De La Salle University - College of Law

In partial fulfillment of the requirement on

Public International Law

Aide Mémoiré:
An Analysis on the “One Belt, One Road” Policy of China and
Its Effects on the Philippines? Good or Bad?

Submitted by:
Guzman, Julius Edward M.

Section:
G03

Date:
September 17, 2018

Professor:
Atty. Severo C. Madrano, Jr., LL.M., Ph.D.
 Table of Contents

I. WHAT IS ONE BELT, ONE ROAD POLICY? .................................................................... 2

II. OVERVIEW OF PHILIPPINE ECONOMY ........................................................................ 2
III. PHILIPPINE-CHINA DIPLOMATIC AND ECONOMIC RELATIONSHIP .............. 3
IV. INFRASTRUCTURE NEEDS OF THE PHILIPPINES................................................. 4
V. ONE BELT, ONE ROAD POLICY IN THE PHILIPPINES ............................................. 5
VI. ECONOMIC IMPLICATIONS OF OBOR POLICY ....................................................... 5
VII. POLITICAL IMPLICATIONS OF OBOR POLICY ........................................................ 6
VIII. RISKS OF OBOR POLICY ................................................................................................ 6
IX. CONCLUSION................................................................................................................... 7
X. REFERENCES ....................................................................................................................... 8

2
I. What is One Belt, One Road Policy?

In 2013, the most ambitious foreign policy and economic initiative was announced by Chinese
President Xi Jinping, proposing “One Belt, One Road” Policy of China. This initiative is composed of two
major programs – Silk Road Economic Belt and 21st Century Maritime Silk Road.1 It aims to connect China
from less-developed border regions with neighboring countries. Although, OBOR has many views, but
basically, it aims to develop the neighboring countries, specifically on their economy. Although, one view
stands out that China is showing dominance to the world.2

The “Silk Road Economic Belt” connects three major routes like China to Europe, the Persian
Gulf, the Mediterranean and the Indian Ocean. On the other hand, the 21st Maritime is based on waterways
among member countries of OBOR initiative. 65 countries and initially 900 projects with an investment
volume of US $850 are involved in this policy.

China also put up Asian Infrastructure Investment Bank with its startup capital of 100 billion
dollars in the context of OBOR. This financial institution is dedicated to lend loans for projects regarding
infrastructure projects under OBOR.

The initiative of China on this matter, can be compared to its old Silk Road (2000 years ago), which
has been facilitated as a trade route to Arab and central Asia. Now, President Xi Jinping, declared to
establish and revitalize the old Silk Road by establishing a connection among China, all parts of Asia, Europe
and Africa through infrastructure development like railways and roads.

It is considered as one of the largest or maybe the most ambitious economic platform of the world
which will promote global economic growth through strengthening economic cooperation. Thus, countries
are tempted or rather wanted to join in this initiative created by China.3

However, the question is, how will it affect our country, Philippines, if we join in this initiative?
This aide-memoire, aims to explain the pros and cons of the policy in the Philippines. Furthermore, it will
discuss also an overview over the economy of the Philippines and its diplomatic and economic relationship
with China.

II. Overview of Philippine Economy

According to the Euromonitor, the economy is growing at a solid pace. The country is one of
Asia’s fastest-growing countries, where real GDP will increase by 6.8% in 2018 after gains of 6.7% in 2017.
To wit, consumer spending will be the main driver in boosting the economy. However, there are fears that
the economy is overheating as the manufacturing sector nears full capacity.4

The Philippine economy grew strongly in the first half of this decade despite the effects of a major
earthquake and a strong typhoon. Domestic demand and construction were the main drivers. Additional
support came from investment in manufacturing. The pace of growth slipped slightly in 2015-2017 but the
Philippine economy still had one of the best performances in the region. Both consumer spending and
public consumption saw solid gains while investment rose as a result of Manila’s infrastructure program.
Low interest rates and a rapid expansion in consumer lending provided additional support.

The Philippines is a major supplier of workers to other parts of the world. The main reason for
the continued exodus is the many Philippines who live in poverty. According to the World Bank, the
poverty rate has fallen to 22.9% with a further decline predicted in 2018. Based on these trends, around

1
(Zheping Huang, Your guide to OBOR, China's plan to build a new Silk Road Quartz (2017), https://qz.com/983460/obor-an-extremely-
simple-guide-to-understanding-chinas-one-belt-one-road-forum-for-its-new-silk-road/ (last visited Sep 15, 2018).
2
Id
3
Id
4
Euromonitor, Philippines: Country Profile, Country Report(2018).

2
one million Filipinos are being lifted out of poverty each year. Manila’s Development Plan aims to cut the
poverty rate to less than 20%.

Exports remain an important contributor to growth but their share in GDP has declined in recent
years. In 2017, exports amounted to 20.9% of GDP. Exports (in dollar terms) rose by 14.0% in 2017 and
growth of 2.8% is expected in 2018. Port congestion and an inefficient Philippine shipping industry push
up costs while overseas demand for manufacturers (particularly in China and Japan) is weak.
Implementation of the ASEAN Economic Community could provide a boost to exporters in the medium
term.5

The Philippines’ major export markets are China, the USA and Japan. These three countries
accounted for a combined 41.9% of total exports in 2017. Machinery and electrical equipment accounted
for 58.4% of all exports in 2017. Other important exports include mineral products, vegetable products
and wooden products. A problem for the Philippines is that most exporters (including carmakers and
producers of electronic products) must import most of their imports. Few domestic suppliers are available.6

The Philippines have traditionally maintained a current account surplus, but a deficit of 0.5% of
GDP is expected in 2018. An increase in infrastructure-related imports puts the current account under
pressure although higher remittances help to offset the rise.

Therefore, the Philippine economy still have a positive outlook despite of the current
administration. However, the momentum will be disrupted, if the administration continues to ignore its
shortcomings and do not solve its current problems in corruption, human rights violation, and most
especially poverty.

III. Philippine-China Diplomatic and Economic Relationship

Benigno S. C. Aquino III was elected in May 2010 which succeeded Gloria Macapagal-Arroyo, as
the president of the Philippines. During his early term of presidency, a lot of incidents happened which
faces difficulties and challenges between the relationship of Philippines and China, to name a few:

(1) The Rizal Park hostage crisis in August 2010 which resulted in the killing of eight Chinese
tourists from Hong Kong including several others injured. The case has not been settled
satisfactorily due to President Aquino III’s refusal to express an apology to the Hong Kong
authorities, insisting that it was a police problem.
(2) On the other hand, the shooting of a Taiwanese fisherman by a member of the Philippine
Coast Guard in 2013 compelled the Aquino government to offer an apology after Taiwanese
authorities threatened to expel Filipino workers there.
(3) In another incident, urgent appeals by the Philippine government to stop the execution of
suspected Filipino “drug mules” (or illegal drug couriers) by Chinese authorities were
unheeded.
(4) In September 2013, a misunderstanding between China and the Philippines during the China-
ASEAN Expo cropped up over President Aquino III’s state visit to represent his country as
host of the regional event. Mr. Aquino failed to attend.

The “lowest point” in the two countries’ relations were dramatized by the filing of a petition for
arbitration by the Philippine government against China before the International Tribunal on the Law of the
Sea (ITLOS) in March 2014 to resolve territorial disputes in South China Sea. The Chinese foreign ministry
issued a diplomatic protest over the filing which it called an act of damage against a friendly country; it
reiterated as well that sovereign claims should be settled through negotiations.7 The bone of contention is
how to settle the territorial tensions in the SCS which involve not only China and the Philippines but also

5
Id
6
Id
7
Bobby M Tuazon, THE HIGHS AND LOWS OF PHILIPPINES-CHINA RELATIONS: Current Situation and Prospects, Paper from a Lecture for
the Guangxi Academy of Social Sciences, Institute of Southeast Asian Studies(2014).

3
other countries in Asia: bilaterally or multilaterally such as through the ASEAN. The territorial dispute has
been made more complicated by the entry of the Philippines into the Expanded Defense Cooperation
Agreement (EDCA) with the U.S. in April 2014 believing that the new defense partnership will serve as a
deterrent against China’s “assertiveness” in the SCS. Moreover, the Philippine government strengthened its
defense partnership with Japan which has its own territorial claims over Diaoyu (Senkaku) islands against
China.

Nonetheless, Aquino III has said that the territorial dispute does not define the whole relations
between the two countries. He also clarified that his government’s military modernization and arms
acquisition are not a threat to China but are designed to increase the capability of its internal security. Just
the same, although bilateral trade continues the territorial differences have affected investment and
development cooperation between the two countries.

In 2016, Rodrigo Duterte was elected in which posed an unprecedented challenge to Philippine-
U.S. relations. Constantly drawing up the colonial past to express his disdain of American power, the
strongman president called U.S. president Barack Obama to “go to hell” and threatened to dismantle the
1951 Mutual Defense Treaty when Obama criticized Duterte’s violent drug war. His colorful cursing
language does come with swift actions: He has scaled back joint military exercises with the United States,
barred U.S. warships from using Filipino bases to conduct Freedom of Navigation Operations in the South
China Sea, and effectively softened the Philippines’ tone over the South China Sea arbitration victory,
downplaying the territorial dispute in the Philippine-chaired 30th ASEAN Summit Chairman’s Statement
during May 2017.

In contrast with his distaste for Americans, Duterte has worked to normalize relations with China,
which were heavily damaged during his predecessor's term, while reaching out for defense cooperation with
Russian President Vladimir Putin and Japanese Prime Minister Shinzo Abe. During Duterte’s state visit to
Beijing last October 2016, Duterte announced his “separation from the United States” while declaring his
intention to forge an alliance with China and Russia “against the world” in front of Chinese and Filipino
business people, which immediately captured headlines around the globe. After declining President Trump’s
invitation to the White House euphemistically in April, Duterte had a telephone discussion with Chinese
President Xi Jinping on regional issues.

Both sides have seemingly pursued efforts to woo Philippines in their camp, due to their intensive
attention of events on the geopolitical fault line bordering the Pacific’s western periphery, especially the
South China Sea. Still, tensions in the South China Sea are unlikely to diminish anytime soon, a major
example being Chinese ships spotted surveying the waters of Benham Rise earlier this year, which had been
recognized by the United Nations Commission on the Limits of the Continental Shelf in 2012 as part of
the Philippines’ extended continental shelf. Triggered by uncertainty, Duterte was pressured by domestic
attitude to adopt a nationalistic posture, saying he wanted to change the name of Benham Rise to
“Philippine Ridge”, asserting the country's claim in the 13-million-hectare underwater plateau, and also
instructed the military to assert control in the region, while saying he would personally raise the Philippine
flag on one of the Spratly Islands on June 12, the country’s Independence Day.8

As Duterte stated, “We tried to be friends with everybody, but we have to maintain our jurisdiction
now, at least the areas under our control”; the Philippine-China rapprochement is not without challenges
and limits.

IV. Infrastructure Needs of the Philippines

Transport infrastructure is underdeveloped, although there are vast differences between the growth
poles (the national capital region; the economic zones at the former US bases at Subic and Clark; and the
Calabarzon region south of the capital, Manila) and the poorer regions in Mindanao and parts of the Visayas.
Businesses located in and around the major commercial centres will find transport to be functional,
although delays and traffic jams are a big problem. Road quality varies by region; less than one-half of the

8
Id

4
road networks are all-weather. The railway system is very limited. Port services are adequate at major
locations, although congestion has caused major delays at the Port of Manila, and air services have generally
been improving.9

V. One Belt, One Road Policy in the Philippines

One of the main goals of the policy is to support the Southeast Asia region. However, official maps
of OBOR initially released by state organs in the PRC bypassed the Philippines. This is somewhat intriguing
given the historical role of Manila as the hub of the galleon trade at the center of early Chinese globalization,
bringing Chinese goods to Europe from the mid-16th to the early 19th centuries. In other ways, however,
it is less surprising.10 The Manila galleons headed east to the New World, overland across Mexico and then
goods were shipped to Europe (thus the Mexican silver dollar became a dominant currency in China); the
Belt and Road head west. But there are other more contemporary reasons Manila was not included as a
stop on the Road: the contentious Spratly Islands territorial dispute between China and the Philippines (as
well as several other members of ASEAN), anti- Chinese sentiment in the Philippines, and, perhaps most
important, China’s difficult experience earlier in the new century in attempting to influence democratic
Philippines using the same methods it has used successfully to influence the governments of Kazakhstan,
Cambodia, Laos and other authoritarian regimes.11

The project, and other major Chinese investments in the Philippines, illustrate the role of political
institutions in constraining China’s efforts to influence developing, democratic states. Like many developing
states, the Philippines has high levels of corruption and informal networks often dominate the political
economy. However, unlike the cases of Kazakhstan, Cambodia and Laos above, formal political institutions
allow for checks on the executive leadership from the legislature and courts, relatively free and fair elections
for political offices, and a thriving civil society and media. Although far from a democratic ideal type, the
Philippines is pluralistic, with multiple family dynasties, exemplified by the Marcoses and Aquinos, battling
for power across the islands, as opposed to the dominance of the families of Nursultan Nazarbayev and
Hun Sen in Kazakhstan and Cambodia, respectively, or the dominance of the Communist Party in Laos.12

VI. Economic Implications of OBOR Policy

It is still very early to talk about the economic benefits for the new silk route initiative of China.
The economic gain of ASEAN from this initiative will depend greatly on the prospect of security or political
cooperation between China and ASEAN. However, it can also be the opposite, meaning close security and
political cooperation between China and ASEAN may come because of vibrant economic cooperation
between themselves under this initiative. In the same manner that GCC countries including Iran, Turkey
and Israel, can fully maximize economic and trade connectivity between them and other economies within
the projective OBOR routes. Such connectivity is not only relevant to the movement of goods and energy
supply as modes of transportation to deliver them are expected to increase in large numbers, and in terms
of efficiency. Most importantly, however, Middle Eastern countries can have the assurance of an overseas
market for their products and of course possible sources of investment to help improve the production
and quality of their products.

Probably, the rate of gains from China’s new silk route initiative for ASEAN member countries as
well as with Middle Eastern countries may not be at the same level given the different economic priorities
of these countries accorded to China. This also means that these countries do not share the same level of
trade, investment, and financial transactions with China and vice versa. Some ASEAN countries like the

9
The Economist Corporate Network, “ONE BELT, ONE ROAD”: AN ECONOMIC ROADMAP", The Economist(2016),
http://www.iberchina.org/files/2016/obor_economist.pdf.
10
Peter Cai, Understanding China’s Belt and Road Initiative, The Lowy Institute for International Policy (2017).

Sarker, M.N.I., Hossin, M.A.,
Yin, X.H. and Sarkar, M.K. (2018) One Belt One Road Initiative of China: Implication for Future of Global Development. Modern Economy, 9,
623-638. https://doi.org/10.4236/me.2018.94040
11
Helen Chin & Winnie He, The Belt and Road Initiative: 65 Countries and Beyond, GLOBAL SOURCING FUNG BUSINESS INTELLIGENCE
CENTRE(2016), https://www.fbicgroup.com/sites/default/files/B&R_Initiative_65_Countries_and_Beyond.pdf.
12
Id

5
Philippines, Thailand and Vietnam have accorded more priority with other countries such as the US, South
Korea, Japan and Taiwan, whereas, GCC countries may have low levels of economic transaction than Iran
due to the type of their economy which is more energy-based production. In spite of this, what remains on
the table with regard to the new China silk route initiative as both sides still need to study that initiative,
especially since skepticism persists.

The Philippine Star dated January 12, 2015 reported that, the ASEAN “has become one of the
biggest trading partners” of the GCC countries. In so doing, “GCC is a critical node in the global economic
system, as its larger economies diversify beyond hydrocarbons and into financial services, infrastructure,
tourism, agriculture and private equity.” Singapore was the ASEAN country in September 2013 that entered
into the first free trade agreement (FTA) with GCC especially in energy sector both in upstream and
downstream energy projects in the ASEAN region, whereas, Malaysia signed a deal in 2013. Aside from
energy cooperation, food sector also formed part of GCC activities in various ASEAN countries under the
“food for oil” program. Additionally, in the labor front, GCC are also actively sourcing its foreign workers
from Indonesia and the Philippines.13

VII. Political Implications of OBOR Policy

China’s new silk route initiative generates both positive and negative responses particularly from
the ASEAN member countries including countries in the Middle East and other regions. For some, the
OBOR or NSR is considered by other scholars as China’s new kind of “neocolonialism” (Deals 2014);
others view this as an alternative move by China to counter US hegemony (Deepak 2014) and therefore a
signal to return to a “geo-political competition” (Mead 2014) by regional and world powers competing in
two strategically conditioned regions in the world.14

A strengthened ASEAN and Middle Eastern economy would possibly increase the ASEAN and
Middle East countries’ political leverage to negotiate with greater economic power such as China and even
the US and EU in the case of the Middle East countries. On the other hand, the more economically and
socio-culturally closed people in the region has the greater possibility of regional security cooperation in
which China and ASEAN, which, together with Japan and South Korea, could address regional security
impediment such as the South China Sea, Korean Peninsula, nuclearization, piracy and non-traditional
security challenges. This is perhaps one reason why initiatives to increase Chinese-Arab cultural exchanges
are necessary, both at present but more importantly for the future relations between China and the region.

VIII. Risks of OBOR Policy

More recently, governments from Malaysia to Pakistan are starting to rethink the costs of these
projects. Sri Lanka, where the government leased a port to a Chinese company for 99 years after struggling
to make repayments, is a cautionary tale.15

Earlier this year, the Center for Global Development found eight more Belt and Road countries at
serious risk of not being able to repay their loans. The affected nations – Djibouti, Kyrgyzstan, Laos, the
Maldives, Mongolia, Montenegro, Pakistan and Tajikistan – are among the poorest in their respective
regions and will owe more than half of all their foreign debt to China.

Critics worry China could use “debt-trap diplomacy” to extract strategic concessions – such as over
territorial disputes in the South China Sea or silence on human rights violations. In 2011, China wrote off
an undisclosed debt owed by Tajikistan in exchange for 1,158 sq km (447 sq miles) of disputed territory.16

13
Id
14
Jeremy Chiang, Philippine Foreign Policy in the 21st Century: the Influence of Double-Asymmetric Structure.
15 Zheping Huang, Your guide to OBOR, China's plan to build a new Silk Road Quartz (2017), https://qz.com/983460/obor-an-
extremely-simple-guide-to-understanding-chinas-one-belt-one-road-forum-for-its-new-silk-road/ (last visited Sep 15, 2018).
16
Id

6
 “There are some extreme cases where China lends into very high-risk environments, and it would
seem that the motivation is something different. In these situations, the leverage China has as lender is used
for purposes unrelated to the original loan,” said Scott Morris, one of the authors of the Washington Centre
for Global Development report.17

IX. Conclusion

To conclude, it is important for the Philippine government to continue to take care of its
relationship with the neighboring countries, most especially with the China. However, the President should
take a serious step when other countries would step on our sovereignty. In spite of joining OBOR, where
a lot of positive and negative implications in our country, a strengthened ASEAN must be a top priority.
With what’s going on today’s age, it is important for the Philippines to carefully examine all the policies
that are being agreed upon, one of which is this “One Belt, One Road Policy”. We must stand on our
independent foreign and economic policy but not disregarding a continuing healthy relationship among
with other countries. It is a fact, that we have a lot of infrastructure needs, but our country is more capable
on providing its needs.

The Philippines should not rush in deciding on whether joining fully in this program, hence, a
careful and vigorous review is a must. Repairing its relationship with other nation, is one of the key
foundations for a better nation. However, the administration should be wary with all the negative
implications.

17
Id

7
X. References

(1) Zheping Huang, Your guide to OBOR, China's plan to build a new Silk
Road Quartz (2017), https://qz.com/983460/obor-an-extremely-simple-guide-to-
understanding-chinas-one-belt-one-road-forum-for-its-new-silk-road/ (last visited Sep 15,
2018).
(2) The Economist Corporate Network, “ONE BELT, ONE ROAD”: AN ECONOMIC
ROADMAP", The Economist(2016),
http://www.iberchina.org/files/2016/obor_economist.pdf.
(3) Lily Kuo & Niko Kommenda, What is China's Belt and Road Initiative? The Guardian,
https://www.theguardian.com/cities/ng-interactive/2018/jul/30/what-china-belt-road-
initiative-silk-road-explainer (last visited Sep 15, 2018).
(4) Euromonitor, China: Country Profile, Country Report(2018).
(5) Euromonitor, Philippines: Country Profile, Country Report(2018).
 

(6) Peter Cai, Understanding China’s Belt and Road Initiative, The Lowy Institute for International
Policy (2017).
 
 Sarker, M.N.I., Hossin, M.A., Yin, X.H. and Sarkar, M.K. (2018) One
Belt One Road Initiative of China: Implication for Future of Global Development.
Modern Economy, 9, 623-638. https://doi.org/10.4236/me.2018.94040
(7) Helen Chin & Winnie He, The Belt and Road Initiative: 65 Countries and Beyond, GLOBAL
SOURCING FUNG BUSINESS INTELLIGENCE CENTRE(2016),
https://www.fbicgroup.com/sites/default/files/B&R_Initiative_65_Countries_and_Bey
ond.pdf.
(8) Bobby M Tuazon, THE HIGHS AND LOWS OF PHILIPPINES-CHINA
RELATIONS: Current Situation and Prospects, Paper from a Lecture for the Guangxi
Academy of Social Sciences, Institute of Southeast Asian Studies (2014).
(9) Jeremy Chiang, Philippine Foreign Policy in the 21st Century: the Influence of Double-Asymmetric
Structure.
(10) “Gulf Region Emerging as Prominent Trade, Investment Partner for ASEAN,”
January 12, 2015, www.philstar.com.