Duterte aide: Marcos administration should drop China-backed loans for rail projects

Camille Elemia
2022.07.20
Teresa, Philippines
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Duterte aide: Marcos administration should drop China-backed loans for rail projects Work continues on the Kaliwa Dam tunnel project in Teresa, a remote town in the Philippine province of Rizal, while three big-ticket railway projects have stalled over lack of Chinese funding, July 19, 2022.
Camille Elemia/BenarNews

The new government in the Philippines should seek loans from other sources after China left three heavily promoted railway projects unfunded during Rodrigo Duterte’s entire six-year term, a top planner for the former president said.

The lack of funds, announced by the Ferdinand Marcos Jr. administration last week, came as a surprise to the Filipino public, which had regularly received favorable updates from the government on projects under Duterte’s “Build, Build, Build” infrastructure blitz financed by Beijing.

Loans from China come with strings attached, warned Ernesto Pernia, Duterte’s socioeconomic planning secretary, adding that senior Chinese officials always close deals with a mindset of getting something in return.  

“Having been the agnostic in the economic team about Chinese officials’ promises or seeming generosity, I would not recommend revisiting/reviewing the three railway projects with the Chinese and just drop them altogether. Much better to deal with ODA with Japan, South Korea, Australia, the U.S. and the E.U.,” Pernia told BenarNews, using an acronym for official development assistance. 

The three projects are the 380-km (236-mile) railway from Laguna province, south of Manila, to Bicol province, on the southern end of Luzon Island; a 71-km (44-mile) railway that would connect Subic Bay Freeport Zone in central Luzon and the Clark Freeport Zone, both sites of former sprawling U.S. military bases; and the first phase of the Mindanao Railway Project stretching from Davao to Digos city in the southern Philippines.  

Pernia said he was skeptical when China ODA-funded projects were discussed during Duterte’s state visit to Beijing in October 2016, several months after the president took office.

“I think China high officials have this quid-pro-quo mindset especially given their desire to claim practically the whole of the South China Sea including Philippine territory,” Pernia said. “Hence, the Chinese have been taking their sweet time in releasing the funds after the Philippines had long before submitted the requisite project proposals.” 

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Visiting Chinese President Xi Jinping (right) and Philippine President Rodrigo Duterte review troops during a welcoming ceremony for the Chinese leader at the Malacañang presidential palace in Manila, Nov. 28, 2018. [Erik De Castro/Reuters]

In a stunning announcement last week, Cesar Chavez, Marcos’ transportation undersecretary, said that ODA loan deals with China were deemed “withdrawn” after the Asian giant had “failed to act on the funding requests” by Duterte officials.  

“We want the Filipino public to know that we have no funds for the Calamba to Bicol project. Same with the Clark-to-Subic and Tagum-Digos rail projects, no funds. We are saying this now to manage the expectations of the public, by both chambers of congress, the cabinet and those relying on these,” Chavez told reporters on July 15.

The projects, with a total estimated cost of U.S. $4.9 billion, were part of the “Build Build Build” program, which the Duterte administration and its allies had promoted widely. Under the former president, who left office on June 30, Manila established closer ties with Beijing. He shelved a 2016 landmark arbitration court ruling that invalidated China’s expansive claims in the disputed South China Sea, as he pursued loans and grants from the Asian superpower. 

Beijing claims nearly all of the South China Sea, including waters within the exclusive economic zones of the Philippines, Brunei, Malaysia, Vietnam and Taiwan.

Carlos Dominguez III, Duterte’s finance minister, said China was imposing a 3 percent interest rate – much higher than the rates offered by other financiers such as Japan, at 0.1 percent, according to Chavez.

He showed reporters what he said was a text message he had received from Dominguez.

“I canceled the application instead of keeping it in suspended animation. If you wish to pursue this, I understand that the Chinese financing agency will be asking for interest rates in excess of 3 percent,” Dominguez said in the message.

Overhyped deals  

An analyst questioned whether China was serious about Philippine infrastructure projects.

“Both China and Duterte have the tendency to overhype deals or projects,” said Alvin Camba, a University of Denver assistant professor and analyst who focuses on China-Southeast Asia relations. 

China has a history of canceling projects, he said. 

“Cancellations happen for so many different reasons. But China tends to cancel more than Japan or the West,” Camba told BenarNews, citing studies that for every 10 Memoranda of Understanding, China produces only one concrete output. 

Unlike the West, China has a “murky” landscape filled with different overlapping actors, including middlemen and state-controlled firms, he said.

“When you deal with the West or U.S. or Japan, you know exactly who or what agency you are dealing with. In China, you don’t know which part of China you are dealing with,” he said. 

Camba did not put all the blame on China, noting that land issues and conflicts among regional politicians and elites in the Philippines had contributed to the cancellations.

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Members of a Dumagat tribal community join students during a protest in Manila against the Chinese-backed Kaliwa Dam project which, critics say, would destroy the environment in the Sierra Mountain range in Luzon Island, April 9, 2019. [Jason Gutierrez/BenarNews]

China’s response 

In response to the announcement made by Chavez, the new transportation secretary, the Chinese Embassy in Manila blamed the pandemic for some delays.

“Over the past two years, COVID-19 has impacted implementation of some projects, hindering the site availability, causing delays of procurement, affecting goods mobility and so on,” the embassy said in a statement on July 16. 

“As to infrastructure, China has comprehensive strength and is well-known for its quality and speed. China will tap its own advantage and support the Philippines to improve its infrastructure. Our two sides have been negotiating technical issues and made positive progress to move the projects forward,” it said. 

Seventeen projects in the Philippines have been completed, and “more than 20 projects are under implementation or in progress,” the embassy said. 

However, BenarNews obtained a document from the National Economic Development Authority that details China-funded infrastructure flagship projects in the Philippines but contradicts the information from the Chinese embassy.

It shows that China so far has completed only two donated bridges: the Binondo-Intramuros Bridge ($60 million) and the Estrella-Pantaleon Bridge ($26 million) in Metro Manila. In addition, a dam project was completed through a loan – the Chico River Pump Irrigation Project ($76 million) in the northern Philippines. 

At least five projects are in the pre-construction stage. The interior department scrapped the controversial Safe Philippines Project Phase I, which would have installed 12,000 security cameras initially in Metro Manila and Davao City, over late funding from Beijing, according to the document.

Only two projects are under construction: the Davao City Coastal Bypass Road, donated by China to Duterte’s hometown; and the Kaliwa Dam project, a China-loaned project that is facing strong opposition from indigenous people. 

Meanwhile, all eyes are on Marcos, the son and namesake of the late Philippine dictator Ferdinand E. Marcos, and what kind of policy he will pursue with China. The Marcos family is known to be a close ally of Beijing.

In a report on “Chinese Diplomacy in Southeast Asia during the COVID-19 Pandemic,” published Wednesday, the Asia Society Policy Institute said Marcos had indicated he would hedge relations with China and the United States and “avoid the wild swings of the Duterte era.”

Marcos has promised to uphold Philippine claims to the South China Sea while speaking to “China in a ‘firm voice’” even as he sees “relations shifting into a ‘higher gear,’” the institute noted.

“With a willingness on both sides, it remains to be seen if China and the Philippines can capitalize on the relationship despite the South China Sea-shaped elephant in the room,” the report said.

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