Why the Philippines is exiting the Belt and Road

MANILA – Philippine President Ferdinand Marcos Jr was among the 23 national leaders who attended last month’s Belt and Road Initiative (BRI) summit in Beijing, marking the 10th anniversary of the US$1 trillion globe-spanning infrastructure-building program.

At the event, Chinese President Xi Jinping announced close to $100 billion in new state policy bank financing for the initiative. In a white paper published last month, China maintained “the ultimate goal of the BRI is to help build a global community of shared future.”

But the Philippines won’t be among the recipients of China’s largesse or shared future as Marcos Jr’s administration swerves decidedly away from China’s monied but troubled program for paving its global influence.

In a major development with geopolitical implications, the Philippine Department of Transportation has announced the full termination of a series of big-ticket infrastructure projects with China in favor of Japanese and Western rivals.

According to the Philippine Senate, nearly all of China’s key investment initiatives in the Philippines are now in doubt due to both economic and political factors. The upshot is a new nadir in Philippine-China relations, a dramatic about-turn from the six years of warm engagement under the pro-Beijing Rodrigo Duterte presidency.

For the Philippines, China has largely engaged in “pledge trap” diplomacy during the Duterte administration, a cynical ploy that entailed forward-deployed concessions in the South China Sea in exchange for largely illusory investment pledges. China pledged as much as $24 billion in infrastructure projects under Duterte, nearly none of which have been delivered.

Marcos Jr’s apparent departure from the BRI is rooted in deep bilateral grievances over contested territories in the South China Sea. Most recently, the Marcos Jr administration expressed vocal outrage over China’s harassment of Philippine resupply and patrol missions on and around the Second Thomas Shoal, where Manila maintains troops on a grounded ship.

Following a recent collision between Chinese and Philippine sea vessels, US President Joe Biden made it clear that America will respond to any attack on Philippine ships, aircraft or soldiers stationed in the South China Sea as outlined under the Philippine-US Mutual Defense Treaty (MDT).

From Beijing’s perspective, however, the Marcos administration has walked back its earlier commitment to pursue a “new golden era” of bilateral relations by actively courting a stronger US military presence on its soil.

Under an expanded Enhanced Defense Cooperation Agreement (EDCA), the Pentagon is set to gain access to a whole host of military facilities close to both the South China Sea as well as Taiwan’s southern shores.

Upon closer examination, however, it’s becoming clear to many observers that the BRI is under strain amid China’s economic slowdown, property crisis and various investment debacles overseas.

From its peak in 2018, China’s overall BRI-related activities are down by some 40%, according to recent reports. This is partly due to declining financing from Beijing as well as regulatory hurdles and financial fragility in various recipient countries.

A recent research report published by Boston University found that while China’s development finance institutions provided partner nations with about $331 billion between 2013 and 2021, “many of the recipients of Chinese finance are subject to significant debt distress.”

By some accounts, China spent as much as $240 billion to bail out BRI recipient nations on the verge of bankruptcy, most dramatically in the case of Sri Lanka and increasingly in Pakistan and Laos.

Heightened China-Philippine sea tensions have coincided with a virtual collapse in bilateral investment deals. Though two-way trade between the two neighbors remains robust, although largely in Beijing’s favor, nearly all of Beijing’s infrastructure investment pledges made during the Duterte era are now in jeopardy.

Just days after a Chinese vessel collided with a Philippine resupply mission in the South China Sea, Philippine Transportation Secretary Jaime Batista announced that the Philippines is scrapping $4.9 billion worth of Chinese big-ticket infrastructure projects, involving two railway projects on the northern island of Luzon and another on Duterte’s home southern island of Mindanao.

“We have three projects that won’t be funded by the Chinese government anymore. We can’t wait forever and it seems like China isn’t that interested anymore,” Bautista told a forum organized by European investors in Manila. Instead, the Philippines is now seeking alternative “better” deals from traditional investment partners like Japan, South Korea, the US and the European Union.

The Filipino official complained about the lack of financial commitment and perceived as relatively onerous terms of Chinese-funded projects in comparison to Japan’s concessional loan programs. Japan is currently developing a multi-billion subway project in Manila and several major “connectivity” initiatives in industrialized regions of the country.

In fact, the Marcos Jr administration warned as early as last year of the potential cancellation of Chinese-backed projects due to the lack of any meaningful progress on the ground. The issue was also raised during the Philippine president’s state visit to Beijing in January, to no avail of a renewed Chinese commitment.

According to Philippine Senator Sherwin Gatchalian, as many as six big-ticket Chinese projects are now being “reconsidered” due to Chinese delays, concerns over lending terms and broader geopolitical frictions.

Chinese projects likely to face Manila’s axe include the Samal Island-Davao City Connector project; the Chico River Pump Irrigation Project; the New Centennial Water Source — Kaliwa Dam Project; the Philippine National Railways South Long Haul Project or the PNR Bicol; the Mindanao Railway Project Tagum-Davao-Digos segment; and a closed-circuit television project in several cities in Metro-Manila.

“We [in the senate] convened an oversight on [China’s] ODA [Official Development Assistance], so I know that many of the ODA-funded projects are delayed due to the implementation of the right of way and bidding,” Gatchalian said in an interview.

“China’s grace period is shorter with only five to seven years compared to Japan with five to almost 10 years, which means (with China) we would need to immediately pay and it would be more expensive. Let’s compare the economics: it is cheaper in Japan,” he said.

But as the Philippines effectively pulls out of China’s BRI, the risk of a more volatile downward spiral in bilateral ties is rising. And it remains to be seen whether Japan, the US, South Korea and Europe will actually fill the infrastructure gap China had earlier pledged to address.

Follow Richard Javad Heydarian on X at @Richeydarian