Understanding the Economic Diplomacy between the Philippines and China

1.IntroductionAs the Philippines-China maritime tension escalated, various sectors flagged concerns on possible economic coercion by China. The constraining of trade, blacklisting of Philippine companies in investment bids, negative tourist advisories are just a few fears. On the other hand, questions have been raised on whether the Philippines will diversify away from China or resort to a nationalist boycott. While exploring the Philippines' vulnerability to possible sanctions from China and reactions is a burning question (Clemente, 2014), this research note seeks to shed light on the pattern of bilateral economic diplomacy to contextualize within this picture, China's actions towards the Philippines. Government planners may use the research to reconsider the Philippines' economic strategies in the context of national security and better understand China's economic statecraft.Using official primary documents on agreements such as treaties and communiques, a meticulous content analysis in processing qualitative content was applied. Secondary sources such as reports, news and commentaries were used as supplementary material in ascertaining information where access to primary content was limited. Agreements that related to economic diplomacy were then coded according to a classificatory instrument that allowed the framing of interests in an economic diplomacy spectrum where commercial gain and stability are binary extremes.The next section presents data on the bilateral economic engagement in trade, investment and official development assistance. The third section analyses patterns in the bilateral agreements. The fourth section provides a brief word on new questions pertaining to China's recent grand initiatives. The paper ends with closing remarks.2. Trade, Investment and Aid: What the Numbers Confess2.1. TradeTrade with China proceeded at a glacial pace since 1975, but it leaped forward sharply in the 21st century. Except for the drastic dip associated with the global financial crisis, the relative uptick in trade is a fairly recent phenomenon. Figure 1 shows that both exports to and imports from China likewise started surging in the beginning of the 21st century except for the large dip in exports owing to the global financial crisis. It is noteworthy that when advanced economies in the West took a hit, this meant that China's major export markets were compromised. Philippine exports posted a sizeable drop as Philippine exports were linked to China's exports to the West (Tong and Chong, 2010). The pattern of imports relative to exports shows that China has increasingly become important to the Philippines, owing to the fact that buyers of Philippine commodities are more diversified. While Philippine exports to China are more volatile, imports from China have been more stable. The balance of trade between the Philippines and China posted a deficit from 1975-2001 except for 1977. During the years 2002-2011, the balance of trade yielded a surplus except for the years 2004 and 2009. Curiously, the deficits in 2012-2015 raised concerns that they were caused by the maritime tension. The figures for 2013-2015 indicate the three highest deficits in the economic relationship.However, China's trade with the Philippines constitutes a small proportion of its total trade with the Association of Southeast Asian Nations (ASEAN) and an even smaller proportion of its trade with the world. Zhao (2013) contends that the Philippines did not take a proactive stance in crafting Free Trade Agreements (FTAs) with China and other economies. This view is consistent with the observation that the Philippines merely adheres to multilateral trade agreements rather than paves its own inroads. It is therefore not a surprise that relative to other nations in ASEAN, bilateral trade and investment with China have proceeded slowly. The value of China's imports from the Philippines is the least among the economies in the ASEAN 5 (Indonesia, Malaysia, Philippines, Singapore and Thailand) but it happens to be greater than what it imports from Vietnam (Figure 2). …