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What happened to the ‘sweetheart deal’ with China?

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By Perry Diaz

    What happened to the ‘sweetheart deal’ with China?

 Two years ago, President Rodrigo Duterte – freshly installed as president – went on his maiden trip to China, expecting a grand welcome.  And yes, indeed, the Chinese gave him a red carpet welcome with all the fanfare worthy of royal visitors.  For four days, he enjoyed the treatment accorded him.  Chinese President Xi Jinping welcomed him like a prodigal son who was lost in the wilderness of America’s hegemony in Asia.   

Duterte was impressed with the Chinese “miracle” that brought the country, from the “The Sick Man of Asia” to the world’s second economic power after the U.S.  Heck, he must have mused:  “If China could do it, so can we.”  He probably figured that if there’s one country that can help him make the Philippines into another economic power, it’s China, not America.

 And before he wrapped up his state visit, Duterte spoke before an audience of China’s corporate leaders.  He announced – to the whole world – his military and economic “separation” from the United States.  America has lost now. I’ve realigned myself in your ideological flow,” he told the CEOs in Beijing. “And maybe I will also go to Russia to talk to Putin and tell him that there are three of us against the world: China, Philippines and Russia. It’s the only way.” 

Sweetheart deal

Xi must have been tickled pink when he heard Duterte “divorcing” himself from a marriage with America that he believed didn’t do any good to his country.  He has been saying that China’s financial help was the key reason for his pivoting to China. In reciprocation to Duterte’s “pivot,” China was going to treat him like her new “little brother,” who’s coming home at last.   

Indeed, Duterte’s state visit to China was a resounding success.  And as a “dowry,” the Chinese offered him a “sweetheart deal.”  Duterte signed a total of 27 deals — $9 billion in “soft loans” and $15 billion worth of direct investments from Chinese firms in railway, port, roads, energy, and mining projects.  

Everything seemed to be going just fine since Duterte came back home with deals totaling $24 billion.  Now, he can proceed with his pet project, “the golden age of infrastructure” under his ambitious “Build, Build, Build” program, which would be in lock steps with Xi’s ambitious “One Belt, One Road” global initiative to connect three continents from Asia to Europe to Africa.

Where is the money?

 A year later, I read a news item, titled: “Is China withholding funds from Duterte?”  “Beijing’s pledge to deliver $24 billion in aid and investment to the Philippine leader’s government and hometown has failed to come to fruition,” the report said. What’s going on?

 Many experts and analysts had suggested that China might have been withholding the funds until the “bilateral relationship” is firmly consolidated.  And most importantly, how the two countries would resolve their territorial disputes in the West Philippine Sea (WPS). 

Okay, so that’s what China had wanted all along, huh?   It has always been exploration for oil in the waters off the coast of Palawan, particularly the mineral-rich Recto (Reed) Bank.  Think about this: The WPS has an estimated 11 billion barrels of oil, 190 trillion feet of natural gas, and 10 percent of the world’s fishing resources.  Isn’t that enough for Xi to drool?  If China takes full control of the WPS, her foreign oil imports – which accounts for 80% of her oil consumption — from the Middle East and East Africa passing through the Malacca Strait to China would be drastically reduced.  That would certainly resolve China’s “Malacca Dilemma.” 

Duterte must have realized then that Xi had taken him for a ride, professing that China was there to help his “little brother,” which reminds me when Americans used to call the Filipinos, “little brown brothers.”  So, what else is new?

 Slowly, Duterte began shifting back towards America, asking her to provide assistance in combating the threat of international terrorism in his country. Duterte’s move was subtle, but Xi is a master strategist.  He has an eye for subtleties.  Nobody in his sane mind would loan $24 billion without assurance and a guaranteed collateral.  But while “assurance” is cheap and easy to give, “collateral” is a more serious and complicated situation because it’s not for Duterte to give and he knows it.  He has to deal with the Constitution’s restrictions when it comes to sovereignty and territorial integrity.

Joint exploration

 Another year passed and only two projects were completed:  an irrigation project worth $73 million, and two bridges in Manila worth $75 million.  That’s a total of only $148 million!  What about the other $23.852 billion?

Indeed, the biggest concession that Duterte was willing to give China was a joint exploration of the WPS.  But why would he offer such a concession with nothing in return?  During his last trip to Beijing, Duterte told Xi, “We intend to drill oil there, if it’s yours, well, that’s your view, but my view is, I can drill the oil, if there is some inside the bowels of the earth because it is ours.”  Xi’s response was: “We’re friends, we don’t want to quarrel with you, we want to maintain the presence of warm relationship, but if you force the issue, we’ll go to war.”  Ooops!  That must have scared the hell out of him.  He’s been telling everybody, including the Chinese, that the Philippine military would be massacred in a war with China.  He was being defeatist; he shouldn’t have said. 

Principled pragmatism

That left Duterte with one option, which is to use what diplomats call “principled pragmatism.” It’s a strategy “designed to get maximum results from a delicate situation, without sacrificing anything,” which is done by finding common ground of interest.  The idea is to get the most from the country’s aggressor – China – without provoking her. 

There is another term for “principled pragmatism.”  It’s called “shakedown,” which is what organized crime use to extort from business owners.  Typically, a couple of mobsters would go to the place of business.  They’d accuse the business owner that he is doing business in the mob’s territory.  They would then give the owner several options:  Relinquish ownership of the business or share the profits.  If the owner agrees to share profits, the mobsters will tell the owner that he is now under the mob’s “protection.”  Which reminds me of Xi’s promise to “protect” Duterte from any plan to remove him from office.  

 It did not then come as a surprise when early this year, Duterte proposed a 60-40 split for any joint oil exploration with China.   He reasoned, “Rather than fight, what can we get?”  What he’d get is the Xi’s protection.

But we don’t have to fight and we don’t have to give up our rights to the WPS either.  I happen to believe – like many Filipinos do – that China will not go to war against us.  That’s the least she would do because she could lose the economic power she had built over the past 40 years. 

Remember also that the Philippines is protected by the U.S.-Philippines Mutual Defense Treaty (MDT).  Duterte shouldn’t wait and should begin oil exploration now.  To delay it further would only give China more time to build more bases in the WPS and deploy warplanes, missiles, and warships that are within striking distance of the entire country. The Philippines should also consult with the U.S. (her treaty ally), the ASEAN nations, the other claimants to the disputed region, and the other U.S. treaty allies – Australia, Japan, South Korea, Taiwan, and Thailand.  They all share common interest in the region.  

Maybe Duterte should change his belief that “We cannot win a war with China” and instead adapt the mantra, “No guts, no glory,” which poker players use effectively. At the end of the day, one wonders: What happened to the Philippines’ “sweetheart deal” with China?  It would have been mutually beneficial without bringing the territorial disputes in the WPS into the overall calculus.   But Duterte failed to see beyond the $24-billion loans from his “big brother”.

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