No Free Lunch

US vs China: Who matters more?

By: Cielito F. Habito


Philippine Daily Inquirer

12:10 AM September 13th, 2016

SOME WORRY that our outspoken President may be unnecessarily antagonizing the United States for our country’s own good, while sounding deliberately gentle with China—in the name of pursuing an “independent foreign policy.” This piece’s title notwithstanding, I am not about to argue here that we must choose one over the other. It’s fair to say that historically, both of them have helped us, and wronged us as well. In the overall scheme of things, it may not be obvious who has been and who will prospectively be the better friend or worse foe to us Filipinos. It has been argued that our independence would be best asserted by being on good terms with everyone. Indeed, it would be in our best interest as a small country to be seen as impartial in dealing with other countries, particularly the world powers, and in defining our country’s standing in the global community.

Still, I thought it might be interesting to assess and compare the nature of our economic linkages with the two countries, as this looms large in any reckoning of our relationships with either of them. I will steer clear of the political and other dimensions of those relationships, as that would be straying beyond my own area of expertise. On economic relations, the most obvious measures for which we have the data are those pertaining to trade, investments, and overseas remittances.

How important are the United States and China to us as trading partners? Overall, it would appear that they are equally important, as combined exports and imports with each are both in the neighborhood of 13 percent of our total for all countries. The United States is more important to us as an export market, accounting for 15 percent of our total exports in value terms, against China’s 10.9 percent. As source of imports, the reverse is true, with our official figures showing less of our imports (10.8 percent) coming from the United States than from China (16.2 percent). The latter figure is likely to be even higher, given the rampant smuggling of goods into the country, particularly from China. Recently it was reported that China’s data on exports to us are 60 percent higher than our corresponding data on imports from it, indicating the extent of such undocumented imports.

What do we sell to the two countries? Dominating our exports to both (50 percent of our exports to China, and 39 percent to the United States) are electronic products, mostly in the form of intermediate products such as semiconductors and circuit boards. For China, mineral ores are also prominent (14.5 percent), with shiploads of virtual raw earth, mostly nickel ores, being shipped there every week. Rounding up our top five exports to China are chemicals, miscellaneous manufactures and machinery/equipment. For the United States, garments are our second top export (14 percent), followed by coconut oil, miscellaneous manufactures, and ignition wiring sets for motor vehicles. These give us some idea on which industries—hence which types of workers—benefit from our trade with either country, and correspondingly, who would be adversely affected by a cutback in trade, as fallout from possible political conflict. Offhand, it appears that proportionately more workers benefit from our exports to the United States than to China, with labor-intensive manufactures more prominent in our top five exports to the former.

What do we buy from the two countries? Topping our imports from both are electronic products in the form of basic components for further assembly and finished consumer products. These comprise nearly half (48.2 percent) of total imports from the United States against less than a fifth (19.3 percent) from China. Agricultural products in the form of animal feed stuffs, cereals and preparations (including flour), and other food and live animals are prominent imports from the United States, along with industrial machinery and equipment. From China, our other top imports are iron and steel, industrial machinery and equipment, miscellaneous manufactures, and metal products.

As source of foreign direct investments (FDI), the United States is far more important to us than China, accounting for 13 percent of total net FDI inflows in 2015, against China’s negligible 0.01 percent (less than $1 million). In 2014, only 2 percent of total Chinese investments into Asean reportedly went to the Philippines. Chinese Ambassador Zhao Jianhua is reported to have acknowledged that the Philippines invests more in China than China does in the Philippines. Its most visible investments here are in power, shipping and mining. The Chinese government owns a 40-percent stake in the National Grid Corp. of the Philippines, and is also reported to have acquired a controlling stake in Negros Navigation Corp. operating the 2GO Travel lines.

A recent article in the Journal of Political Risk lists some 25 Chinese mining firms known to have investments in the country as of 2012, albeit not officially recorded. It cites investigative media reports portraying Chinese mining companies to be engaged in “improper” and “less than legal” mining operations in the country. On the other hand, US investments in the country have a long history and are much more substantial and varied, spanning the agriculture, industry and services sectors.

As for remittances, Bangko Sentral ng Pilipinas data report that nearly half (43 percent) comes from the United States, and less than 1 percent from China. It would seem from all this that on purely economic terms, we stand to lose more from antagonizing the Americans than the Chinese. But as we’ve stated at the outset, it’s best not to antagonize either. Whether in trade, investments or remittances, we need both—and we need much more.

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