China exerts its economic muscle in the South
China Sea
The
standoff between Manila and Beijing over the Scarborough Shoals, which began on
April 8 when the Philippines sent its navy to confront Chinese vessels fishing
in the area, has begun to have economic consequences well beyond China’s
recently imposed import restrictions on bananas, which account for more than 30
percent of Philippine banana exports.
In the
famed (if not hackneyed) Chinese phrase involving killing chickens to scare
monkeys, what is going on in the Philippines probably should catch the
attention of the other eight nations that border the South China Sea, over
which China claims almost total hegemony.
The
dispute over the bananas actually began in March, when Chinese importers
complained that the fruits were infested by pests and were therefore unsalable
in Chinese markets. The Chinese are now requiring full inspections on all
shipments and are not relying on clearances issued by Filipino quarantine
authorities. Following the banana dispute, Chinese authorities have since begun
slowing inspections of papayas, mangoes, coconuts and pineapples, sending
Philippine authorities scrambling for other markets in the Middle East and
other regions.
On May
13, Sergio Ortiz-Luis Jr., the head of the Philippine Exporters Confederation
President, said in a radio broadcast that China had “saved” Philippine
exporters during the global credit crisis when exports to traditional markets
dried up, and has since become one of the Philippines’ fastest growing export
markets. But since the banana spat began, Filipino businessmen complain that
they have lost P1 billion (US$23.12 billion). Mindanao, a major source of
exports of the fruit, has been particularly hard hit.
Despite
the fact that the Scarborough standoff began a full month after Chinese
authorities barred the bananas, exporters are blaming the government over its
handling of the standoff, which morphed into a real confrontation with the
arrival of several Chinese Maritime Surveillance Forces vessels.
However,
Philippine authorities have refused to blame the Chinese in the dispute, saying
exporters needed to clean up their act, and pointing to the fact that the ban
preceded the Scarborough incident. A fishing ban implemented by both sides has
defused the situation somewhat. Chinese authorities, however, followed up the
banana inspections by impounding Philippine papayas in Shanghai following the
discovery of mealybugs in 43 crates of the fruit. Filipino authorities have
reacted by tightening up local inspections while the fruits are still on
Philippine soil. Agriculture Secretary Proceso Alcala told reporters he was
seeking “100 percent inspections” now that Chinese authorities had turned their
scrutiny on Philippine fruit exports.
What
the confrontation has done is highlight the Philippine economy’s growing
economic links to China, now Manila’s third-largest trading partner behind
Japan (US$15.4 billion) and the United States (US$13.63 billion) – and the
vulnerability of those links. In March 2012, China accounted to 14.9 percent of
total exports, with US$642 million in shipments, up 27.8 percent from the same
month in 2011, with expectations that China will become the country’s top
trading partner by 2013. Ortiz-Luis Jr. warned that electronics exports, which
amounted to 52.56 percent of total export revenue in March 2012 at US$2.26
billion, could be next if the Chinese decided to get tough.
China
shocked Asia in 2010 by using trade as a weapon to attempt to force policy
changes on the part of countries with which it has international disputes,
blocking shipments of rare earth minerals to Japan that were crucial to a wide
range of manufactured products, apparently in retaliation for Japan’s detention
of the captain of a Chinese fishing trawler in an incident near the Diaoyu
Islands, a flock of specks which both countries claim as their own and which
have been the scene of sporadic confrontations in recent years. The Japanese
claim the islands as the Senkakus.
Later,
the Chinese slowed rare earth shipments to the United States and countries in
Europe as well, claiming they were attempting to clean up the rare earth mining
industry, which has caused disastrous pollution in many areas where the
minerals are mined. The embargo, if that is what it was, was viewed by analysts
as the latest indication that China was willing to use economic clout to get
its way in policy disputes.
The
bigger point is that if China decided to get tough on the Philippines, it is
obviously the Philippines that would come out the loser. In recent years the
Philippine economy has made major upward strides, particularly because of
inward remittances from overseas workers, at US$20 billion a year, and business
process outsourcing, now at US$13 billion.
The
Philippines, like other Southeast Asian countries, has lately begun to benefit
from the exodus of low-end Chinese manufacturing as labor costs have grown,
particularly in semiconductor components, computer parts, construction
materials such as metals, cement, bricks and tiles. In addition to bananas,
China imports pineapples, coconuts and seeds. China also imported roughly
US$5.7 billion in mining minerals from the Philippines. In 2009 and 12010,
according to the latest United Nations Trade and Development (UNCTAD) report on
trade dependency, China topped all leading destination markets for Filipino
commodity exports, followed by Japan, the United States and Singapore.
Trade
in the region now amounts to US$5 trillion. With Vietnam, the Philippines, and
China in particular continuing to squabble over vast potential oil and gas
reserves, China, as with the confrontation over the Scarborough Shoals, has
backed up its territorial claims with gunboats, thus turning the littoral
nations more and more towards the United States. It remains to be seen if
China’s attention to bananas could grow to include Indonesian coal, Malaysian
timber and other exports like palm oil, for instance, if the other nations
bordering the South China Sea were to get too obstreperous.
Asia
Sentinel
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