With guns out in South China Sea row with China, Philippines eyes 'robust, stable' trade ties

Despite recent tensions between China and the Philippines, with the two sides increasingly squaring off over sovereignty claims in the South China Sea, diplomats are hoping to stem the tide of declining trade.

The Southeast Asian country will continue exploring the Chinese market's interest in tropical agricultural products - including coconuts and highly sought-after durians - and wants to become more attractive to investors in sectors that China has seen come under mounting pressure from Western countries, according to a pair of Philippine diplomats based in China.

And they said these areas could include renewable energy, green metals manufacturing, agribusiness and food process, as well as electric vehicles and lithium batteries that have faced scrutiny from Western countries.

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"The Philippines is committed to encouraging stable relations and close communication with regard to any issues related to bilateral trade and investments," Emmanuel Ang, commercial counsellor of the Philippine embassy in China, told the Post by email.

"We anticipate that our trade relationship with our largest trading partner will remain robust, stable and steadily growing in the coming years."

The comments came as bilateral relations recently took another hit from Beijing's fresh allegations in the territorial face-off at sea - contending that troops stationed on a grounded Philippine warship on a disputed reef in the South China Sea pointed guns at a Chinese coastguard patrol last month.

In 2023, China was the Philippines' top importer and second-largest export destination after the United States, with a 23.3 per cent share of imports and 14.8 per cent share of exports, respectively, according to the Philippine Statistics Authority.

In the first four months of this year, the value of trade between China and the Philippines stood at US$22.46 billion, marking a 10.31 per cent year-on-year decline, according to Chinese customs data. In contrast, China's trade value with the 10-member Association of Southeast Asian Nations (Asean) during the same period saw a 4.8 per cent year-on-year increase to US$$306.9 billion.

The shift has aroused speculation among analysts that the South China Sea dispute could be spilling over into trade relations.

When meeting in Beijing in January 2023, Philippine and Chinese leaders agreed on four priority areas of cooperation, including infrastructure, agriculture, energy and people-to-people exchanges. At the time, Philippine President Ferdinand Marcos Jnr said the hope was to move relations with China into "higher gear", while seeking "to settle problems in a friendly manner".

However, rows have since escalated, with both sides increasingly confronting each other in disputed waters.

And in February, Philippine Secretary of Foreign Affairs Enrique Manalo said Manila needed to find new trade opportunities to build economic resilience amid fears of trade sanctions from China.

Ang, with the Philippine embassy, attributed a 16 per cent year-on-year fall in last year's bilateral trade value to an overall slowdown of trade.

"China's trade with the world, and also with Asean as a whole, also experienced declines," he said, citing a weak external environment and downward trend of goods prices. Also, "China's domestic consumption has yet to rebound to the pre-pandemic level".

Nonetheless, Ang foresees burgeoning business opportunities as Philippine durians were granted market access to China starting last year, with traders "excited to supply to this new market" estimated to be worth around US$6 billion.

"We also hope to increase exports of other agricultural products such as coconut products and marine products," Ang said. "We also wish to increase the penetration rate of Philippine products in the Chinese e-commerce space, especially [food] products from Philippine [small and medium-sized enterprises]."

In terms of Chinese investment, he said: "We are encouraging them and helping with B2B, especially in the currently popular areas of renewable energy, renewable energy equipment manufacturing, iron and steel processing, green metals processing, electric vehicle- and battery-related businesses, agribusiness and food processing, and manufacturing."

To mitigate any concerns out of the private sector, Ang said the Philippine embassy has increased efforts to organise and participate in various trade events, including the China-Asean Expo and the China International Import Expo, to showcase how bilateral trade and investments are developing healthily.

Glenn Penaranda, commercial counsellor of the Philippine consulate general in Shanghai, said Philippine companies are continuing to pursue opportunities in China's vast market, and such efforts have been underscored by Beijing's charm offensive to lure back foreign investors after the pandemic.

"We are currently working with several companies, and we are optimistic that collaboration in pursuing opportunities in our respective markets and in third markets will drive continued productive engagements," he said via email.

Penaranda also spoke to how Philippine companies are seeking partnerships with Chinese companies in areas including green metals, renewable energy, real estate infrastructure and related equipment.

"There are many areas where China and the Philippines can complement each other in their economic and trade relations, which Manila's foreign policy needs to take into account," said Victor Gao, vice-president of the Beijing-based think tank Centre for China and Globalisation.

The Philippines is China's 24th-largest trading partner, with annual bilateral trade of US$71.9 billion, behind France and ahead of Italy, Chile and Switzerland, according to Chinese custom data. China imports considerable quantities of Philippine pineapples, bananas, nickel ore and a type of coal called lignite.

Gao said that political frictions have already affected bilateral economic cooperation, with fewer state-owned enterprises investing in the Southeast Asian nation and numerous large-scale Chinese infrastructure projects in the country suspended since Marcos Jnr took office in June 2022.

"China does not depend solely on the Philippines for specific imports, as it has other trade options available," Gao said. "But it is more difficult for Manila to find more desirable trade alternatives."

According to Manila's statistics agency, 60.83 per cent of the Philippines' iron and steel was imported from China last year, compared with 48.34 per cent in 2018.

Eduardo Araral, an associate professor of public policy at the National University of Singapore, said nickel ore prices in the Philippines have dropped because "demand in China is slowing down", and that competition from other Southeast Asian countries could be affecting fruit shipments to China.

"If there's a decline ... Vietnamese suppliers have stepped up," he said. "The supply from Vietnam has gone up, probably."

And Jonathan Ravelas, managing director of the Manila-based consultancy eManagement for Business and Marketing Services, said Chinese interest in Philippine fruits may have declined due to perceptions over "product quality" - stemming from either real issues or complaints arising from political disagreements.

At the height of bilateral tensions between the two countries during the Scarborough Shoal stand-off in 2012, Beijing imposed tighter controls and banned imports of bananas from the Philippines, alleging that they had mealybugs.

The shoal, known in China as Huangyan Island, is located within the Philippines' 200-nautical-mile exclusive economic zone, but is claimed by China. It is one of several islets that the two countries dispute.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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