Japan, China battle for ODA influence in the Philippines

Philippine President Rodrigo Roa Duterte and China’s President Xi Jinping pose for a photo following a successful bilateral meeting at the Boao State Guesthouse on April 10. Photo by: Ace Morandante / Presidential photo

MANILA — When the Philippines’ President Rodrigo Duterte visited Beijing in 2016, he described it as the “springtime” of the country’s relationship with China. Two years later and China’s President Xi Jinping is setting foot in the Philippines in a bid to deepen their cooperation.

“I am visiting this time mainly to have in-depth discussions with President Duterte on how to elevate our all-around cooperation under new circumstances,” Xi said in an article published in local newspapers Monday, a day before his two-day state visit.

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Among the areas the Chinese president wishes to focus on is the realization of the Belt and Road Initiative, which speaks to China’s ambitious foreign and economic policy by linking Asia and Europe. The initiative is expected to open trade routes and investment opportunities for countries taking part, not least China.

The initiative is currently heavily invested in infrastructure, making it an attractive proposition for the Philippine government and prompting much speculation about the agreements that might be signed during the visit to speed up Chinese-funded infrastructure projects in the country.

Details on the funding situation are scant. The Philippine administration said it had secured as much as $9 billion in loan commitments from China during Duterte’s visit there.

“Japan and China are clearly key players in a new 'Asian Game of Thrones' playing out in the Philippines. What is important is that the Filipino people do not end up the losers.”

— Curtis Chin, former U.S. ambassador, the Asian Development Bank

Yet based on the latest data published by the National Economic and Development Authority, the Philippine government’s economic development and planning agency, only one project is currently financed with official development assistance loans from China: a $62 million irrigation project benefiting farmers in the northern provinces of Kalinga and Cagayan. In addition, two bridge projects worth $62.28 million are funded through Chinese ODA grants.

This pales in comparison with the grants and loans provided by other bilateral donors, particularly Japan — the Philippines’ top donor for many years. Japan currently has 10 grant-funded projects in the country worth $141.33 million, and 22 ODA loan-funded projects amounting to over $6 billion, according to a Devex analysis of active ODA loans and grants from NEDA. The United States and Australia have active grants to the Philippines worth $553.58 million and $422.1 million respectively, though no ODA loans.

However, the list of pipeline ODA projects pending approval or endorsement in the NEDA database reveal 19 that will be financed with Chinese ODA loans if they go ahead, worth close to $14 billion. That includes billions of dollars’ worth of infrastructure projects, particularly railways and bridges.

Source: The National Economic and Development Authority

If approved, China would find itself competing with Japan to be the Philippines’ top donor.

Cautionary tale

While this could be a helpful source of funding for the Philippines’ infrastructure development, policy experts warn the government should practice caution in relying too much on Chinese development assistance, and exercise scrutiny in agreements signed with the Asian giant.

A number of countries from the Asia-Pacific region have become warier of Chinese-funded projects. Malaysian Prime Minister Mahathir Mohamad cancelled two infrastructure projects on railway and energy during his visit to China in August, in part to curb the country’s ballooning debt, worth $250 billion, but also due to a lack of transparency around the projects.

“We do not want a situation where there is a new version of colonialism happening because poor countries are unable to compete with rich countries,” he was quoted as saying at the time.

The decision came as countries including Sri Lanka face huge debts over Chinese-funded infrastructure. In 2017, the country had to hand over control of its Hambantota Port to China for 99 years after failing to renegotiate payments for the project.

"Japan and China are clearly key players in a new 'Asian Game of Thrones' playing out in the Philippines. What is important is that the Filipino people do not end up the losers,” said Curtis Chin, former U.S. ambassador to the Asian Development Bank and inaugural Asia fellow of the Milken Institute, a nonpartisan economic think tank.

Chin acknowledged that the Belt and Road Initiative can be “bewitchingly attractive,” but China has made it clear that “all ties and roads lead to Beijing.”

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“What was striking about the recent APEC summit which ended in disarray was that it was China this time that was the spoiler. According to the Wall Street Journal, China blocked a final communique over a single proposed sentence: ‘We agreed to fight protectionism including all unfair trade practices.’ If China could not accept such a sentence, one wonders what it might consider 'unfair' ... in its dealings with the Philippines,” he cautioned.

Chin did note, however, that development assistance always comes with strings attached, whether from China, Japan, or the United States. In the end, good governance and rule of law will be key to the Philippines’ future.

“It is neither Chinese loans, nor Japanese official development assistance, or more multilateral lending, that will bring a more prosperous future to the Philippines. Instead, the Philippines must act to address the 'little BRIC’ of bureaucracy, regulation, interventionism, and corruption that holds the nation back,” he said.

About the author

  • Ravelo jennylei

    Jenny Lei Ravelo

    Jenny Lei Ravelo is a Devex Senior Reporter based in Manila. She covers global health, with a particular focus on the World Health Organization, and other development and humanitarian aid trends in Asia Pacific. Prior to Devex, she wrote for ABS-CBN, one of the largest broadcasting networks in the Philippines, and was a copy editor for various international scientific journals. She received her journalism degree from the University of Santo Tomas.