By Al Labita
Asian Time Online
MANILA - When a rogue Philippine policeman took hostage and killed eight Hong Kong tourists in August this year, relations between China and the Philippines hit a nadir. Angry pronouncements and calls for accountability from Beijing even raised the specter of a downgrade of diplomatic ties.
Two months later, bilateral relations have quietly got back on a warming trend, with both sides apparently agreeing that political, strategic and economic initiatives underway before the crisis should not be derailed by an isolated incident.
From questing a mutually agreed code of conduct in the contested Spratly islands, to expanding trade and investment links emerging with the new global economic order, Beijing and Manila are these days clearly more allies than adversaries.
"We have every reason to believe that this single incident will never move our focus from our common interests," said Liu Jianchao, the China's top envoy in Manila, during the recent 61st anniversary celebration of China-Philippines diplomatic ties.
Indeed, China has bid to turn short-term crisis into long-term opportunity. Noting how poorly trained and equipped police bungled the hostage situation, Liu recently suggested the creation of a joint Chinese-Philippine police training program in anti-crime operations.
The offer, made in clear competition with Washington's ongoing assistance programs with the Philippine police, came soon after US ambassador Harry Thomas turned over US$150,000 worth of anti-crime equipment to police following the hostage-taking incident, which took place near the US Embassy in Manila.
The donation formed part of the US State Department's $1.4 million anti-terrorism assistance program to the Philippines, which includes police training. During president Gloria Macapagal-Arroyo's tenure, Washington took issue with China's donation of $23.2 million worth of engineering equipment for the Philippine military, complaining it lacked inter-operability with US-provided wares.
Under newly elected President Benigno Aquino, like other regional countries, Manila is looking to leverage and expand dynamic trade and investment ties with China, now the world's second largest economy after the US. In this year's second quarter, China's gross domestic product (GDP) was estimated at US$1.3 trillion, slightly higher than traditional regional powerhouse Japan on a nominal dollar basis.
Aquino, himself of mixed Chinese descent, has indicated stronger bilateral ties to China will help the Philippines maximize the potential economic benefits of the recently minted China-Association of Southeast Nations (ASEAN) free trade agreement, which aims to create a combined market of 1.7 billion consumers.
Some 7,000 commodities will enjoy zero tariff treatment by 2015 under the liberalizing deal. Given its strong export potential in electronics, minerals and agricultural products, the Philippines will enjoy comparative advantages that promise to expand its market share across a wide range of products.
China and ASEAN's six founding states - Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand - eliminated barriers to investment and trade on 90% of products in January. Less developed ASEAN members Cambodia, Laos, Myanmar and Vietnam will have until 2015 to follow suit.
Though slowed by the 2008-09 global recession, Manila-Beijing bilateral trade has recovered, swelling by a hefty 52.6% in this year's first half. As in recent years, the trade balance has tilted in favor of the Philippines with exports amounting to $7.5 billion and imports from China tallying to $5.6 billion. China is the Philippines' third-largest trading partner after Japan and the US.
Ethnic investments
On the other hand, Filipino businessmen led by ethnic Chinese taipans Henry Sy, Lucio Tan and John Gokongwei are pouring capital into China in bids to cash in on its huge and fast expanding consumer market. As of August, Filipinos had invested $2.7 billion in China, the bulk of which is accounted for by the three tycoons who all trace their family origins to Amoy, now China's Fujian province.
Retail king Sy, the Philippines' richest person with a net worth estimated by Forbes magazine of $3.8 billion in 2009, has already built four shopping malls in China and will have established four more by 2013 for a total investment of $535 million.
Tan, the Philippines' erstwhile beer and cigarette mogul, is putting his China-destined investments into hotels and financial services, including commercial banking. Gokongwei, for his part, is engaged in food manufacturing ventures.
Ayala Land, a unit of homegrown Philippine conglomerate Ayala Corp, has also embarked on expansion forays into mainland China, including a $200 million venture to develop a 9.78-hectare residential complex in Tianjin province in partnership with Chinese and Singaporean investors.
Chinese investments in the Philippines have recently slowed, amounting to only $202 million in this year's first eight months, according to Wu Zhengping, the Chinese embassy's commercial and economic attach้.
Chinese firms have shied from new ventures amid allegations that some of them paid bribes to corrupt Philippine officials to clinch lucrative government deals. For instance, China's state-linked ZTE Corp was accused in 2007 of paying bribes to Juan Miguel Arroyo, then president Arroyo's husband, in exchange for a $325 million project to build broadband Internet services for the government.
Miguel Arroyo denied the allegations and national Ombudsman cleared him for lack of evidence. However, the Arroyos now face investigations by the Truth Commission formed by Aquino to look into past alleged corruption-tainted deals, including the ZTE scandal.
Prosecutors have said they intend to invite ZTE officials who signed the contract to testify, a move which could impact on broad Manila-Beijing commercial relations. Some analysts believe the case could drive away prospective Chinese investors in other projects on fears of getting trapped in legal woes.
Others believe China's investments will surge under Aquino's self-proclaimed reformist administration, particularly in energy, agriculture, tourism and infrastructure projects under his government's new public-private partnership scheme.
"Infrastructure is an area that the Philippines needs and where China excels," Chinese ambassador Liu told a joint meeting of the influential Makati Business Club and Management Association of the Philippines earlier this month. "We are willing to share our expertise in infrastructure and contribute to improving the country's business environment."
China's state-run Export-Import Bank is already financing a $1.8 billion railway project that will link Metro Manila to the country's northern Luzon region, passing along the way through former US military bases at Subic and Clark, now state-run special economic zones. China is also known to be keen to bankroll the proposed rehabilitation of another railway connecting the metropolis to its southern provinces.
Mining is another area where Chinese interests are expected to make substantial new investments to help power its voracious appetite for coal and other mineral resources. The state-owned China Metallurgical Group Corp recently expressed strong interest in pursuing new Philippines-based investment ventures in mining.
Two Chinese companies - Polyard Petroleum International Co Ltd and China International Mining and Petroleum Corp - are now drilling for oil in areas north and south of Manila believed to potentially contain millions of barrels of oil in partnership with Australian firms.
The recent hostage fiasco may have sparked public displays of diplomatic finger-wagging, but for Chinese and Philippine investors bilateral business is still good.
Copyright 2010 Asia Times Online (Holdings) Ltd. All rights reserved
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