MANILA, October 23, 2005
 (STAR) By Marvin Sy - The Philippines could enjoy a greater volume of trade with China if it improves its investment climate, according to a Chinese scholar.

In a paper presented during the two-day International Conference on Philippines-China Relations in Manila, Dr. Liao Shaolian, deputy director of the Center for Southeast Asian Studies of the Xiamen University in China, said the Philippines continues to lag behind its Association of Southeast Asian Nations (ASEAN) neighbors in terms of trade volume with China.

While the total share of Philippines-China trade in the country’s total trade figures grew from 1.39 percent to 12.75 between 1990 and 2003, this figure is low compared with Malaysia, Indonesia, Singapore and Thailand.

In 2004, total volume of trade between the Philippines and China was recorded at $13.3 billion while Singapore had a total of $26.7 billion; Malaysia, $26.3 billion; Thailand, $17.3 billion; and Indonesia, $13.5 billion.

In terms of approved investments by China in the ASEAN, the Philippines also received the least amount with just $16.4 million, based on the first half figures for 2003.

Thailand, in contrast, got $254.7 million; Indonesia, $163.7 million; Vietnam, $90.1 million; Singapore, $79.3 million; Malaysia, $38.4 million.

Liao pointed out that between 1985 and 2000, China’s bilateral trade volumes multiplied by more than 20 times with Malaysia, Brunei and Thailand while its trade volume with the Philippines increased only tenfold.

However, in terms of actual growth of bilateral trade volume with China, the Philippines outpaced all ASEAN countries in 2003 and 2004.

Liao cited the Philippines’ protectionist attitude as a major factor that was preventing the entry of more capital from China.

"The Philippines worries mainly about the influx of cheap Chinese commodities to its domestic market which could have a negative impact on indigenous industries and more fierce competition with Chinese commodities in the third country markets especially in the US, Japan and (the European Union)," Liao said.

He said protectionist measures, as China realized by the end of the 1970s, is not an effective way to deal with open market competition in the long run.

Liao said the Philippines’ slow response to liberalization is understandable, since it wanted to protect its domestic industries.

Another Chinese scholar, Lu Jianren of the Chinese Academy of Social Sciences in Beijing, said the Philippines’ trade with China improved during the term of then President Fidel Ramos, as trade barriers with China were removed and the volume of trade hit the $1 billion mark.

Liao said the Philippines needs to "upgrade its economic structure in order to enhance competitiveness."

"It can be expected that with the advantages of geographic proximity and traditional close contacts, the Philippines will definitely be one of the major destinations of capital outflow if its investment environment can be further improved," Liao said.

An area of potential concern, according to the scholars, is the Philippine government’s North Rail project, which China is financing through a loan.

Some lawmakers have alleged that the contract contained anomalous provisions. The allegations formed part of the impeachment complaints against Mrs. Arroyo, which were eventually dismissed by the House of Representatives.

However, the Senate vowed to conduct an inquiry into the allegations, and based its arguments on a study conducted by academicians from the University of the Philippines that was commissioned by the President’s ally-turned-foe Senate President Franklin Drilon.

Malacañang has vowed to push through with the project, which involves the rehabilitation of the old railroad system that connects Metro Manila to Northern Luzon.

Liao said there is a lack of mutual understanding between China and the Philippines and this has contributed to the problems faced by the two countries.

He said there is still very little knowledge of the Philippine market among Chinese businessmen.

"At present, there is still a lack of mutual understanding. For the Chinese side, little information is available on the Philippine market and investment environment," Liao said.

He said that the Chinese government has made a strong effort to encourage investments overseas and even embarked on a series of decentralization measures to encourage and support eligible enterprises of various kinds of ownership structures to invest abroad.

As of March 2003, a total of 40 Chinese companies had been established in the Philippines with an actual investment of $16.4 million.

Liao noted that the Philippines and China have several potential areas that they could work on to improve trade relations — agriculture, mining, manufacturing and tourism.

He said the Philippines should enhance its hybrid rice production by importing more seeds from China until it reaches self-sufficiency.

Liao pointed out that the Philippines still imports $250 million worth of rice annually when it could import 20,000 tons of hybrid rice seeds from China, which would cost just one-sixth of the $250 million.

He said that with the importation of these rice seeds, the Philippines’ annual rice production would increase by two million tons — worth $240 million.

With the introduction of hybrid rice seeds, domestic rice farmers increased their production from three to 3.4 tons per hectare to eight tons per hectare.

Liao said there is also great potential for cooperation in mineral exploration.

Another sector identified by Liao is manufacturing, but he conceded the two countries are currently competing with each other.

Liao said the growing expansion of China’s exports in machinery and electronic products would mean a corresponding increase in its demands for imports of these parts and components.

The third area is tourism, in which both the Philippines and China agree that there is great potential for cooperation.

Former tourism secretary Narzalina Lim lamented that the Philippines still lags behind its ASEAN neighbors in terms of attracting Chinese tourists.

Lim expressed disappointment that the government’s focus on bilateral relations failed to include tourism in spite of its huge potential for promoting the Philippines to Chinese tourists and in creating new employment opportunities.

She was reacting to the speech of Foreign Affairs Secretary Alberto Romulo during the conference which identified trade, agriculture, mining, infrastructure, services, energy, environment and the South China Sea as areas of cooperation between the two countries.

Lim pointed out that the Philippines was still way behind Singapore, Malaysia and Thailand in attracting Chinese tourists.

In 2000, Singapore received 262,776 tourists from China; Malaysia, 86,696; Thailand, 707,456; and the Philippines, 33,467.

Lim noted that tourist arrivals from China to the Philippines had improved this year, reaching 64,044 from January to August.

She said the Philippines took a long time in coming up with a strong tourism policy in relation to China and actually had very restrictive policies that discouraged the arrival of tourists.

Previously, the country had imposed very stringent visa rules and had no consular offices in China.

However, she said the government has since relaxed its visa rules and has even started issuing visas on arrival for Chinese tourists.

Chief News Editor: Sol Jose Vanzi

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