The Philippines is pressing the US and its allies to boost trade and investment in the country as escalating tensions between Manila and Beijing spark fears of a wider economic fallout.
Economic security should become central to the strategic relationships that the Philippines is building with its allies, said Alfredo Pascual, the Philippines’ trade and industry secretary, in an interview with the Financial Times.
“It is significant because if we are economically secure, we could also afford to strengthen our defence capabilities. If you are not economically secure, you cannot divert or utilise resources for defence,” he told the Financial Times. “We need to have credibility in our defence posture,” he said.
The disputed South China Sea has become a major flashpoint between the Philippines and China, its biggest trading partner. Chinese coast guard vessels have in recent months fired water cannons at Philippine boats and injured Filipinos, ratcheting up tensions.
The Philippines, which has for more than a decade lagged behind its south-east Asian counterparts in attracting foreign investment, is seeking funds to bolster its infrastructure and manufacturing capabilities, and develop critical minerals and clean energy industries. While China has not been a major source of foreign direct investment, its financial firepower is considerable and, as President Ferdinand Marcos Jr looks to attract more foreign funds, his administration is calling on allies to step in.
A diplomat with a Philippine ally said building economic resilience would ensure the country did not grow dependent on China. “If the economy is weak, you may have to compromise. Security and economy are intertwined.”
Under Marcos, the Philippines has taken an assertive stance in the South China Sea to counter a coercive Beijing. It has vowed to develop military outposts in the contested waters and has strengthened defence partnerships with allies. Manila has also taken to publicising Chinese intrusion into waters that it claims as its own, in a turnaround from the previous administration of Rodrigo Duterte, who played down Beijing’s maritime activity and built closer ties with China.
While the US has stepped up military engagement with the Philippines, its oldest ally in Asia, Manila wants more on the economic front amid the rising tensions. “We are looking at it also in the context of our vulnerability to economic coercion by China,” said a senior Philippine government official.
“You are saying we are right in the battleground and we are at the frontline, so you need to walk the talk in terms of economics,” he said, referring to the US.
Even though the US is the biggest source of FDI in the region, with net investment of $36.9bn among Asean countries in 2022, its absence in multilateral trade deals and what analysts say is a disproportionate focus on security have undermined its credibility as an economic partner — not just in the Philippines but also in south-east Asia. The Philippines has stepped up calls for a free trade agreement with the US, though Manila notes that the administration of President Joe Biden is reluctant to pursue this in an election year.
“The US is an important security partner for many countries in the region, but this focus on security can make its bilateral relationships look unbalanced and aggressive,” said Kevin Chen, an associate research fellow at the S. Rajaratnam School of International Studies (RSIS) in Singapore.
“Meeting the specific economic development needs of its partners would also show the value that Washington places on its relationships, rather than just catering to its own strategic needs.”
An April survey by the Iseas-Yusof Ishak Institute showed that China had edged out the US to become the preferred alignment of choice in south-east Asia among the two superpowers, compared with last year.
“China remains undisputed as the most influential economic power in the region and also continues to be seen as the most influential political and strategic power, outpacing the US significantly in both domains,” the survey noted.
The US pulled out of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership during Donald Trump’s presidency and is not part of the Regional Comprehensive Economic Partnership, a China-led trade pact.
Instead, Washington is pursuing the Indo-Pacific Economic Framework for Prosperity, a Biden initiative for economic engagement with the region. Through the G7, the US is also offering the Partnership for Global Infrastructure and Investment (PGII) to developing nations as an alternative to China’s Belt and Road Initiative.
The US, along with Japan, is backing the development of the Luzon economic corridor in the Philippines as the first major infrastructure project. At the recent Indo-Pacific Business Forum in Manila, the US promised to mobilise public and private funding for the corridor, which involves rail, ports, semiconductor factories and clean energy projects.
“We hope that this becomes a model that we can utilise in the region,” Helaina Matza, the acting special co-ordinator for the PGII, told the Financial Times.
“It’s not too late” for the US to counter Chinese dominance in the region, she said. “It’s going to take time.”
Chen of the RSIS said the Luzon corridor was not enough to address questions over the US’s commitment to the region. “Convincing south-east Asian countries that Uncle Sam is still a reliable economic partner will be an uphill task.”
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