project, the US, Australia, the EU, and other nations competing for influence at the expense of Beijing should keep in mind the wider picture — Manila and other capitals like it are shopping around for alternatives. However, they are neither giving up on filling their investment deficit nor are they willing to trade away economic growth for platitudes. There is only an opportunity to wean the Philippines off Chinese investment insofar as countries like the US are willing to replace it.
DISCLAIMER: All views expressed are those of the writer and do not necessarily represent that of the 9DASHLINE.com platform.
Author biography
Drake Long is a Non-Resident Fellow with the Brute Krulak Center on Innovation & Future Warfare, Marine Corps University. He is also a Pacific Forum Young Leader and a frequent writer on US-Southeast Asia relations, having been published in The Diplomat, 9DASHLINE, 1945 Magazine, and the Center for International Maritime Security. He is currently writing a book on deep seabed mining and international seabed issues. His views do not reflect the opinion of any of his employers, the United States government, or the Department of Defense. Image credit: Unsplash/Mara Rivera.