Opinion | South China Sea: Philippines must softly manage disputes or miss out economically

Opinion | South China Sea: Philippines must softly manage disputes or miss out economically

Opinion | South China Sea: Philippines must softly manage disputes or miss out economically

Chinese finance and supply chains are transforming Southeast Asia’s infrastructure, renewable energy, mineral processing and electric vehicle landscape. But the Philippines is being left out. Does Manila’s drive to reduce China’s role in its economy come at the price of losing out to its peers in the Association of Southeast Asian Nations?

The Philippines’ “assertive transparency” regarding disputes in the South China Sea has imposed reputational costs on China. Having done so without suffering backlash was hailed as a vindication, making Manila’s approach worthy of emulation by other claimants. But this faulty view discounts lost opportunities.
China not openly employing economic coercion does not mean the Philippines did not take a hit. Funding for three major railway projects was scuttled. Chinese inbound tourism dropped from a record high of 1.7 million arrivals in 2019 to fewer than 264,000 last year.


Chinese EV maker BYD launches electric cars in Indonesia

Chinese EV maker BYD launches electric cars in Indonesia

Chinese investors are looking elsewhere in the region. Chinese company BYD, the world’s largest electric vehicle maker, is reportedly planning to invest US$1.3 billion to produce EVs in Indonesia. Chinese battery giant CATL invested in Indonesian state-owned miner Antam to process nickel and make EV batteries.
In this context, it’s worth noting that the absence of Chinese import curbs on Philippine fruits, despite worsening ties, has more to do with former president Rodrigo Duterte than Marcos. Known for fostering friendly ties with Beijing, Duterte visited China last year and met Chinese President Xi Jinping.
His daughter, Vice-President Sara Duterte-Carpio, is seen as a likely contender for the 2028 presidential race. The Dutertes differ from the Marcos family on foreign policy. The Duterte family comes from the Davao region of Mindanao, the centre of the country’s plantations, whose biggest market is China.
Hence, the Dutertes help insulate the country’s fruit exports from Chinese reprisal. The elder Duterte’s ascent to power in 2016 paved the way for the return of Philippine bananas to China after a hiatus triggered by a stand-off over the contested Scarborough Shoal in 2012.
Philippine President Rodrigo Duterte and Chinese President Xi Jinping wave to the press during a welcoming ceremony at the Malacañang palace grounds in Manila on November 20, 2018. Photo: AFP

But even with this accommodation, competition from neighbours is chipping away at Manila’s position in the lucrative Chinese market. Vietnam and Cambodia have upped their banana exports, as have Thailand and Malaysia when it comes to other fruits such as pineapples. Logistics works to their advantage, while geopolitics puts Philippine produce at a disadvantage.

China needs critical raw materials for its production. However, Chinese firms may not be keen to invest in Philippine mineral processing, given the political climate. Overall, commodities remain prone to external shocks from weak demand and price fluctuations.

This highlights the importance of climbing the value chain. Taiwan’s indispensable role in producing advanced chips has made other countries invest in its security. Indonesia is leveraging its enormous nickel reserves to be an EV battery production powerhouse. However, in the Philippines, the bandwidth expended on the South China Sea leaves little room to focus on the burgeoning economic and technology game.

This stands in stark contrast with the Philippines’ neighbours who have plans and the grit to carry them out. Such competition should shape a more nuanced outlook on maritime tensions.

BYD is expected to follow the lead of Chinese consortium SAIC-GM-Wuling to produce EVs in Indonesia. BYD also has a factory in Vietnam that makes electronic devices and parts. Chinese carmakers SAIC and BYD are joining Great Wall Motor to manufacture EVs in Thailand as the country becomes major hub serving the region’s bustling market.
Workers assemble electric cars at a VinFast factory in Hai Phong, Vietnam on September 29, 2023. Photo: AP

Vietnam’s VinFast has entered into strategic partnerships with Chinese battery makers CATL and Gotion to improve its own EVs. Last year, it was announced that Chinese carmaker Geely is set to invest $10 billion in Proton to produce EVs in Malaysia.

Chinese solar module makers have been moving to Vietnam, Thailand and Malaysia, bypassing US sanctions and helping boost sustainable energy transitions in these fast-developing countries. Laos, riding on the back of Chinese-built dams, is becoming the battery of Southeast Asia, supplying hydroelectric power to Thailand, Vietnam, Cambodia and Singapore.

China’s unsettling behaviour in the South China Sea does not invite approval. But neither does the Philippines’ gung-ho line. Subtlety does not equate to acquiescence. Noise does not necessarily translate into productive outcomes.

Unfettered clatter may even raise the stakes for accidents and stymie much-needed investment. Beijing’s transformative economic role in the region should temper sharp views towards it, shaping more delicate approaches to handling stubborn disputes.

Lucio Blanco Pitlo III is a research fellow at the Asia-Pacific Pathways to Progress Foundation

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