A multifaceted long view of China

my Trade Tripper column in the 10-11 September 2016 issue of BusinessWorld:

Disappointing, of course, was the previous administration’s act of arbitral initiation against China but not bothering to develop a coordinated diplomatic, media, political, and legal strategy in case of victory. Then and now, even without the benefit of hindsight, the case was a forgone conclusion considering the inherent strength of the Philippines’ legal position, an outcome all the more certain once the jurisdictional hurdles were overcome.

Even assuming a follow-through strategy was indeed formulated, since it was not presented to the Filipino people’s evaluation (or at least their elected representatives) then it just doesn’t exist.

There was effectively no preparation done beyond the short-term gratification of seeing China beaten. Realizing this, commentary following the victory was diverted to pointing out that the rule of law was upheld and of the ruling’s long-term significance to international law, whatever that means.

In the meantime, while the legality of the Philippine claim was indeed solidified (as if it needed more solidifying), China’s belligerent construction in the disputed islands remained unabated, reinforcing their possession of those areas.

At most, wishful thinking focused on the strategy (if one can call it that) of “name and shame”; or the hope that other countries would file similar arbitral cases; or (as a variation of the first two) that the ruling would soften China’s will, with ensuing popular support for the Philippines rendering China pliant.

Unfortunately, those desired scenarios are still searching for clear footing: both the Philippines and China (depending on which source one reads) substantially having equal quality of support.

But for the most significant area for the Philippines, South-east Asia, the level of support unfortunately remains ambiguous.

One reason is China’s continuing economic importance. In China’s Economic Ties with ASEAN (Association of Southeast Asian Nations) : A Country-by-Country Analysis (prepared by the staff of the US-China Economic and Security Review Commission, March 2015), the Philippines’ erstwhile adversary “consistently appears among the top five trade partners for ASEAN members.”

And China as a source of economic opportunity apparently seems far from being tapped out: “although its outbound direct investment has been rising rapidly, China is still marginal to ASEAN’s overall FDI (Foreign Direct Investment) receipts.” Still, “even allowing for the possibility that MOFCOM [Ministry of Commerce] may be undercounting actual flows (for example, by not factoring in investment originating in Hong Kong), the fact remains China is not yet a major investor in ASEAN.”

What is even more interesting is this: “the degree of dependence on China as a source of exports, imports, or both varies. Where wealthier ASEAN countries have a diverse set of trading partners, poorer ASEAN countries depend heavily on China, especially as a source of imports. Vietnam’s share of Chinese export and import flows with ASEAN has increased substantially, while Singapore’s share has dropped.”

Now that is worth pondering upon as it jives with other research seemingly revealing of Chinese thinking regarding foreign relationships and the response of other countries: “previous studies confirmed that only the rich natural resources and the weak institutions countries attracted China’s OFDI (Outward Foreign Direct Investment). However, we found out that, in recent years, not only weak institutions but also good institutions with rich natural resources countries attracted China’s OFDI.” (Chinese Outward Foreign Direct Investment: Is ASEAN a New Destination?, Nguyen Thi Tuong Anh and Doan Quang Hung, May 2016, SECO/WTI Academic Cooperation Project Working Paper Series, June 2016)

The Philippines generally hasn’t felt this down to the psychological because of the continuing level of comfort we have regarding our concentrated trade with Japan and the US, and considering that China’s FDI to the Philippines remains relatively conservative.

It’s also gratifying for those taking the more hawkish position that though “Philippine balance of trade with China deteriorated in 2013, going from a decade of surplus to a $1.6-billion deficit,” standing in stark contrast to “the country’s surplus with the Asia region as a whole,” such has not been apparently disastrous for the Philippines.

Nevertheless, even though the aforementioned 2015 paper acknowledges that the Philippines “is more important to China in the political than the economic realm” and that while “Chinese FDI in the Philippines totaled only $692 million in 2012... individual deals suggest far more investment is actually flowing into the country.” And furthermore, “the Philippines has actually made investments in mainland China. The investors include the snack food company Oishi, the San Miguel brewery, and real estate businesses like Ding Feng Real Estate Co., which specializes in mixed-use developments such as condominiums, shopping malls, and hotels.”

The key, commonsensically and strategically, now, today, at this present time, is to find common ground.

First step is to re-acknowledge that there are two decades worth of agreements that the Philippines entered into with China, covering the economic to military cooperation, which the last administration seems to have short-sightedly scrapped.

It’s also important for the two countries to tune out all nondiplomatic noise and allow each side to have the space to find a mutually beneficial solution in the future.