International development research lab AidData has reported that although the economic relationship between the Philippines and China is generally positive, significant risks remain particularly concerning debt and financing terms.
In its report, AidData examined Beijing’s engagement with the Philippines over the past two decades, explaining that severing economic ties with China would not be in the country’s “best interest.”
AidData director of policy analysis Samantha Custer points out: “Engaging with China and other major economies fosters competition, ultimately leading to better terms and agreements for the Philippines. This competitive engagement strategy helps ensure that the country can negotiate more favorable deals from various international partners.”
“When you can have more people around the table. You should be working with the US. You should be working with China. You should be working with Australia… I would say the smart play is probably the hedging one, especially for you, but be smart about the terms of these deals,” Custer said in a panel in Manila.
She highlighted that under the leadership of President Ferdinand Marcos Jr., the Philippines has adopted a strategic hedging approach to manage its economic relations. The Marcos administration has prioritized diversification, seeking to balance economic engagements across multiple countries rather than relying heavily on any single partner.
According to Custer, this approach enhances the country’s negotiating power and reduces dependency on any one nation. By diversifying its economic ties, the Philippines seeks to leverage competitive pressures to obtain better agreements and terms.
Despite the advantages, the report mentions several challenges associated with the Philippines’ economic relationship with China. One major concern is the potential “debt trap” posed by Chinese financing.
It noted that Chinese loans often come with higher interest rates and less generous conditions, leading to significant debt burdens for recipient countries.
“Beijing bankrolled 233 projects in the Philippines between 2000 and 2022, worth roughly US$9.1 billion. 91 percent of this financing was debt (high-interest loans) instead of aid. By 2019, for every US$1 of aid the PRC gave the Philippines, it issued US$211 of debt,” the report read.
Furthermore, Custer explained that 43 percent of the firms involved in implementing the projects funded by China have been sanctioned by reputable institutions such as the World Bank and the Asian Development Bank for questionable business practices. This raised concerns about the reliability of these firms and the associated risks of the projects.
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