China, Philippines: Leaders Sign a New Raft of Deals

4 MINS READNov 20, 2018 | 20:39 GMT
The Big Picture

Stratfor's 2018 Fourth Quarter Forecast said China's overtures to the Philippines would bear fruit in the form of progress on joint energy development. The deals signed at a recent meeting between Chinese President Xi Jinping and Philippine President Rodrigo Duterte have confirmed this analysis and strengthened the links between the two countries.

What Happened

Relations between China and the Philippines took a step forward this week during the first Chinese state visit to the island country in 13 years. On Nov. 20, Chinese President Xi Jinping and Philippine President Rodrigo Duterte signed a raft of 29 deals. Though the official announcement left details vague, the pair agreed to cooperate on oil and natural gas – something that Philippine Energy Secretary Alfonso Cusi said would help the countries access resources in the South China Sea.

The Philippines also formally signed a memorandum of understanding to cooperate on China's sprawling Belt and Road Initiative. China has long considered its infrastructure projects in the Philippines part of the initiative, but the signature signals Manila's official endorsement. In addition, Xi invited Duterte to attend the 2019 Belt and Road Forum for International Cooperation in China.

Other agreements included Chinese funding for the $365 million Kaliwa Dam and the $3.26 billion Luzon railway, as well as a formal expression of interest from China Gezhouba Group in the $2 billion industrial park at the now-defunct Clark Air Base. China also opened up its market for the Philippines to send its coconuts, frozen fruit and even English teachers. Moreover, Xi emphasized Chinese backing for Duterte's drug war and counterterrorism push, in addition to efforts to rebuild Marawi city and assist natural disaster victims.

Why It Matters

The Philippines is a key South China Sea claimant and U.S. security partner, so the fate of Manila's outreach to Beijing is important to the broader great power competition in the region. But for these overtures to foster better ties, China and the Philippines will need to forge economic and energy deals. And as these agreements take shape, potential joint exploration in the South China Sea will be critical to defining their future relationship.

Since Duterte took office in 2016, the Philippines has pursued a conciliatory approach to China by shelving contentious South China Sea issues to focus on cooperation and drawing down tensions. Manila's goals have been to free up resources to focus on thorny internal issues and to benefit from Chinese largesse to spread development to long-neglected regions. The president's predecessor pursued confrontation toward China, but Duterte signed 27 deals worth a total of $24 billion shortly after taking office during a state visit to China in 2016. But since signing the agreements, China has only delivered on a small fraction of the total it promised. By comparison, Japan delivered $1.2 billion in foreign direct investment from 2016 to 2017, while the United States has delivered $764.9 million and Taiwan $236 million.

What Happens Next

Recent polling indicates Duterte is broadly popular with the electorate, as he earned a 70 percent approval rating in third-quarter polls from Social Weather Station. However, the president must always tread carefully regarding China, particularly when controversial issues of sovereignty are involved. In these same polls, 84 percent of respondents said it was "not right" for the Philippines to tolerate China's land reclamation activities and military buildup in the South China Sea.

Though Duterte's term lasts through 2022, his ruling coalition will be tested at the polls in May 2019 when half of the Senate's seats are up for election. While domestic issues dominate Philippine politics, the country's opposition has increasingly criticized the overtures to China. Duterte will need to showcase the benefits of relations with Beijing with concrete results, although the deals should help him in that quest.

An interest in avoiding domestic pushback is probably why the the newly signed energy deal appears to have been left vague. Reports in early November suggested that two joint energy explorations were in the works that would not include the disputed Reed Bank in the South China Sea. When it comes to contentious areas, the two countries will proceed with caution, while the Philippine government will likely still need to survive a supreme court challenge – particularly on energy cooperation – to proceed. Even as their cooperation increases, domestic opposition to that cooperation will still have a role to play.

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