Manila wants to revisit Chinese loans for 3 rail projects as analysts warn of 'risks'
South China Morning Post
4 min read
As Manila says it will return to the negotiating table for Chinese loans to fund three rail projects, analysts are warning of the risks of such loans under Beijing's Belt and Road Initiative at a time of global economic uncertainty.
Philippine President Ferdinand "Bongbong" Marcos Jnr told the transport department to secure the loans after China Exim Bank did not act on a loan agreement struck under his predecessor, undersecretary for railways Cesar Chavez said in a statement on Saturday.
Marcos Jnr - who is expected to continue former president Rodrigo Duterte's policy of having close ties with both Beijing and Washington - has said he will seek to attract more investors through public-private partnerships. The Duterte government largely avoided such partnerships, saying they prolonged projects and added to costs.
Do you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team.
President Ferdinand Marcos Jnr wants the transport department to return to the negotiating table. Photo: Reuters alt=President Ferdinand Marcos Jnr wants the transport department to return to the negotiating table. Photo: Reuters>
Beijing, meanwhile, has been pushing its belt and road scheme "as an unwavering, long-term project - meaning that it will go on for who knows how many years", according to Pang Zhongying, chair professor in international and regional political economy at Sichuan University in Chengdu.
"But at the same time, China itself realises the severity of the global economic crisis, high inflation and disruptions to the supply chain," Pang said.
Still, Beijing was pressing ahead with the trade and infrastructure initiative because it was a political imperative, he said, adding that it was similar to China insisting it would stick to its tough zero-Covid policy.
On Monday, Chinese foreign ministry spokesman Wang Wenbin said China "welcomes President Marcos' instruction to the responsible department of the Philippines to discuss project cooperation with China and will connect fully with the new Philippine government on this".
He said the Philippines had always been a priority in China's regional diplomacy, and Marcos' presidency had given the relationship a new start.
China's embassy in Manila on Sunday said Beijing was willing to "handle differences properly" with the Philippines and strengthen cooperation in agriculture, infrastructure, energy and cultural exchanges.
The loans in question are for three projects - the Subic-Clark Railway, the Philippine National Railways South Long-Haul line and the Mindanao Railway - with an estimated total cost of nearly US$5 billion.
Sonny Dominguez, the finance secretary under Duterte, cancelled the loan agreement for the projects after China Exim Bank did not act on documents filed by Manila, according to local media reports.
He reportedly told Chavez that China could offer annual interest rates of over 3 per cent on the loans. That compared to Japan's concessional rate of 0.1 per cent for other rail projects.
However in Saturday's statement, Chavez said the agreement had been cancelled to defer decisions on the projects to the then incoming government.
Pang from Sichuan University said Chinese infrastructure projects were at risk of not yielding returns, giving the example of the current situation in Sri Lanka, which has declared bankruptcy.
Chinese state-owned firms have extended loans to build the country's high-profile Hambantota International Port and Mattala Rajapaksa International Airport, but the economic viability of the projects is uncertain given Sri Lanka's financial and political instability.
"The infrastructure in the Philippines should be understood in this context," he said, adding that the involvement of larger lenders such as the Asian Infrastructure Investment Bank and China Exim Bank in the projects could increase risk and lead to a domino effect that sees a debt crisis turn into an economic crisis.
But Xu Liping, a professor at the state-backed Chinese Academy of Social Sciences, said the belt and road scheme had little to do with Sri Lanka's bankruptcy, which was caused by foreign reserves.
"Chinese loans to Sri Lanka were concessionary," he added.
Xu said Chinese banks did assess the political risk of countries they invested in, but declined to elaborate, saying criteria for assessment were confidential.
The previous Duterte government launched the "Build, Build, Build" infrastructure programme - in particular to improve rail, road and airport links - for the Philippines in 2017 with a cost of more than US$180 billion. Some projects were later axed to make the building spree more realistic.
