The Philippines has stood out in recent months as an emerging example of how a smaller, weaker country can stand up to a larger, stronger one in the South China Sea.
Ferdinand Marcos Jnr’s administration has projected new-found assertiveness not seen in the aftermath of the 2012 Scarborough Shoal incident. The Philippines has started to speak out against Chinese transgressions in its exclusive economic zone; bolstered its long-standing alliance with the United States; cultivated closer security partnerships with friendly players outside the South China Sea such as Australia, India and Japan; and has been pushing ahead with a reorientation of its defence posture from internal to external.
This policy innovation, dubbed “assertive transparency”, revolves around strengthening national resilience, building international support – and imposing reputational costs on China.
Openly publicising maritime incidents involving China and calling out Chinese aggression or intimidation is particularly noteworthy as it has not been observed before in Southeast Asia.
Starting from the laser-pointing episode in February, Manila’s new “name and shame” strategy does appear to have put Beijing on the back foot, perhaps due to the element of surprise more than anything else.
The Philippine coastguard says its Chinese counterpart has exhibited less aggressive behaviour since its actions were “exposed” – except around the Second Thomas Shoal, where a Chinese coastguard ship in August fired water cannon at a Philippine vessel on a rotation and resupply mission, resulting in a further spike in tensions.
Some have warned about the potential for negative consequences from the Philippines’ new South China Sea policy, particularly on the economic front in the form of Chinese foreign investments being pulled out.
Sergio R. Ortiz-Luis Jnr, president of the Philippine Exporters Confederation, Inc. and honorary chairman of the Philippine Chamber of Commerce and Industry (PCCI), has revealed that some of the big Chinese industrial investors who seemed keen to invest following Marcos Jnr’s state visit to Beijing in January became “jittery” or paused their inquiries with the PCCI following the Second Thomas Shoal flare-up.
After all, Beijing weaponising trade and investments would be nothing new. China is a major trade partner of the Philippines, so one could justifiably assume that Beijing might seek to put economic pressure on Manila in retaliation. This is especially salient as foreign trade and investments constitute a “soft underbelly” for the Philippines’ economic recovery and developmental trajectory.
So far, however, there have been no indications of coercive economic reprisals. In fact, trade and investment data published by the Philippine Statistics Authority shows a sharp rise in trade with China. As of September, it had rebounded to more than 20 per cent of the Philippines’ total trade, according to the figures – despite the August water cannon incident at Second Thomas Shoal.
What about Chinese investments in the Philippines? This has been one of the more contentious aspects of the bilateral relationship, largely because most of the investment pledges Beijing made to previous president Rodrigo Duterte failed to materialise. Given the importance of infrastructure investments to the Philippines’ economic growth, this could be another area where Beijing seeks to dial up the pressure on Manila over the South China Sea.
Since 2021, China’s share of total approved foreign investments in the Philippines has hovered below 5 per cent – at least partly because of the Covid-19 pandemic. Interestingly, Chinese investment spiked to 6.76 per cent in the third quarter, despite the South China Sea flare-ups, from 0.38 per cent or lower in the first half of the year.
There has also been little discernible impact on Chinese investor interest, especially in the Philippines’ renewable energy and critical minerals sectors. In April, while tensions brewed in the South China Sea, Manila revealed that a Chinese company was already “actively seeking partners” for nickel processing in the Philippines. That same month, China’s Dajin Heavy Industry, the world’s largest manufacturer of wind turbine towers and offshore wind power infrastructure, expressed interest in building manufacturing plants in the Southeast Asian nation.
To what extent is Beijing willing to weaponise trade and investment to retaliate against the Philippines in the South China Sea, if at all?
The Philippines secured US$4 billion worth of investments in October from a pair of Chinese equipment makers in the renewable energy industry. The Department of Foreign Affairs in Manila has also clarified that the Philippines remains a part of Beijing’s Belt and Road Initiative, adding that infrastructure projects funded with official Chinese aid are still being implemented.
So to what extent is Beijing willing to weaponise trade and investment to retaliate against the Philippines in the South China Sea, if at all?
Saddled with its own economic woes, China probably does not want to cast itself as an increasingly less reliable and therefore unattractive trade and investment partner. Moreover, if it desires to uphold its image as a proponent of common development in the Global South and a strong supporter of economic integration, weaponising trade and investment against the Philippines may be foolhardy.
So far, Manila’s opposition to Chinese “grey zone” actions in the South China Sea can be deemed generally successful. Assertive transparency ought not to be an exclusively Philippine approach, but can perhaps be more broadly adopted by other Southeast Asian claimants.
That the Philippines has not experienced any major negative economic impact since the South China Sea flare-ups early this year demonstrates the limit of China’s grey-zone coercion.
Collin Koh is senior fellow at the S. Rajaratnam School of International Studies, based at Nanyang Technological University in Singapore. This commentary was first published on ISEAS – Yusof Ishak Institute’s commentary website fulcrum.sg.