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China has become one of the Philippines’ largest bilateral infrastructure lenders, but the unstable political relationship between the two countries has caused loan commitments to fluctuate wildly, a new report says, warning that lenders’ focus could shift amid a standoff between Beijing and Manila over the South China Sea.
China has pledged a total of $9.1 billion in government-led financial assistance to the Philippines between 2000 and 2022, according to a study released Wednesday by AidData, a research institute at the College of William and Mary.
The findings show that China’s financial power plays a special role in Southeast Asia, even as Southeast Asian governments try to balance economic dependence on their neighbors with their own political and security interests. In the Philippines, one of America’s oldest Asian allies, successive administrations have vacillated between Beijing and Washington.
“Beijing is [Gloria Macapagal] Arroyo and [Rodrigo] “The Duterte administration is ambitious on its priorities, but frosty relations with President Aquino have weakened cooperation,” AidData added, referring to the country’s president from 2000 to 2022.
President Arroyo pursued closer ties with China to secure loans and investments to support growth. During her presidency from 2001 to 2010, Chinese development funding in the Philippines increased from $88 million to $931 million, according to AidData. But as bilateral relations deteriorated under Aquino, the Philippine government received less funding from Beijing during her six-year term than it received from just one infrastructure project during her last term.
But that has been a sharp reversal since Duterte took office in 2016 and sought to rekindle ties with China. Researchers found that more than two-thirds of the Chinese development money that flowed into the Philippines over the past two decades came during his six-year term.
Samantha Custer, the report’s lead author, said China was likely to significantly cut financing for large infrastructure projects in the Philippines as China’s assertive moves in the disputed South China Sea caused growing tensions with the Philippines.
Last weekend, Philippine President Ferdinand Marcos Jr. and Chinese Defense Minister Dong Jun clashed at the IISS Shangri-La Dialogue and Security Conference in Singapore. Marcos warned that any deliberate actions by the Chinese Coast Guard resulting in the deaths of Filipinos would be considered akin to an act of war, to which Dong responded that “our patience has its limits” regarding the dispute.
“What we’re seeing now is similar to what happened under the Aquino administration,” Custer said. “With Marcos being vocal and China flexing its muscles in the South China Sea, I don’t think China is going to stop all of its development funding, but it will change. When relations get tough, you get more private partners over public partners, you get more outside the capital, you get more support from political opponents.”
Consistent with China’s global development finance profile, over 90 percent of government-led financing to the Philippines is not aid (defined as grants or interest-free loans) but loans with near-market terms. This makes China the largest bilateral lender, although its overall development finance contribution is much smaller than those of Japan or the United States.
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Beijing also differs from other lenders in its continued focus on politically connected counterparts in the Philippines: “City governments and national-level government entities in economically active and politically connected areas are frequently listed as beneficiaries of Chinese-funded projects,” the report said.
One notable example is Duterte’s hometown of Davao, which has the second-highest number of Chinese-backed projects, with 85 percent of them undertaken after he took office. Chinese funds have continued to flow into Davao even after Marcos took office, a sign of Chinese lenders’ continued nurturing of relationships with the Duterte family (Duterte’s daughter is now vice president) and other local actors.
The researchers also found that 20 of the total 136 recipients were at least partially owned by companies or individuals of the Filipino-Chinese diaspora or Chinese origin. The list includes Dennis Uy, President Duterte’s largest political donor and owner of major communications, logistics and infrastructure groups such as Clark Global City Corporation, as well as several other Filipino-Chinese tycoons.
Analysts believe this is mainly due to the families’ economic power and political connections. “I don’t think there’s a strong ethnic connection; it’s more a political logic,” said Alvin Cumba, a sociologist at the University of Denver who studies relations between Chinese actors and elites in Southeast Asia. “Denis Uy was able to get certain projects because he was a donor to Duterte, and there’s a benefit-sharing in return for supporting the president.”
