Economic fallout from PH-China tensions ‘limited’, says think tank

Any economic fallout from rising tensions between the Philippines and China would be “limited,” a London-based think tank said, adding that Manila is “well-placed” to benefit from the dramatic shift in global supply chains set off by growing rivalry between Beijing and Washington.

Tensions flared up at the disputed West Philippine Sea over the weekend after Manila and Beijing traded accusations when their vessels collided near a contested reef.

But Gareth Leather, senior Asia economist at Capital Economics, believes a deterioration of Manila-Beijing ties is unlikely to create a big economic problem because the Philippines is “not closely integrated into China’s economy.”

At most, Leather said a possible economic rift could hurt the Philippines on the trade and tourism fronts, although the damage would likely be limited.

“Exports to China account for just 2.7% of the GDP of the Philippines, which is one of the lowest ratios in the region,” he said in an e-mailed commentary. “The potential to export more to China is limited by the fact that the Philippines exports few of the kind of products that China buys.”“Tourism could also suffer, but this is a small part of the economy. Even before the pandemic hit, spending by Chinese visitors accounted for just 0.4% of the GDP of the Philippines,” he added.

The development last weekend was the latest in a series of heated encounters and exchanges between the two nations since relations have soured under President Ferdinand Marcos Jr., who has brought the Philippines away from China and closer to Washington, Beijing’s strategic rival.

Investment ties have already started to be affected after the Philippines withdrew a number of applications for Chinese funding for big-ticket infrastructure projects, particularly railway projects that have yet to materialize since the previous Duterte administration set aside the Philippines’ claims in the contested sea in exchange for Chinese investments.

Outside the sea feud, Leather said the growing rift between the West and China “presents opportunities” for countries able to link their economies to shifting global supply chains, including the Philippines.

“So far the main beneficiaries of this shift have been Vietnam and India. But as a low-wage economy, close to existing supply chains, the Philippines is also well-placed to benefit,” he said. INQ