Marcos hat in hand in US while keeping China close

By Richard Javad Heydarian

This week, President Ferdinand “Bongbong” Marcos Jr became the first Filipino leader to visit the United States in more than half a decade. His Beijing-friendly predecessor, Rodrigo Duterte, refused to visit even a single Western capital throughout his six years in office.

The last time a Filipino president visited the US was in 2015, when then-president Benigno Aquino III held a bilateral meeting with President Barack Obama and toured major American cities to meet businessmen and the Filipino-American community.

Though ostensibly visiting New York for his upcoming speech at the United Nations General Assembly, the new Filipino leader wasted no time during his weeklong trip to woo American investors in a bid to boost his country’s post-pandemic economic recovery.

Before ringing the closing bell at the New York Stock Exchange (NYSE), Marcos Jr presented his country as “one of the most promising emerging markets” and hailed robust Philippine-US economic relations throughout the decades.

Large-scale investments from US companies are crucial to the new Filipino president’s hopes of reviving his country’s manufacturing sector and boosting emerging industries such as fintech.

But far from repivoting to traditional partners such as the US at the expense of China, Marcos Jr is committed to attracting top-quality investments from diverse sources. Given lingering uncertainties over Washington’s trade policy, including the newly-launched Indo-Pacific Economic Framework (IPEF),  the Filipino president is also counting on large-scale trade and investment with China.

To this end, the Philippines and China recently relaunched high-stakes negotiations over multi-billion-dollar investments in public infrastructure projects. While the US will continue to be a top source of private investment, China could soon emerge as a major source of state-backed investments in the Philippines.

Economics first agenda

Fresh into office, Marcos Jr signaled the centrality of economics in his domestic and foreign policy agendas. At home, he systematically shunned controversial and divisive issues such as constitutional change and corruption in favor of macroeconomic stability, food security and infrastructure development.

On the foreign policy front, he made it clear that expansion of trade and investment ties would be central to his country’s relations with major powers, especially the US and China.

“Trade, not aid – we always go back to that,” Marcos Jr declared during his first press conference after securing a majority of votes in this year’s presidential elections.

Welcoming the Philippines’ inclusion in the US-led IPEF, Marcos Jr made it clear: “We have to open as much of the economy as we can to trade, and that’s where this kind of treaty will come in.”

For the new Filipino president, rising public debt during the Covid pandemic means that investment-led expenditures are crucial “to revitalize and retool the economy.”

Throughout the past two decades, American companies have been crucial to the development of vital sectors including the Business Process Outsourcing (BPO) industry, the biggest in the world, which generated almost US$30 billion last year.

During his trip to New York, Marcos Jr sought to lure much more American private investments in his country. “Over the past few decades, as the Philippines transformed into one of the most promising emerging markets, the United States has been among our steady partners,” the Filipino president said during his maiden visit to the US.

“For that, we are truly grateful. At the same time, American companies doing business in the Philippines have benefited significantly from our economic successes,” Marcos Jr added.

To entice more capital inflows, the Philippines recently relaxed restrictions on foreign investments in critical sectors, now allowing for full foreign ownership in booming telecommunications, shipping, railway, subway and air industries.

The Philippines’ expanding middle class, which has been buoyed by booming industries at home and steady remittances from overseas, also represents a major consumer market for Western companies.

Cognizant of lingering concerns over economic populism in the Philippines, as well as ballooning debt and catastrophic economics under his father’s authoritarian tenure, Marcos Jr has vowed to “remain committed to maintaining sound macroeconomic fundamentals providing a clear development roadmap.”

“Although our borrowings increased substantially during the pandemic, we continue to reduce the cost of our public debt through judicious debt management,” Marcos Jr added, touting the country’s aim to achieve “A” level credit ratings in the medium term.

Underscoring the Philippines’ economic resilience, he has expressed confidence that his country will finally achieve upper-middle-income status during his tenure.

Strongest partner

Marcos Jr’s charm offensive in New York marks a major departure from his immediate predecessor Duterte, who repeatedly threatened to end his country’s alliance with Washington in favor of warmer ties with Beijing.

There are, however, few indications that the new Filipino president is intent on decoupling from China. If anything, Marcos Jr has touted China as the Philippines’ “strongest partner”, which will be central to his efforts to “keep the stability of our economic recovery” in the post-pandemic period.

“We can only do it with our partners—and our strongest partner has always been, in that regard, our close neighbor and our good friend, the People’s Republic of China,” the new Filipino president said shortly after occupying Malacañang Palace.

Although Marcos Jr has taken a far tougher stance on the South China Sea disputes than Duterte, he has nonetheless signaled his commitment to constructively navigate “difficulties and differences” between the two sides.

Over the next six years, the Marcos administration aims to maintain infrastructure spending at already historic highs of 5-6% of gross domestic product (GDP). Out of more than 100 big-ticket infrastructure projects under his predecessor, provisionally worth almost $100 billion, only 12 have been finalized.

With public debt levels reaching a 16-year-high, the Philippine government is scrambling for foreign investments in its productive economy and public infrastructure.

While private American companies have been a steady source of investment in sectors such as BPO and manufacturing, Washington has yet to consolidate a regional trade initiative and deepen its infrastructure footprint in the region The Philippines is thus counting on Beijing-backed companies to close the infrastructure spending gap at home.

Bilateral trade with China reached $61.2 billion in 2020, making the Asian powerhouse a top trading partner for the Philippines. But China’s direct investments, which amounted to only $140 million last year, are nowhere near the combined $24 billion promised to Duterte in 2016.

According to the Philippines Statistics Authority, China’s total investments in the Southeast Asian country amounted to $3.2 billion in Duterte’s 6-year term. Frustrated by the slow pace of Chinese investments, the Marcos administration has nixed several big-ticket Chinese projects and demanded lower interest rates for state-backed loans from Beijing.

No-nonsense approach

The new leader’s no-nonsense approach seemingly caught Beijing by surprise. In response, the two sides restarted infrastructure investment negotiations to expedite Beijing-backed projects in the country.

“We had a constructive discussion about China-Philippines infrastructure cooperation, in particular railway cooperation,” said Chinese Ambassador to the Philippines Huang Xilian following conversations with Philippine transportation authorities last month.

“[I] hope that China-Philippines cooperation in infrastructure and railway would achieve more tangible fruits and bring about more benefits to the Filipino at an early date,” the Chinese top envoy added, implicitly admitting the dearth of actual investments despite large-scale Chinese pledges during the Duterte presidency.

Follow Richard Javad Heydarian on Twitter at @richeydarian

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