Why Duterte’s Deals With China May Be Security Concerns
When Roridgo Duterte, the impish and combustible president of the Philippines, paid a state visit to China last month the press contextualized the trip as part of his jarring U-turn away from the U.S. alliance and toward China’s lucrative embrace. That narrative, and Duterte’s apparent determination to restructure the regional order, have received no shortage of coverage and analysis in The Diplomatand beyond.
This article is more concerned with the $15 billion in development projects and $9 billion in credit lines Duterte inked in Beijing. Specifically, the involvement of three subsidiaries of the China Communication Construction Co. (CCCC) in list of projects and investments: China Harbor Engineering Corporation (CHEC), China Road and Bridge Corporation (CRBC), and CCCC Dredging. They include:
- A $780 million Davao Coastline and Port Development Project (CHEC)
- A $328 million Cebu International and Bulk Terminal Project (CCCC Dredging)
- A $148 million Manila Harbor Center Reclamation Project (CHEC)
- A bus rapid transit system for the Philippines’ NAIA airport (CRBC)
- A Manila-Clark Railway line connecting Clark and Subic, two former U.S. military bases (CHEC)
- A transportation and infrastructure project at another former U.S. base at Sangley Point (CHEC)
The most lucrative project envisions the reclamation of over 200 hectares of land off the coast of Davao, where Duterte served as the longtime mayor before assuming the presidency, and the creation of four artificial islands. Those islands would house a new port, government buildings, housing, and commercial property. The Cebu Terminal project, meanwhile, would “involve the reclamation and development of about 85 hectares of land,” atop which a 1,200-meter berthing facility would be constructed.
There’s an inescapable irony in the notion of CCCC Dredging and CHEC engaging in Filipino port and land reclamation projects. After all, a subsidiary of CCCC Dredging, Tianjin Dredging, has been involved in China’s controversial land reclamation and artificial island-building in the South China Sea. Those islands, built atop rocks and underwater shoals claimed by the Philippines (and in one case within the Philippines’ exclusive economic zone), prompted Manila to initiate its case against Beijing in 2013, which saw an international tribunal rule overwhelmingly in the Philippines’ favor this July.
Dig a little deeper, however, and the irony grows thicker still. I was aware CCCC, a massive Chinese infrastructure conglomerate with over 100,000 employees and 34 subsidiaries, was tied to public scandals and shadowy investments across the globe. Formal accusations of bribery and corruption against CCCC and its subsidiaries have been registered in Jamaica, the Cayman Islands, Uganda, Sri Lanka, and Bangladesh.
What I didn’t know was CCCC, the product of a 2005 merger between CHEC and CRBC, had been “debarred” by the World Bank and sanctioned from participating in any projects funded by the institution. Neither, apparently, did the president and CEO of the Philippines’ Bases Conversion and Development Authority (BCDA), who admitted he was unaware the Chinese firms were blacklisted by the Bank and thanked the Philippines’ Inquirer for its “diligent work” in publicizing the matter.
He insisted no contracts had been signed yet — only memorandums of understanding (MoUs) for feasibility studies — but argued the Chinese firms were not automatically disqualified “since the project is not a [World Bank] project” and they are conducting feasibility studies at their own expense.
That’s true, but here’s the kicker: the corruption scandal which got CCCC debarred by the World Bank originated in… the Philippines. In 2002, before the CCCC merger, CRBC bid for the first phase in a large, World Bank-funded project to improve Filipino roads and infrastructure. The project was terminated four years later “due to conflicts with the World Bank.”
In January 2009, a World Bank investigation assessed that CRBC was involved in a “collusive scheme designed to establish bid prices at artificial non-competitive levels and to deprive the borrowers of the benefits of free and open competition.” It was described at the time as one of the Bank’s “most important and far-reaching cases.”
In July 2011, the World Bank clarified that “successor organizations would be subject to the same sanctions applied to the original firm.” That is, parent-company CCCC is also “ineligible to engage in any road and bridge projects financed by the World Bank Group” — at least until the sanction expires on January 12, 2017.
As noted, none of the deals in question are World Bank-funded projects so there’s no “smoking gun” to be found. There are, however, additional questions about the timing and sequence of events. The Davao coastline project, for example, received final approval from Mayor Duterte just one week before he assumed office as president on June 30. Within three weeks, representatives from CCCC were in the Philippines developing a letter of intent for the land reclamation project. Within three months CHEC had signed an MoU.
That’s a sufficiently condensed timeframe to raise questions about what collusion or side agreements may have been reached or promised outside the public light, and when. But they are questions beyond my remit and concern.
I’d argue the story’s significance lies not in the abundant irony or the spotlight on corruption. Large Asian infrastructure projects are magnets for this pernicious but all-too-common chicanery, and Chinese firms are hardly the sole culprits.
The more consequential questions relate to the evident but opaque connections between China’s colossal state-owned enterprises, their subsidiaries, and Chinese grand strategy, embodied in part by Xi Jinping’s signature One Belt, One Road (OBOR) Initiative.
Capitals across the world have, with growing frequency, begun rejecting Chinese investment proposals on national security grounds. That’s partly because there are far more Chinese firms conducting business abroad. In just the past decade Chinese outbound FDI surged from roughly $20 billion in 2006 to an expected $170 billion in 2016. This year, for the first time ever, China surpassed the United States in outbound mergers and acquisitions.
However, it’s also because there’s mounting evidence these shadowy links exist; that fears of a Chinese “debt trap” and of hidden strategic ambitions behind ostensibly economic projects are a legitimate and present danger.
For evidence, look no further than Sri Lanka. It offers perhaps the most striking case study; one that will be covered in a companion article to follow and one the Filipino government may well want to review.