GLOBAL politics is an ever changing landscape that has direct impacts on the lives of people across the globe. The biggest development of global politics in recent decades has been the growing influence of China on the global political economy. The launch of the Belt and Road initiative in 2013 has enabled China to spread its influence faster.
The Belt and Road initiative is the largest infrastructure development program we’ve seen in a long time. Its goal is to achieve higher levels of cooperation and connectivity in Eurasia in terms of trade. This is done through the Chinese provision of loans to countries to develop transportation infrastructure and ports, which are meant to improve the capacity for trade.
There are two primary components to this program: the Silk Road Economic Belt and the Maritime Silk Road. The latter is likely to have a greater impact on the Philippine political economy. These projects have been met with mixed attitudes. Some value the loans being provided, while others are wary of the risk of being bound by loans in the long term. While this program presents many opportunities, it comes with a great degree of risk as well.
The reason the Philippines is important to the Maritime Silk Road is that it is a maritime meeting point for the West, Africa, mainland Asia, and Australia. It is a crucial checkpoint that most maritime trade routes pass through.
As an important component of the Maritime Silk Road, the Philippines has been pledged $24 billion worth of deals from China. This is in the form of loans for infrastructure projects as well as company-to-company deals, the details of which are still unclear.
As of now, what has been disclosed is the likely interest rates that will be given and the general projects that will be funded. The projects include numerous airports, bridges, and irrigation systems, located across the country, including Davao, Metro Manila, Bohol and Cebu.
While these projects seem attractive, the interest rates are a major cause for concern. The loans will come at an interest rate of two to three percent. These rates are far more expensive than the loans the Philippines has acquired from Japan in the past, which were set at 0.25 to 0.75 percent interest. This means we are getting loans that are 12 times the price that we could have gotten elsewhere. Although, an argument can be made that Japanese loans come with stricter requirements and are processed far slower.
While this is a reasonable concern, the stricter requirements and processing are a consequence of Japan ensuring that actors loaned have a capacity to pay back. This means that Chinese loans to the Philippines would be more difficult to pay back, more expensive, and more prone to relapse to a debt cycle. While the sheer amount of loans being provided may seem attractive, the loans ought to be approached with caution.
Moreover, the lack of details as regards the loan conditions is alarming. This is especially true given China’s track record in providing loans.
The Chinese Government has had a history of using debt to leverage for control over crucial ports or resources in other countries. This was the case in instances like China gaining control over container berths in the Colombo Port in Sri Lanka. Should the loans be too difficult to repay, this could result in Chinese control over airports, bridges or ports.
This is important especially to the Philippine people. Our laws themselves indicate just how important it is to us that the Philippine people maintain control over the land, businesses, and media in the Philippines. Finally, becoming beholden to Chinese loans would weaken our position to push for the enforcement of the UNCLOS (United Nations Convention on the Law of the Sea) arbitration on the territorial disputes.
This is not to say we should not take any loans from the Chinese Government. They are the most eager investors in infrastructure in Asia. Declining any form of cooperation means we are likely to lose out on trade and be left behind in terms of infrastructure development. What we need to do is approach these loans with caution. It is not wrong to work with the Chinese Government, but it would be naïve to approach it without vigilance. JLN