Philippines Terminates Belt and Road Initiative Projects

• 06 Nov 2023

On 2^nd Nov, the Philippines Department of Transportation has made a significant decision to fully terminate major infrastructure projects under the Belt and Road Initiative (BRI) in favour of Western and Japanese competitors.

• This move comes amid economic and political uncertainties, raising doubts about China's crucial investments in the Philippines.

Key Points

• Geopolitical Implications: The move signifies a new low in Philippines-China relations, contrasting with the warm engagement during President pro-Beijing presidency.
• "Pledge Trap" Diplomacy: China's diplomatic approach under President Duterte faced criticism for "pledge trap" diplomacy, where substantial investments were promised in exchange for concessions in the South China Sea.
• However, most of the $24 billion infrastructure projects pledged by China did not materialize.
• Territorial Disputes: The Philippines' departure from the BRI is rooted in territorial disputes in the South China Sea. Concerns arose after China's intimidation of Philippine patrol and resupply missions near the Second Thomas Shoal.
• Termination of Projects: The Philippines scrapped $4.9 billion worth of Chinese infrastructure projects, including railway projects in Luzon and Mindanao.
• Seeking Alternative Partners: The Philippines is now exploring alternative deals with traditional partners like Japan, South Korea, the U.S., and the European Union, aiming for more favorable terms.
• Reasons for BRI Decline: China's BRI-related operations have decreased by around 40% since their peak in 2018. This decline is attributed to legislative hurdles, financial challenges in recipient nations, and Beijing's reduced financing.
• Debt Distress: Many recipients of Chinese finance are facing significant debt distress, even though China provided over $331 billion between 2013 and 2021.
• China has had to bail out BRI recipient nations facing bankruptcy, such as Sri Lanka, Pakistan, and Laos.
• Shift in Investment Deals: Tensions in the South China Sea have coincided with a decline in bilateral investment deals between China and the Philippines.
• While China maintains a trade advantage, most infrastructure investment commitments made during the Duterte administration are now in jeopardy.
• Reasons for Shift: The Philippines' change in approach reflects geopolitical concerns and unease about China's economic slowdown, property market crises, and challenges associated with overseas investments.