Risky China business deals

China seems to be playing a “good cop, bad cop” game with the Philippines amid the territorial dispute over the Panatag shoal in the West Philippine Sea.

At the height of the standoff last April, China rejected several shipments of Philippine bananas for alleged pest contamination. Then, citing security concerns, it ordered the cancelation of Chinese travel tours to the country.

These moves were clearly aimed at putting economic pressure on the Philippines to give up its claim over the contested shoal.

In the wake of this conflict, it would be reasonable to expect Chinese businessmen to defer travel to the country or stay clear from any business activities here. But the opposite is happening.

The weekly notice posted by the Department of Labor in the newspapers of the names of foreigners who have applied for and were given permits to work here shows the continued entry of Chinese nationals to work in local companies with direct links to China.

Neither has the saber-rattling deterred some prominent Chinese companies from showing interest in the government’s Public-Private Partnership Program for big-ticket projects.

The latest to do that was China Railway Construction Corp., China’s second-biggest state-owned construction company, which expressed last week its desire to join the bidding for the construction and operation of the Light Rail Transit South Extension project.

Investments

Under normal circumstances, the participation of foreign investors in local business activities, especially if they require substantial capital and sophisticated technology, is most welcome.

Through such investment, the foreign companies are sending the message to the international community that it’s OK to do business in the Philippines.

Until the late 1990s, China was hardly a blip in the Philippines’ foreign investment radar. The United States and Japan were the principal sources of foreign investments in our country.

The world has turned full circle since then. The economic liberalization of China has transformed it into an economic powerhouse, thanks to rock-bottom wages for its citizens and unhealthy working conditions.

The events of recent weeks have, however, shown that, despite its economic growth, China remains under the tight grip of the Central Committee of the Communist Party.

Although the Chinese business community has been allowed to operate freely, the political gods in Beijing still have the power to order private business to act in accordance with or to promote certain political objectives.

Only the naive will believe that the rejection of Philippine bananas and cancelation of travel tours in the wake of the territorial dispute were independent actions of the Chinese companies concerned.

Concerns

The reported interest of Chinese companies in the country’s major infrastructure projects should be looked at with extreme caution.

It is inevitable that sensitive information about our resources, facilities and geographical structure has to be disclosed to these companies if they bag the contracts for these projects.

For all the claims of transparency in government transactions, there are facts and figures about government operations that, in the name of national security, have to be kept confidential, especially from people whose interests are adverse to ours.

Not even the strictest confidentiality agreements entered into with Chinese companies can prevent those sensitive data from finding their way to the files of the Chinese military and political intelligence services.

With the Chinese government often the biggest stockholder in major Chinese companies, or at least holding a seat in the board of directors, the sharing of information is assured.

When push comes to shove, i.e., if the territorial conflict over the Panatag shoal goes out of hand or the Philippines finds itself in the middle of a nasty confrontation between US and Chinese military forces, expect the Chinese government to use that information to its advantage.

Consequences

Let us assume a Chinese company wins the contract to, say, build a railway system between Manila and Clark International Airport. Sometime during the construction period, the Chinese government decides to pursue more aggressively its claim over the Kalayaan (or Spratly) islands.

In the face of superior Chinese naval forces, the Philippine government requests assistance from the US government. Irked by the Philippines’ action, the Chinese government, under pressure from the powerful People’s Liberation Army, decides to retaliate by ordering the Chinese company to pull out its engineers and stop the construction of the railway system.

Knowing the symbiotic relationship between Chinese companies and its government, that directive will no doubt be obeyed by the company.

When that happens, the railway project will be put on hold, to the detriment of the riding public, while our government goes through the process of unwinding the award and looking for another party to complete the project.

This scenario may appear paranoid but, looking at the way the Chinese government has been acting irrationally over the Panatag shoal issue, chances of something similar happening are not farfetched.

As things stand at present, doing business with Chinese companies for big-ticket projects is fraught with risks. They’re not worth taking considering the available alternatives.

The Chinese government has made no pretensions about its being a big country that is not averse to using its size and heft to get its way with smaller countries.

It’s a warning that cannot and should not be ignored.

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