Philippines Drops Chinese Funding For Three Railway Projects

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Philippines Drops Chinese Funding For Three Railway Projects

The cancellations do not appear to be directly related to the ongoing tensions with China in the South China Sea.

Philippines Drops Chinese Funding For Three Railway Projects
Credit: Depositphotos

The Philippines will no longer seek Chinese financial support for three railway projects that were brokered under the administration of President Rodrigo Duterte.

Speaking to a forum of German and Philippine businesspeople in Manila on Wednesday, Philippine Transportation Secretary Jaime Bautista said that China had apparently lost interest in the projects, which included a symbolic freight connection between the two giant former U.S. military bases on Luzon island.

“We have three projects that won’t be funded by the Chinese government anymore. We can’t wait forever and it seems like China isn’t that interested anymore,” Bautista told a forum of German and Philippine businessmen in the financial district of Makati on Wednesday, according to a report by BenarNews. “So, our government is looking for other sources of funding.”

The first of the projects was a 142-billion-peso ($2.5 billion) railway running for 380 kilometers from Calamba, a city just south of Manila, to Bicol province, on the southern end of Luzon, and the second was an 83 billion peso ($1.45 billion) 100-kilometer commuter rail line in Mindanao in the southern Philippines.

The third – and most symbolic – was a 71-kilometer freight railway connecting Subic Bay Freeport Zone and Clark Freeport Zone, formerly the Subic Bay Naval Station and Clark Air Base, two of the nerve centers of U.S. military power in the Asia-Pacific. This project was slated to cost 51 billion pesos ($896 million).

Bautista said that the decision was not made as a result of the outbreak of tensions between China and the Philippines in the South China Sea., which culminated last weekend in Chinese vessels colliding with two Philippine ships seeking to resupply troops stationed at Second Thomas Shoal in the Spratly Islands.

The three rail projects were among the fruits of Duterte’s “Build, Build, Build” infrastructure development program, which relied heavily on tapping into the then seemingly bottomless financial resources of China’s Belt and Road Initiative (BRI). But like Duterte’s China-friendly policy, the projects were always controversial, with critics focusing on the relatively high interest rates, and the strategic backdrop of ongoing Chinese incursions into Philippine-claimed parts of the South China Sea.

It was not long after he was out of office that Manila announced that it was reviewing the projects, in which China even then had seemingly lost interest in funding. Cesar Chavez, the transportation undersecretary for railways, said in July 2022, the month after President Ferdinand Marcos Jr. took office, that financing for these projects was “considered cancelled” when China did not provide a shortlist of possible contractors the month before, despite having invested in preliminary studies for the projects.

“Our first step is to renegotiate with them,” he told the press at the time, adding that he had asked the Department of Finance (DOF) to discuss the status of project financing with the Chinese lenders, “taking into account China’s willingness to lend and the Philippine government’s ability to borrow.”

While China at the time blamed COVID-19 for the delays, further progress has seemingly stalled. In addition to Bautista’s comments, ABS-CBN News reported on Wednesday on the contents of a letter that the DOF sent to the Chinese Embassy, formally notifying it that the Philippines was “no longer inclined to pursue the Chinese ODA financing for the Mindanao Railway Project Phase 1.”

There is little surprise that these three projects have stalled. Despite their eye-catching price tags, few of the big-ticket infrastructure projects that Duterte agreed with China during his time in office tenure have eventuated. This has seemingly vindicated the critics of Duterte’s pro-China pivot, which saw him downplay Philippine claims in the South China Sea, including a favorable international arbitral ruling in 2016, in the interests of gaining access to Chinese financing under the BRI.

Why China has lost interest in the railways is unclear. The current maritime tensions can’t have helped, but it is obvious that momentum was waning long before the current tensions broke out.

It is possible that Beijing decided to abandon the projects in anticipation of political opposition from the Marcos administration. It may also reflect Chinese banks’ fading zeal for backing infrastructure mega-projects in high-risk markets. Another likely factor is the fact that the Philippines, with its polycentric political system and abundant thickets of bureaucracy, is not an easy country in which to develop large-scale infrastructure – as China found during an earlier failed railway project under the Arroyo administration.

That said, Bautista and other Philippine officials say they are confident that they can find alternative backers for the railway projects.

“The withdrawal of the official development assistance from China for a railway project should not derail the implementation of our infrastructure programs,” Senator Grace Poe told reporters yesterday.  “While appearing attractive, the loans are not exactly that benevolent as they come with hefty interest rates and other strings that could be detrimental to the country in the long term.”