How China’s economic diplomacy can defuse tensions with the Philippines

Returning to a supposed Duterte-era deal to preserve peace in the Spratly Islands would be a pragmatic step for Manila amid military tensions
Beijing should opt for economic investment instead of military assertiveness which only serves to harden negative public opinion among Filipinos

Zahira Khan

Published: 5:30am, 1 May 2024

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China and the Philippines have recently exchanged words over a claimed Duterte-era agreement to manage tensions at Second Thomas Shoal. China’s embassy in Manila announced earlier this month that both nations were exploring ways to defuse the dispute and were committed to maintaining agreements reached by both sides. Manila later denied the claim, calling it propaganda.

Former president Rodrigo Duterte and his spokesperson Harry Roque said there was a “gentleman’s agreement” between the two countries in which they would not transfer construction materials to the shoal but only provide food and water supplies to personnel stationed on the Sierra Madre, the Philippine warship grounded there since 1999 to serve as a military outpost. This aimed to preserve peace in the disputed Spratly Islands without compromising sovereignty.

China claimed it had a similar understanding with the Marcos administration after it came to power in 2022, whereby the government would keep honouring the agreement. However, Beijing accuses Manila of unilaterally abandoning the arrangement since February 2023 without explanation.

Despite the tense exchange, the recent disclosure of the arrangement by Beijing indicates a potential for improved relations between the two countries if they proceed calmly. China aims to convey to the Philippine public that its actions, such as using water cannons against Philippine vessels allegedly supplying construction materials to the disputed shoal, were merely responses to Manila’s violation of their shared understanding.

Nearly 17,000 troops from the armed forces of the Philippines and United States are currently engaged in the annual Balikatan military exercises. This year’s drills come as the US deployed a missile system capable of launching ballistic missiles with a range of 370km and Tomahawk cruise missiles with a range of 1,600km.

The deployment signals the US’ ability to position offensive weaponry near China for potential contingency operations in the Taiwan Strait, posing a destabilising threat. Activists in the Philippines have expressed concern that such deployments expose the northern part of the country to potential Chinese attacks in the event of a conflict between the US and China in the region.

Philippine marines and their counterparts from the US Marine Corps take part in air assault exercises in Palawan province, the Philippines, on April 26. Photo: EPA-EFE / Armed Forces of the Philippines

Manila would benefit from returning to the “gentlemen’s arrangement” to address underlying tensions, rather than prolonging them. This would enable the Philippines to maintain its military presence on the Second Thomas Shoal without building additional structures and prevent China from interfering with Philippine naval vessels conducting energy exploration. This pragmatic approach would uphold the status quo until a formal South China Sea code of conduct is established.

However, if the Ferdinand Marcos Jnr administration refuses, Beijing should recognise that the leadership favours alignment with Washington. Moreover, domestic public opinion in the Philippines strongly supports asserting territorial rights. According to a 2023 survey of 1,200 Filipinos by Octa Research, 70 per cent of respondents said territorial sovereignty should be asserted through diplomacy and other peaceful means, while 65 per cent also favoured military action.

Despite the Marcos administration’s desire to amend the constitution to facilitate joint energy exploration projects with China and other countries, only 19 per cent of Filipinos support such collaboration.

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Why the Philippines’ Duterte-Marcos alliance is disintegrating

A former Supreme Court associate justice and legal scholars have also said they oppose the amendment, fearing that Beijing could assert co-ownership over Manila’s oil and gas fields in the West Philippine Sea and deploy its coastguard ships under the pretext of security. Some have said they might agree only if Beijing functioned as a foreign service contractor.

Against this backdrop, China’s military assertiveness against Philippine resupply naval missions only serves to harden negative public opinion in the country. Thus, Beijing finds itself operating in an environment where it has few partners and many adversaries, playing into America’s hands. Washington maintains treaty allies and strategic partners in the region and their interoperability is only growing stronger.

Instead, China should leverage its strength by investing in Philippine infrastructure, helping to address the country’s economic challenges.

Demonstrators gather outside the Chinese consulate in Makati, the Philippines, on April 19, calling on China to stop harassing Philippine vessels and fishermen in the South China Sea. Photo: AP

According to Pulse Asia surveys, Marcos Jnr has experienced a consistent decline in public trust and approval ratings due to his perceived inability to address inflation and economic hardships. His approval rating dropped from 68 per cent in December 2023 to 55 per cent in March. Public trust in him fell from 73 per cent in December to 57 per cent in March. Judging by these poll numbers, Marcos should seek help to meet his country’s economic challenges.

China currently appears to be withholding investments in the Philippines. Despite Marcos’ claims of securing more than US$22 billion in investment pledges from China following a visit to Beijing in January 2023, recent reports indicate that, of China’s US$20 billion investments in the Asia-Pacific region in 2023, the Philippines saw no new investment or construction projects. This cautious approach by Beijing suggests a degree of scepticism.

Instead, China should utilise economic diplomacy to engage the Marcos administration. This presents an opportunity for Beijing to leverage its financial strength, experience and cost-efficiencies to outcompete the likes of the US and Japan.

Marcos would undoubtedly welcome China’s help in tackling his country’s economic problems, which could bolster his efforts to restore his family’s legacy and establish his own before his term ends in 2028. Thus, economic diplomacy would seem to be a more effective way to address Manila’s security concerns, improve Beijing’s image in the Philippines and contribute to overall peace in the South China Sea.

Zahira Khan is a research analyst based in Pakistan