Shopping mission to China

October 17, 2016 at 10:52

Shopping mission to China

By this time, we can safely assume that the Duterte government has submitted its shopping list to Beijing and there is more or less agreement on what the President will bring home. Bananas and pineapples are in the bag and most likely, so is fishing at Panatag.

Trade Secretary Ramon Lopez is talking of goodies valued at $3 billion or even more. Lopez said the commitments may come in the form of investments, soft loans and assistance to various sectors including trade, infrastructure, transportation, communications and agriculture.

Because there was little time to study everything in the wish list our government submitted to Beijing, there is a need to later on scrutinize if we really need some of those things we asked for. Put another way, are there things we need more urgently than what is in that list?

We ought to be concerned because the chairman of SBMA is now talking about getting a bullet train to link Clark and Subic. That is pretty stupid, if we indeed asked for that. First of all, there is no passenger traffic that requires a bullet train between those two points. That means government will have to subsidize a very expensive facility.

Secondly, I am sure China will not give us a bullet train for free. They will lend us money for the train, money Filipino taxpayers will pay a Chinese company to build that system. We will pay interest on the loan and given the large principal, the interest will be substantial even if on concessional terms.

Thirdly, a bullet train travels 300 kph or more and will be useful to connect long distances like Manila to Laoag or Manila to Legaspi. Clark to Subic is just 60 kilometers. Given this short distance and high cost, a bullet train to connect Clark and Subic is like using a sledgehammer to kill a fly.

What other stuff are likely to be in President Duterte’s shopping list? I think a national broadband network will be high in that list. We do need one that would complement that of the private sector telcos.

We can see now that government must have its own system, cover remote areas that are not likely to be covered by Smart and Globe. Maybe government can set up the system that will compete with the private telcos in partnership with China Mobile or some other Chinese operator that will help keep Smart and Globe rates honest and service much improved.

Another item in the list is the North Luzon railway that will connect Clark with NAIA, supporting a two airport strategy. Japan has already committed to fund a portion of this from Tutuban to Malolos covering a mere 38 kilometers for P97 billion. An expert who saw the detailed project proposal commented that the Japanese deal is “gold plated” and too expensively over designed for our needs.

“Two things that raised the cost considerably: 1) elevated viaduct structure for almost the entire stretch, from Malolos to Bulacan; 2) use of DC (1.5kva) instead of AC (25kva) electrification.

“When I was at Northrail, it was determined that 25kva is more economical for long rail lines. This one is more than 30-km long (Tutuban to Malolos). No economic analysis was done to justify this option.

“Track width is narrow gauge (1.067m wide). Maximum design speed is 120 kph. If you follow their implementation plan, year 2022 is earliest. Probably, to give time to Japanese contractors who have their hands full – at the moment – on Olympic preparation.”

DOTr officials say the Japanese proposal is still up for negotiations. If so, a Chinese proposal to do the whole thing from Clark to NAIA will be to our advantage. At the very least, the Japanese proposal can be made to go down to earth. It should be entirely possible for China to get back that NorthRail project but not with the Chinese company earlier assigned to carry it out.

They will probably try to get the Chinese to build a railway system in Mindanao. But this is a long term project that will not be realized within Duterte’s term of office. Just securing the right of way will take forever. The economic viability is also debatable.

More urgent is the modernization of PNR from Tutuban to Legaspi and Tutuban to Laoag as well as the PNR Metro Manila commuter line. There are private sector entities who have expressed interest in PNR’s modernization and teaming them up with China may speed things up.

Or they can give an airport project to China. The Panglao airport project in Bohol comes to mind. We have talked about this project for years but it has not broken ground. Maybe a government to government agreement to package the construction and financing of Panglao will make the project realizable within Duterte’s term.

Other things in the shopping list will likely be joint ventures with the private sector. If China makes good its offer to help boost our tourism sector, we can expect partnerships with state owned Jinjiang Hotel for bigger hotel projects. They now have two small Inns in Pasay Road and San Miguel Avenue in partnership with Carlos Chan and Injap Sia.

Chinese tourists can help us hit 10 million visitors… that’s how many Chinese tourists visiting Thailand now. For starters, China will likely lift a travel advisory against visits to the Philippines. Direct flights from Chinese cities to Puerto Prinsesa and Caticlan would be popular.

Indeed, for sheer economic reasons, Duterte’s China Pivot has the potential to deliver substantial economic dividends. But it is important for us to be mindful of the fine print in all the agreements. We need to learn the lessons of NorthRail.

The Philippine government ended up paying the Export-Import Bank of China $184 million after the project was terminated. The amount represents preparation costs for the project such as right-of-way, other land acquisition expenses and I suspect handouts to Filipino politicians.

When they inherited the project, then DOTC Sec. Mar Roxas said their main demand was to replace the Chinese contractor which Roxas said “has very little to no experience in building train lines.”

Despite starting construction in 2004, less than a kilometer of the supposedly 80-kilometer train line was built by the Chinese at a highly inflated cost. The train tracks built was also designed for low-speed trains that were not strong enough to handle the high-speed train system Roxas wanted.

Finally, President Duterte will probably ask for military equipment. He was complaining recently about the refusal of the US to sell us some military hardware. Military equipment will likely be on top of the gift list that China will present to our President when he visits next week. But that may entail signing a defense pact with China.

I asked a political analyst familiar with our China relations to put this presidential visit to China in context. He said it “is more driven by domestic (talks with the communist movement, business opportunities, etc) rather than geopolitical considerations. Reestablishing closer ties with China aims to boost economic relations so PRRD can deliver his promise to bring more investments, tourism, trade and aid.

“The US wants to view the issue in geopolitical terms because of its own interest on the matter. But China does not want to see a deterioration of Philippine ties with the US. China just does not want to see Philippine relations with the US being used for the containment of China.

“PRRD is just doing what other ASEAN countries are already doing: hedging with two major powers. PRRD is just diversifying his foreign relations long influenced by an over-reliance with the US.”


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