Benefits and Costs of the Philippines' Paradigm Shift to China

Duterte's Paradigm Shift to China

President Rodrigo R. Duterte assumed office on June 30, 2016, prioritizing friendly relations with China.
This coincided with the International Arbitral Tribunal's ruling in favor of the Philippines regarding maritime disputes in the South China Sea.
The arbitral ruling invalidated Beijing's nine-dash line claim under international law and emphasized China's obligation to respect the Philippines' maritime rights per UNCLOS.
During his first cabinet meeting, Duterte instructed officials to foster friendly ties with China, avoiding actions that would put Beijing in an awkward position regarding the arbitral ruling.
Duterte aimed for peace with China and urged officials not to flaunt the ruling.
Duterte's approach marked a significant shift in Philippines-China relations, a "paradigm shift".

Implementation of the Shift

Duterte's paradigm shift took shape during a state visit to China on October 18-21, 2016, meeting President Xi Jinping.
This visit was a game changer.
Bilateral ties improved significantly, shifting from competition to cooperation.
This paradigm shift initiated a "new era of closer friendship" and a "new age of cooperation".
Duterte expressed willingness to distance the Philippines from the United States, its former colonial power and security ally.
The Philippine defense department called for a review of the Mutual Defense Treaty (MDT) with the U.S., the legal foundation of the alliance.
In February 2020, Duterte terminated the Visiting Forces Agreement (VFA) with the U.S., seen as favorable to China.
However, in June 2020, he suspended the VFA revocation for six months, causing concerns in China about potential U.S. influence.
Challenges in the Philippine-American alliance have provided China opportunities to strengthen bilateral relations with the Philippines, especially in defense and security.
Duterte's policy aimed to restore communication channels between the two governments, which China had cut off in protest of the arbitration case.
Chinese officials resumed visits to the Philippines, focusing on infrastructure, trade, investment, agriculture, education, tourism, defense, law enforcement, and counterterrorism.
Xi Jinping's reciprocal state visit to the Philippines on November 20-21, 2018, marked a "golden age" of Philippines-China relations.
Xi described Philippines-China relations as a "rainbow after the rain," emphasizing increased trade, investment, cultural exchange, and cooperation in fighting drugs and terrorism.
Xi reiterated the centuries-old friendship between the two countries.
The two countries aimed for "comprehensive strategic cooperation".
Duterte described it as the "blooming of a big beautiful flower".
This paradigm shift is also described as a "pivot to China".

Benefits of Friendly Ties

Pursuing friendly ties with China offered economic, political, and strategic benefits.
Xi encouraged Chinese trade and investments in the Philippines.
China offered Official Development Assistance (ODA) and humanitarian aid.
There was an influx of Chinese tourists and workers to the Philippines.
The overall security situation in the South China Sea (SCS) calmed, allowing maritime cooperation.

Economic Benefits

China became the Philippines' top trading partner and largest source of imports, with trade volume reaching nearly $US\$56$ billion in 2018.
China became the Philippines' largest foreign investment origin, reaching at least $US\$67$ million in 2018.
China served as the Philippines' third largest export destination.
The Philippines became the largest export market for Philippine bananas, bringing income of $US\$345$ million to the Philippines.
In the first half of 2019, around 798 thousand tons of Philippine bananas were exported to China.
Since 2016, China has imported more than 2 million tons of tropical fruits (worth nearly $US\$2$ billion) from the Philippines.
As of the end of 2019, there were more than 40 Chinese enterprises that invested in the Philippines.
Directly employing close to 20,000 workers and indirectly generating 26,000 job opportunities.
China has provided RMB2.75 billion (around $US\$398$ million) of grants and nearly $US\$500$ million of soft loans to the Philippines to support its Build Build Build (BBB) Plan.
At least 75 projects under the BBB Plan were identified for China's funding.
Another RMB3 billion (around $US\$421$ million) grant was earmarked for the period of 2019-2022.
China became the Philippines' largest source of foreign assistance to support the infrastructure projects of Duterte under its BBB Plan with a total of at least $US\$24$ billion investments and credit line pledges from China.
China agreed to fund the New Centennial Water Source Kaliwa Water Dam Project worth $US\$211$ million.
China also started the construction of the Chico River Irrigation Project worth $US\$186$ million.
China gave the Philippines a grant of $US\$75$ million for the construction of Binondo-Intramuros and the Estrella Pantaleon bridges across Pasig River.
China agreed to fund the 12-big ticket priority infrastructure projects in the Philippines worth a total of $US\$167$ billion through the BRI.
During the visit of Xi to the Philippines in November 2018, he signed 29 agreements to pursue comprehensive strategic cooperation between the Philippines and China.
During the 2nd BRI Forum in Beijing on 25-27 April 2019, China and the Philippines signed five additional agreements covering cooperation in education, anti-corruption and drug rehabilitation.
During his 5th visit to China in August 2019, Duterte signed six bilateral agreements covering cooperation in higher education, science and technology, mutual assistance on custom matters, general customs administration, container inspections, and utilization of concessional loans.
At the height of the Marawi siege that started in May 2017, China immediately provided the Philippines a counterterrorism assistance of RMB50 million ( $US\$7$ million) covering the delivery of 3,000 assault rifles and RMB6 million ( $US\$1$ million) worth round of ammunitions.

Benefits from Chinese Tourism and Business

Duterte's conciliation with Beijing drastically resulted in the massive influx of Chinese nationals in the Philippines
The Philippine Bureau of Immigration (BI) implemented the Visa Upon Arrival (VUA) program for Chinese nationals
Around 5.2 million Chinese nationals visited the Philippines from 2016-2019
In 2019, China became the largest source of foreign tourists in the Philippines
In 2019, Chinese tourists represented around 20% of the total tourist arrivals to the Philippines.
The Philippine government only suspended the VUA to Chinese nationals in January 2020 due to the COVID-19 pandemic.
According to the Philippine Statistics Office, the tourism industry contributed an average of 12.7% to the growth of the Philippine economy between 2016 and 2019.
Increased Chinese presence in the Philippines also increased government revenues, particularly from economic activities associated with online gambling or the Philippine Offshore Gaming Operations (POGOS) mostly involving Chinese nationals.
POGOS contributed P551 billion or $US\$10$ billion to the Philippine economy annually from 2016 to 2019
This represented almost one third of annual remittances of Overseas Filipino Workers (OFWs), reaching $US\$33.5$ billion in 2019.
The Philippine Amusement and Gaming Corporation (PAGCOR) reported that POGOS generated licensing and royalty incomes to the Philippine government amounting to P14 billion in 2019, P8 billion in 2018 and P6 billion in 2017
The Bureau of Internal Revenue (BIR), on the other hand, said that withholding taxes of Chinese and foreign nationals working in POGOs gave the Philippine government a total collection of P24 billion in 2018

This represented almost one third of annual remittances of Overseas Filipino Workers (OFWs), reaching $US\$33.5$ billion in 2019.
The Philippine Amusement and Gaming Corporation (PAGCOR) reported that POGOS generated licensing and royalty incomes to the Philippine government amounting to P14 billion in 2019, P8 billion in 2018 and P6 billion in 2017
The Bureau of Internal Revenue (BIR), on the other hand, said that withholding taxes of Chinese and foreign nationals working in POGOs gave the Philippine government a total collection of P24 billion in 2018Pursuing friendly relations with China not only provided the Philippines economic benefits but also some political gains.
The most obvious outcome of Duterte's China policy was the great improvement in government-to-government relations that facilitated robust bilateral economic activities. These economic activities also increased people-to-people contacts, particularly from tourism and academic exchanges.
Most importantly, Duterte reached a mutual political understanding with President Xi to deliberately avoid conflicts in the SCS and to promote peace through functional cooperation for mutual benefits
One major political and strategic benefit of this mutual understanding between the two leaders was the calming of the overall security situation in the SCS.
Filipinos benefited from the calm situation in the SCS as they resumed their fishing activities in the Scarborough Shoal.
The Armed Forces of the Philippines (AFP), on the other hand, resumed their regular supply and personnel rotation missions in the KIG with less fear of harassment from Chinese maritime patrol vessels.
To maintain the calm situation in the SCS, the Philippines and China established the Philippines-China Bilateral Consultative Mechanism in the SCS (BCM).
The Philippines benefited from BCM as it compelled China to be more cooperative.
An important outcome of the 5th BCM was the creation of the Working Group on Political Security, Fisheries Cooperation, and the Working Group on Marine Scientific Research and Marine Environmental Protection.
Through the BCM, the Philippine government was able to directly deal with China on the SCS.
In short, Duterte's paradigm shift to China had economic, social and political benefits. But at what cost?

Costs of Friendship

Duterte's paradigm shift to China reaped some benefits. Most of these benefits are economic in nature with some political gains, particularly in calming the SCS situation. However, these benefits seemed to be short-term
Duterte's China-friendly policy also unleashed some unintentional social, cultural, political and security costs. Most of these costs were associated with POGOS and current Chinese migration to the Philippines

Social and Cultural Costs

Paradigm shift to China had unintended social and cultural costs, especially those associated with recent Chinese migration to the Philippines.
Social costs included human trafficking, sex trafficking and prostitution, kidnapping, torture, commission of major index crimes, labor disputes, and many forms of transnational organized crimes.
Cultural costs referred to tensions that occurred among Chinese nationals and Filipino citizens in the workplace and social media exacerbating "anti-Chinese" sentiments and "Sino-phobia" including stigmatization against Chinese-Filipinos suffering the unintended "collateral damages".
President Duterte asserted that Chinese investments would bring more jobs for Filipinos, Chinese investors preferred to employ Chinese workers in order to overcome the language barrier.
Increased Chinese workers in the Philippines created disputes with Filipino workers.
These protests also included demonstrations against China for its continuing "aggression" in the South China Sea, making China and the presence of Chinese workers in the Philippines unpopular in the country. This exacerbated the surge of anti-China sentiments among Filipinos.
In a survey conducted by the Social Weather Stations (SWS) in September 2019, 70% of Filipino respondents expressed strong worries about the surge of Chinese nationals working in the Philippines.
Current Chinese migration in the Philippines revived the old patterns of cultural conflicts involving the Chinese and Filipinos. The Chinese wave in the Philippines intensified existing anti-China sentiment or Sino-phobia first associated with territorial disputes and now with labor disputes, as well as other social issues associated with Chinese presence.
In the July 2019 SWS survey, 51% of Filipinos expressed their distrust of China and doubted China's friendly gestures to the Philippines

Political Costs

Social and cultural costs associated with Duterte's China friendly policy that encouraged current Chinese migration also reached the Philippines' domestic political dynamics.
Opposition leaders used Chinese workers in the Philippines and China's actions in the South China Sea as their favorite rallying political issues against the current government.
Senator Joel Villanueva, Chairman of the Philippine Senate Labor Committee, called for a series of congressional inquiries on the influx of Chinese workers in the Philippines.
He questioned the preference of POGOS in hiring Chinese nationals and described the existing practice as unconstitutional.
The Chinese Embassy in Manila expressed serious concerns on the involvement of Chinese nationals in online gambling.
The Philippine Senate also conducted public hearings on reported involvements of Chinese nationals in various criminal activities linked with POGOs. On 5 March 2020, the Blue Ribbon Committee of the Philippine Senate conducted a public inquiry on the involvement of Chinese nationals in money laundering, human/sex trafficking, illegal gambling, cybercrimes, bribery of Philippine government officials, and even espionage
Thus, current Chinese migration in the Philippines created serious law enforcement concerns and security challenges.

Security costs

For the security sector, particularly from the Department of National Defense (DND), the Armed Forces of the Philippines (AFP), the National Security Council (NSC), and the National Intelligence Coordinating Agency (NICA), the influx of Chinese nationals in the Philippines and the proliferation of POGOS in the country have concomitant security challenges.
Some of the main security challenges associated with POGOS and illegal activities of Chinese nationals in the Philippines were the following: 1) espionage, 2) interference in domestic affairs, and 3) assault to Philippine sovereignty.

Espionage

National Defense Secretary Delfin Lorenzana admitted that the spread of Chinese-run POGOS in the Philippines could make the country vulnerable to Chinese espionage activities, especially those online casinos located near military and police camps.
Senator Panfilo Lacson claimed that around 2,000 to 3,000 Chinese intelligence agents reached the country on "immersion missions" and still "unknown purposes"
President Duterte also considered the possibility that POGOS could serve as springboards for Chinese intelligence agents to operate in the Philippines. But he explained that Chinese spies could still conduct espionage activities even away from military or police camps arguing, "you don't even have to be near any military camp if you want to gather intelligence"

Interference in domestic affairs

If POGOS could be used for Chinese espionage, Philippine security officials exclaimed that they could be utilized to interfere in Philippine domestic affairs
National Security Adviser Hermogenes Esperon Jr. was in fact the first official who considered POGOS in the Philippines as a national security threat not only because some of them worked illegally, but because they would also interfere in Philippine internal affairs

Assault to Philippine sovereignty

Philippine opposition forces emphasized that POGOS and illegal Chinese migration in the Philippines could be "direct assaults" to Philippine sovereignty.
Senator Hontiveros warned that online gaming and illegal Chinese workers could undermine the national integrity of Filipinos, as the Chinese could take advantage of the weakness of Philippine tax laws and the negligence of the Philippine government.
But China assured the Philippine government that it would respect Philippine sovereignty on POGOs. Though China regarded online gaming illegal, it acknowledged Philippine sovereignty over POGOS where some Chinese nationals gained their employment

Costs on Philippine sovereignty claims in the SCS

Duterte's paradigm shift to China led to the softening or relaxation of Philippine sovereignty claim in the SCS by setting aside, if not abandoning, the arbitral ruling.
Duterte's acquiescence to China provided Beijing a free rein in the SCS, particularly in the Kalayaan Island Group (KIG) of the West Philippine Sea (WPS).
Duterte's reconciliatory approach to promote economic cooperation with China was said to have undermined the Philippines' position in the SCS

Conclusion

There were benefits and costs to the Philippines from Duterte's paradigm shift to China.
Most of the benefits were economic in nature through dramatic improvements in bilateral trade, investments, aid, and tourism.
Political benefits were associated with the calming of security situation and the promotion of functional cooperation in the SCS.
Benefits from Duterte's China-friendly policy appeared to be short-term in nature as they were largely contingent on the presidential term of Duterte due to expire in 2022.
These short-term benefits have ironically produced some unintended costs that could affect the Philippines in the long-term.
Increased presence of Chinese workers in the Philippines arising from increased Chinese investment, trade and assistance also unleashed labor tensions with Filipino workers that received the ire of Filipino politicians from the opposition who associated all these issues with the so-called "Chinese invasion" of the Philippines.
Do the benefits from Duterte's paradigm shift to China outweigh the costs?
Ironically, the Philippines can only maximize the benefits and surmount the costs of being friendly with China with the full cooperation of China.