Could China’s sanctions choke us?

One hundred fifty container loads of Philippine bananas are being left to rot in the Chinese ports of Dalian, Shanghai and Xingang, according to reports that came over the weekend. Our own government officials have been quick to play down any link between the holding of the banana shipments and the ongoing tension at the Panatag Shoal. But even if there wasn’t such a link before, who would believe there wouldn’t be one now?

Earlier, reports said that travel agencies in China have suspended tours to the Philippines. This may of course be seen in two ways. One may look at it as a defensive precautionary measure—whether or not instructed by the Chinese government—to avoid perceived threats to their safety in the midst of rallies being held here against China. Or one may see it as an aggressive government-directed sanction meant to hurt our tourism industry. Either way, the effect on us would be punitive, with China being our fourth largest source of foreign tourists behind Korea, the United States and Japan. So is the threat of more serious economic sanctions now being dangled before us by the Chinese government to force us into submission on the Panatag Shoal dispute. How bad can it get for us if it decides to unleash its full economic arsenal on us, and hit us on every front of our economic relationship?

Let’s take stock of these various fronts. The most obvious one is trade. Last year we recorded $6,094 million worth of merchandise exports to China, representing 12.7 percent of our total exports and placing third behind Japan and the United States.  Our imports from China were slightly less, at $6,060 million, giving us a trade surplus of $34 million (yes, we are among the few countries in the neighborhood selling more to China than buying from them). Incidentally, our own official numbers above, as recorded by the Bureau of Customs, place total trade with China (exports plus imports) at $12.15 billion. But guess what, Chinese data from its General Administration of Customs place total trade at $32.25 billion! This nearly 3-to-1 discrepancy in our trade data graphically shows the extent of smuggling in our trade with China, both ways. Clearly, we must take our own trade data with China with a grain of salt: The real extent of our bilateral trade is far more than what our own official trade statistics would tell us.

What if China halts entry of all Philippine goods into its market? Based on 2011 figures, we stand to forego $6.1 billion of export earnings from China—or more than twice that, if based on the higher Chinese figures that count the smuggled goods as well. We would need to find a way to sell all of that elsewhere to make up for the loss. If that lost income is split evenly among all Filipinos, it would be as if P5,000 was taken out of every Filipino’s pocket. If China likewise stops the export of its goods to the Philippines, then we would also be deprived of $6.1 billion worth of imported Chinese goods—or again more likely, over twice that amount—which we would then have to source from other countries instead.

It’s not a one-way loss, though. If China completely stops importing our electronic semiconductors and circuit boards; our nickel and copper ore; our bananas, pineapples and mangoes; our furniture and other products—then it would have the problem of sourcing these from somewhere else, and many of these cannot be readily bought from our neighbors or elsewhere. As many of these are vital raw materials, its industries would have to slow down somewhat. And what if it completely stops selling us what we have normally been importing from it? With its exports to us being a tiny 0.9 percent of its overall exports (based on its data), it would seem that the loss of the Philippine market would hardly make a dent on its economy. Admittedly, what would be a dog bite to us would be a mere ant sting to the Chinese. But then our domestic producers and their workers would be happy to keep those competing cheap Chinese products out.

What about overseas Filipino workers in China? The bulk of them would be in Hong Kong, comprising some 120,000 workers, and if they all had to suddenly go home as a result of an escalated conflict, then we would have a major short-term problem. But our legendary resilience as a people should get us through that one in time, and given the consistent strong demand for Filipino workers abroad, we should be able to find alternative employment for them eventually.

And then there are private Chinese investments and government loans, including those already in the pipeline. Some projects may end up being aborted altogether, including the railway project to Clark, enhancements to the Casecnan multipurpose hydro facility, and several others.  Other donors and investors are bound to pick these up, so it would not be a loss altogether, but just a problematic delay in implementation. Still, we could expect some not-too-minor disruptions.

What if Chinese tourists were completely kept away from the Philippines? Based on last year’s figures, we would be losing around 250,000 visitors, making up just a little over 6 percent of the total number of our visitors last year. The Department of Tourism is confident that we should be able to easily recover that tourist traffic from elsewhere—and it would be the Chinese tourists’ loss to miss out on all the fun that we have more of, here in the Philippines. What if China decides to also keep our own tourists out? Well, that would be all right too as there are a lot more fun things to do than climb the Great Wall, right here at home—plus we’d get to keep the foreign exchange in the process.

Could economic sanctions from China choke us? Not really. A dog bite need not be fatal.

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