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Caveat on deals with China

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Caveat on deals with China

Until the Duterte administration came to power in 2016, China was not considered a major player in the country’s economic roadmap.

For the past administrations, international trade and commerce revolved around the United States, Japan, the Asean countries and the European Union. The country’s dispute with China over the West Philippine Sea made the latter an unwanted neighbor.

Not anymore. Today, in terms of economic trade and financial engagement, China is on the top of the administration’s preferential list. President Duterte looks at the Middle Kingdom as a principal source of funds for national development.

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The President has boasted of the $24 billion worth of investments and loans that his trip to China last year generated. The investments will primarily go to the construction of ports, railways, roads and other infrastructure projects.

In a recent lecture, an Indian scholar and former United Nations diplomat, Hardeep Singh Puri, warned against the adverse effects of the exuberance of Asean countries, especially, the Philippines, in entering into these financial arrangements with China.

He said borrowers should be cautious about massive investment deals with China as they may end paying more money than they bargained for.

To illustrate his point, he gave as examples the airports and seaports that China built, on credit, in Sri Lanka and Laos that turned out to be white elephants. The projects did not bring in the expected returns because of poor planning and erroneous financial forecasts.

Payments for the credit facilities that China extended were supposed to come from the revenues that the projects were envisioned to generate, but the expectations did not materialize. To avoid defaulting on the loans, the two countries were forced to convert them to equity and, as a result, China wound up as the operator and owner of those projects.

To avoid a repeat of these incidents, Puri advised that investments from China should be carefully evaluated or vetted to make sure they are used for viable projects and would not put the borrower country in hock to China.

Puri’s observations and advice are food for thought for people who think China’s new found interest in investing and lending to the Philippines is like manna from heaven—or reason enough to kiss the feet of the Chinese officials and businessmen who will visit to finalize those transactions.

Bear in mind there is no such thing as free lunch in international economic relations. Countries lend money to their economically challenged counterpart to get something in return, either in the form of amortization payments or brownie points they can use in the future in case they need something from the debtor country.

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Let’s not delude ourselves into believing that China is making the $24-billion investments and loans out of the goodness of its heart, or because it loves the Filipinos.

It’s doing so because it presents an opportunity to wean the Philippines away from the US, expand its presence in our domestic market, weaken our resolve to push our territorial claims in our exclusive economic zone, and, most importantly, to earn profits.

The money that China invests or lends to the Philippines for infrastructure projects generates economic activity and employment in China and, at the same time, brings in funds from the principal and interest payments for the credit extended.

If China’s activities in Sri Lanka and Laos are the indicia of how it would handle its investments in the Philippines’ infrastructure projects, all the required equipment and building materials, including the manpower, would come from China.

At best, the goods that would be procured locally would be transportation fuel and the staff’s daily food requirements; in other words, the crumbs.

China’s offer to extend financial facilities to the country is welcome. We need them. Properly and judiciously used, they can help in our national development.

But this is no reason for us to ignore the lesson behind the saying, “beware of Greeks bearing gifts.”

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TAGS: Business, China
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