Risks, opportunities in China’s BRI

China’s “Belt and Road” Initiative (BRI) is expected to be a game changer not only for the Philippines, but for the rest of the world in the next decade. China is expected to invest up to $5 trillion in transcontinental infrastructure projects covering as many as 64 nations across four continents — Asia, Australia, Africa and Europe. That area accounts for 62 percent of the world’s population and about a third of the global gross domestic product.

Since President Duterte assumed office, he has been criticized for his apparent pivot to China and policy of appeasement. Many fear that the Philippines may be sacrificing its territorial rights to China in exchange for economic trade-offs and infrastructure assistance. Indeed, after two years, it appears the country has been placed in a disadvantaged position because Mr. Duterte has not used the 2016 Hague arbitral ruling as leverage in its negotiations with China and other multilateral partners.

Instead, the Duterte administration has tapped China as a major partner for national development. In this regard, it sees China’s BRI as complementary to the massive “Build, build, build” infrastructure programs planned under “Dutertenomics.”

A recent study by Richard Heydarian called “The 21st Century Silk Road: Perils and Opportunities of China’s Belt and Road Initiative,” published by the Alberto del Rosario Institute, discusses how the BRI perpetuates Chinese soft power and allows it to pursue its geopolitical and strategic interests in the post-American international economic order.

The study acknowledges that BRI is an indispensable infrastructure boost to the Philippines and other countries in Asia, but noted that its target beneficiaries should welcome with “cautious embrace” all forms of assistance, such as loans and grants, offered by it.

Although some analysts say the BRI is a promising initiative because of its potential to jump-start global infrastructure development, the program has also been criticized for being too ambiguous and murky, prompting some nations to exercise more caution to prevent themselves from being trapped in “debt diplomacy.”

In his study, Heydarian stressed that small economies with slow sovereign credit ratings face greater risks under the BRI. Despite China’s lofty pronouncements and pledges, the risk of falling into a “debt trap” remains very high for these economies.

For the Philippines, it is essential to understand the underlying objectives of BRI to counter the prospective negative impact on the economy, as well as on sovereignty and cultural growth. The objectives of the BRI fall under two key themes: internal economic rebalancing, and expansion of strategic presence across resource-rich and geographically important nations.

The international credit rating agency Fitch recently warned that China’s new Silk Road project is “driven primarily by China’s efforts to extend its global influence.”

In previous Philippine administrations, some Chinese projects had become controversial because of corruption, lack of transparency and problems in accountability. Among these projects were the NBN-ZTE and Northrail deals.

For prospective projects, concerns have been raised over such issues as the over-reliance on Chinese technology, labor and long-term maintenance contracts, which could threaten both domestic employment as well as national security considerations. With the influx of heavy capital from China, some experts have also expressed doubts over the absorption capacity of government agencies, and the lack of construction workers and skilled labor.

The study cited that a number of Chinese contractors have been blacklisted by the World Bank for their anomalous track record. As a matter of responsibility, the Philippine government still needs to ensure that competitive bidding procedures are observed when it comes to these Chinese projects, and that standard practices in good governance and environmental sustainability are followed.

The BRI should be able to promote inclusive growth and provide jobs for Filipinos, rather than its projects in the Philippines relying on a fully integrated Chinese supply chain of capital, technology and labor.

If this scenario cannot be guaranteed, the Philippines’ engagement with China under the BRI will be meaningless and unsustainable.

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Dindo Manhit is founder and managing director of Stratbase Group.