By Melissa Luz T. Lopez,
Robert J. A. Basilio, Jr.,
Opinion and Engagement Editor
Posted on August 09, 2016
THE PHILIPPINES stands “immune” to China despite the latter’s slowing economy and the maritime dispute between the two nations, with minimal exposure that is unlikely to shake up local markets amid some calls from China to boycott Philippine products.
In a special report, analysts at Natixis Economic Research said the Philippines stands the least exposed to China’s softening growth even amid threats of a boycott of local products.
“The conclusion is rather simple: when China sneezes, the rest of Asia will catch a cold but the degree of contagion will be very different. India and the Philippines, for example, are rather immune,” the July 27 research note read.
“The Philippines and India are most immune to both impact of geopolitical conflicts as well as mercantilist economic policy by China. For the rest, a lot more is at stake, which hopefully is enough to deter escalated tensions.”
China is currently in a period of restructuring, as authorities seek a shift to a consumer-driven economy from a previously export-led one. This has led to a growth slowdown in the second-largest economy, with its impact likely remote as far as the Philippines is concerned.
The Philippines will stand unaffected across all fronts of trade, tourism, and investment, Natixis said, with a mere 2.3% of its gross domestic product (GDP) representing trade with China. In particular, the Philippines sends “less than 15%” of its total shipments to mainland China, alongside Vietnam, Malaysia, and Thailand.
In contrast, Singapore, Taiwan, Vietnam, Korea, and Malaysia are the economies most exposed to developments in China, given big trade exposures: “[S]hould China impose a trade embargo or massively devaluate its currency, these economies would feel the greatest pinch through pass-through of exports to GDP.”
A possible reduction in mainland Chinese tourists will unlikely shake up the local sector, the analysts added, despite some calls to boycott Manila and mango and banana products over the July 12 ruling by the Permanent Court of Arbitration which junked Beijing’s nine-dash line claim over the South China Sea.
“The Philippines benefits the least in the Southeast Asia region from mainland tourists. Thus, the call by Chinese netizens to boycott trips to the archipelagos will likely dampen receipt inflows, but not enough to have a material impact,” said economists Trinh Nguyen and Alicia Garcia Herrero.
Furthermore, exports to China have dropped by 18% since early 2015, Natixis pointed out, rendering the impact of a fresh resistance to Philippine products minimal.
International credit raters have said the heightened geopolitical tension could impair trade relations if left unchecked, but said this was unlikely to happen thus far as “economic sensibilities” are likely to prevail.
For his part, Bangko Sentral ng Pilipinas Governor Amando M. Tetangco, Jr. said the impact of the arbitral ruling has not been felt across financial markets, with other external events and robust fundamentals at home shaping investor sentiment.
All eyes are on the Philippine government as it navigates through the maritime dispute with China following the tribunal victory, with Foreign Affairs Secretary Perfecto R. Yasay, Jr. calling for “restraint and sobriety” in statements that have been criticized for seemingly capitulating to China.
CONDUCT OF PARTIES
Meanwhile, participants at a forum in Vientiane, Laos, called for the 10-member Association of Southeast Asian Nations (ASEAN) to put emphasis on an accord covering politics and security cooperation to “peacefully utilize resources in the South China Sea,” a trade route that is said to be rich in mineral and oil deposits but is in the center of Manila’s maritime tension with Beijing. “Having a code of conduct would be a good way to thumb down the tensions,” Ponciano S. Intal, Jr. said at an editors’ roundtable meeting on Monday sponsored by the Jakarta-based Economic Research Institute for ASEAN and East Asia (ERIA). “[It] can take a lot of time, patience, and discretion.” Mr. Intal, ERIA’s senior economist, was referring to the Declaration on the Conduct of Parties in the South China Sea (DoC) from way back 13 years ago, an accord which intends to promote “a peaceful, friendly, and harmonious environment” in the area that’s being claimed by the Philippines, China, and other states.China and the ASEAN signed the DoC in November 2002. Its “full and effective implementation” was reaffirmed by the same parties in November 2015 — more than a decade later, amid a timeline that saw Chinese expansion in the disputed waters.In mid-July, an international tribunal issued a ruling in favor of the Philippines, which filed the 2013 case that contested China’s maritime claim. However, despite the win by Manila — one of the ASEAN’s founding members — the group played it as safe as the Philippines’ Mr. Yasay, although it still expressed “serious concerns” over Beijing’s “land reclamations and escalation of activities,” an earlier report by the Agence France Presse said.
“Over time, you don’t want the South China Sea as a significant hindrance to deeper integration and linkages between ASEAN and China,” said Mr. Intal, also a former professor at De La Salle University, after delivering his presentation entitled, “Revving Up AEC [Asian Economic Community] and ASSC [Asean Socio-Cultural Community]: Moving Forward.” “You have to accommodate various interests of ASEAN member states,” Mr. Intal said separately in an interview after his presentation. His sentiments were shared by Kuik Cheng-Chwee, an associate professor at the National University of Malaysia, who recommended in his presentation that ASEAN states should “explore ways to channel and incorporate some of the Chinese regional proposal[s] into [the] ASEAN-based framework.” Mr. Kuik was referring to several initiatives by which the ten-nation group can strengthen itself by entering into agreements with China. A Regional Comprehensive Economic Partnership (RCEP) was launched in November 2012. It includes all ASEAN members and six other countries with free trade agreements with ASEAN — Australia, China, India, Japan, South Korea, and New Zealand. Beijing is also separately undertaking several proposals that “complement and strengthen” other ASEAN countries, including its moves to promote the Asian Infrastructure Investment Bank (AIIB), which intends as support for the building of infrastructure in the Asia-Pacific.