The Belt and Road Initiative in ASEAN UOB HONG KONG 23/F, Three Garden Road, Central, Hong Kong SAR Tel: (852) 2910 8888 Fax: (852) 2910 8899 www.uobgroup.com/hk/ The Philippines HONG KONG UNIVERSITY OF SCIENCE AND TECHNOLOGY INSTITUTE FOR EMERGING MARKET STUDIES December 2020 IAS2018-2020, Lo Ka Chung Building, Lee Shau Kee Campus Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong SAR Tel: (852) 3469 2215 Email: [email protected] iems.ust.hk © 2020 by United Overseas Bank and Hong Kong University of Science and Technology Institute for Emerging Market Studies. Contents Research Methodology 2 Highlights 3 Country Profile 4 FDI in the Philippines 6 Mainland Chinese Trade and Investment 9 in the Philippines Current and Future Opportunities 11 for mainland Chinese FDI SEZs – Platforms for Multi-Sector 13 Development Industry and Manufacturing 15 Enhancing Physical Infrastructure 18 Digital Infrastructure and Digital Economy 22 Issues for Mainland Chinese FDI in 25 the Philippines The Role of Hong Kong 26 Investment Climate and Free Trade 27 Agreements Special Section on COVID-19 28 About UOB 32 About the Authors and HKUST IEMS 32 1 Research Methodology Highlights The study aims to provide insights into the the Philippines’s economic, environmental, and The political rapprochement between mainland China political, institutional, and environmental factors social dimensions which were used to support and the Philippines that is taking place during the Duterte that affect the design and implementation of the analysis as well as the selection of specific administration is boosting trade and investment relations. Belt and Road Initiative (BRI) projects in the projects or sectors. Philippines, the potential for BRI investments to spur private investment and other foreign direct Interviewees included a wide range of investment (FDI) opportunities, and any potential stakeholders such as government officials, The Philippines government’s Build Build Build (BBB) role for the Hong Kong SAR. representatives of business associations, initiative that aims to improve infrastructure in the entrepreneurs, members of civil society country creates multisector opportunities for foreign The key research questions that drove the groups, academics and consultants both in the investors and enables synergies for mainland Chinese study were: Philippines and in the Hong Kong SAR. investors and financial institutions in light of the BRI. What changes has the BRI brought to The research process involved three phases: the Philippines? 1) preparation, 2) fieldwork and data gathering, and then 3) data analysis and write-up. In the Ownership restrictions in specific sectors What are the key sectors or areas preparation phase researchers examined the 5 Key defined by the Foreign Investment Act experiencing growth and what are the background of the case through desktop and the constitution might hamper key BRI projects? research and identified key issues and projects. Highlights investors’ ability to benefit from all Afterwards, key topics to be explored were market opportunities but could enhance What factors seem to be affecting the selected in consultation with UOB staff in the synergies between local and mainland success of the projects? Hong Kong SAR and the Philippines. Before Chinese investors. the fieldwork, both UOB and the researchers What are the key opportunities and contacted potential interviewees to brief challenges in the Philippines? them on the research and inquire about their availability and willingness to partake in the Mainland Chinese investors are making efforts to The case study employed a mix of quantitative project as informants. Subsequently, phase 2 address reputational issues related to failures of and qualitative data. The primary data were consisted of two visits to the Philippines for investments in the early 2000s. mostly qualitative and included a combination of a total of about thirty day during which the in-depth interviews, informal interviews, and field researchers carried out interviews and site visits. notes based on observation. The primary data The last stage focused on gathering the data also included datasets and documentary evidence into themes, analysing it and writing up this COVID-19 is having a disruptive effect on FDI projects, exclusively obtained from informants. Other case report. slowing down their implementation and delivery. quantitative data consisted of datasets describing 2 3 Country Profile The Philippines is an archipelago composed The Philippines is a presidential republic where 9 of more than 7000 islands. The three most the president has a single six-year mandate. 8 economically significant regions today are Currently, the president is Rodrigo Roa Duterte 7 Luzon, The Visayas, and Mindanao. The country’s whose term started in June 2016 and will expire 6 geographic location exposes it to typhoons, in June 2022. The vice-president is also an elected 5 earthquakes, and volcanic eruptions. The country post. The current vice-president is the leader of 4 is the second most populous in the ASEAN the opposition, Ms Leni Robredo. 3 with more than 108.1 million inhabitants in 2019. 2 The population is young and the working- The Duterte administration is keen to transform 1 age group (15 years to 64 years old) comprises and develop the country and has launched 0 64.2% of the total population. The country has policies, usually referred to as the “10 Point 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 a heterogeneous population with diverse ethnic Socioeconomic Agenda” that collectively are Figure 2. Philippines GDP Growth. Source: The World Bank. groups and religions, including 1.35 million Chinese known as “Dutertenomics”. The National Economic and 22.8 million Filipinos of Chinese descent, and Development Authority (NEDA) has issued In addition to the PDP, the Duterte the Asian Infrastructure Investment Bank. The referred to as Tsinoy (Chinoy). the Philippine Development Plan (PDP) 2017-2022 administration’s BBB programme aims to implementation of the BBB projects has led to a which aims to achieve several key objectives: create a “Golden Age of Infrastructure” for 50% increase in public spending on infrastructure the Philippines. At this stage, the BBB initiative in 2018 compared to 2017. 2. Reduction of budgets US$180 billion for 100 infrastructure poverty incidence in projects in different sectors including transport During the last decade, the Philippines’ GDP rural areas from 30 in 5.5 3.5 and mobility, water supply, urban development growth rate has been relatively stable at around 2015 to 20 by 2022 and renewal, information and communications 6% to 7% per year. That economic growth has technology, and the power sector. To support created employment opportunities, reducing the the upgrading of infrastructure, the government unemployment rate to 5.1% by the end of 2019, is relying on foreign investment, official its lowest rate in 14 years. The services sector development assistance from partners such as accounts for the largest share of employment 30 20 Korea, Japan and mainland China, and loans from (58%), with the rest of the workforce split international financial institutions such as the between agriculture (22.9%) and industry (19.1%). 1. Transformation of 3. Reduction of the World Bank, the Asian Development Bank, and The Philippines into an unemployment rate upper-middle-income from 5.5 to 3.5 by country by 2022 2022 Figure 1. Key Objectives of the Philippine Development Plan 2017-2022. 4 5 FDI in the Philippines 350,000.00 Mainland Chinese companies establish to disguise their nationality in order to 300,000.00 subsidiaries in the British Virgin Islands prevent unwarranted discrimination and and then invest in the ASEAN region. They avoid negative local sentiment. 250,000.00 invest through the British Virgin Islands for 200,000.00 different reasons, including the intention 150,000.00 100,000.00 0.2 India 0.8 Germany 50,000.00 (by value in millions of pesos) 33.9 Hong Kong SAR 0.00 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 35.9 South Korea 40.8 Australia Figure 3. Total Foreign Investment Approved by the Investment Promotion Agency. Source: Philippines Statistics Authority. 48.8 France Having a large population that speaks English as Other important FDI source countries include 73.0 UK well as abundant natural resources makes the ASEAN member states such as Singapore and 77.2 Netherlands Philippines an attractive FDI destination. The Malaysia, and regional partners including Japan 80.0 Taiwan value of approved investment projects by foreign and Korea. Investors from the Netherlands and 245.0 USA investors has fluctuated during the last decade. France are also an important source of FDI, 279.2 Malaysia The total value of FDI projects approved by the whereas investment from the US has diminished 308.0 British Virgin Islands Investment Promotion Agency (IPA) dropped to in recent years. 375.8 Japan US$2.08 billion (PHP 106 billion) in 2017, its lowest level over the past decade.1 However, afterwards The British Virgin Islands (BVI) is nominally the 403.5 Singapore the value of inward approved FDI increased fourth largest source of FDI for The Philippines, 965.8 Mainland China dramatically, reaching US$5.48 billion (PHP 279 serving as an investment platform for multinational (millions of US$) billion) in 2019. corporations that use the BVI to benefit from Figure 4. 2018 FDI by Country or Region of Investors. Source: Philippines Statistics Authority. its