• Getting prepared for Chinese investment

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    MIKE WOOTTON

    MIKE WOOTTON

    I went to Puerto Princesa last Sunday. Clearly it was a mistake to book with Cebu Pacific, the flight from Manila to Puerto Princesa took off over three hours late and the return trip took off two hours late, chaotic. I should have known better this so often happens with Cebu Pacific. On a more positive note, I was pleased to see improvements in the security process at Terminal 3.

    Apparently there will be an increase in arrivals of Chinese tourists following the recent delegation to Beijing.
    There were about 500,000 Chinese tourist arrivals in 2015, which seems to have increased during the first 7 months of 2016 to over 400,000 [which if extended at the same rate over the year would give about 700,000]despite Chinese travel restrictions. Over the next year there is an expectation of somewhere over a million Chinese tourist arrivals, not such a big increase but then the Chinese like to throw around big numbers so it may be many more. Can the tourism infrastructure cope with it, as it seems to be badly creaking even now?
    There are also indications that there will be Chinese investment in the Philippines of $15 billion. If this represents the 40% that is allowed for foreign ownership in Philippines businesses then where is the other $22.5 billion going to come from, unless of course these deals are not subject to the standard foreign ownership restrictions? Presumably from the Philippines own capital market of $362 billion. It’s a big chunk.

    The Philippines will have difficulty absorbing $37.5 billion of new investment over say a 5-year period. There is indeed high unemployment so some of the currently unemployed would get jobs. Two million jobs the media statements say, but will the right skills be available? Certainly many of the materials and most of the equipment will not be available locally, so imports of Chinese materials and equipment will shoot up without any corresponding increase in exports and a current account deficit will grow. There will be some interesting movements in the exchange rate and inflation although I see that the BSP has just included the Chinese renminbi in its international reserves. Chinese exports will of course also shoot up and there will be jobs for their people in the Philippines.

    To imagine the Philippines with greatly improved infrastructure, thanks to the promised Chinese-led investment, is a great prospect. If all the plans come to fruition there will be chaotic times ahead with construction all over the place adding to the seemingly insatiable domestic proclivity for building apartments and shopping malls.

    I wonder how much patience the Chinese investors will have with the bureaucracy. Will they be happy to wait for years to get the necessary rights of way, the permits and approvals that take such an inordinate length of time around here? Whilst I know that they understand the necessity for permits I cannot help but wonder that if they intend to put as much money as they say into Philippines development; might they not be considering the need to take short cuts, aided and abetted by their Filipino partners [who no doubt have the ability to work their way around the system]? The private sectors of the Western economies are constrained from taking short cuts thanks to their own overarching laws against corruption, a big disadvantage for them in a Philippines setting. Difficult for them to play in the Asian way. If there were less corruption in the Philippines there would be much greater interest from Western economies in investing.

    If the Chinese say that they will provide tourists, they will do so, if they say they will provide soft loans they will do so, if they say that they will invest they will [possibly]do so. It’s the way they operate, particularly with a nation that can avoid the Middle Kingdoms’ being encircled by the “enemy.”

    So my view of the Philippines/China rapprochement summarises as “good luck to the Philippines.” To this is attached a caveat which goes something like, I just hope that the Philippines knows the implications of such a deal and is able to deal with Chinese partners in the way that they will expect. Some adjustments will be necessary and the strength of the local vested interests will certainly be enhanced.

    Mike can be contacted at mawootton@gmail.com

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