China-Philippines Ties: 14 Bilateral Deals Signed During Marcos’ Visit
The Philippines President Ferdinand Marcos Jr is on a three-day state visit to China, where he will meet with President Xi Jinping in the hope of deepening bilateral trade and investment ties and addressing security concerns. 14 bilateral agreements were signed in key cooperation areas, adding to the hundreds that already exist between the two countries.
The President of the Philippines Ferdinand Marcos Jr landed in Beijing on Tuesday, January 3 for a three-day state visit to China. This is President Marcos’ first visit to China since taking office last year. During his visit, President Marcos will meet with President Xi Jinping, as well as Premier Li Keqiang and Chairman Li Zhanshu of the Standing Committee of the National People’s Congress (NPC). In a regular press briefing, the spokesperson for China’s Foreign Ministry Wang Wenbin stated that China hoped the visit would “usher in a new ‘golden age’ in bilateral friendship”.
President Marcos has also stated his intention to raise the issue of territorial disputes in the South China Sea “in a bid to settle problems in a friendly manner and seek to resolve those issues to the mutual benefit of the two countries”, according to a news release posted on the Philippine’s Office of the Press Secretary.
The two sides also reportedly signed 14 bilateral agreements on Wednesday, January 4, covering a wide range of industries, including agriculture and tourism.
President Marcos’ state visit to China marks a significant step forward for bilateral relations between China and the Philippines, a relationship that has been marred by territorial disputes over the past few decades.
In this article, we discuss explore China-Philippine bilateral relations, including the trade and investment flows between the two countries and the current bilateral investment and trade treaties, and discuss the significance of the Philippine president’s visit to China.
China and the Philippines established formal diplomatic relations in 1975. Relations between the two countries have been “predominantly warm and cordial” over the years, as expressed by the Office of the Press Secretary. The early decades of the relationship saw the signing of several bilateral agreements and treaties, which included a bilateral investment (BIT) in 1992 and a double taxation agreement (DTA) in 1999.
However, territorial disputes in the South China Sea, which include the disputed sovereignty of the Spratly Islands have plagued bilateral relations over the years. The major flashpoint for this dispute has been the arbitration that the Philippines brought to the United Nations (UN) with regard to China’s territorial claims in the South China Sea. The arbitral tribunal in the Hague ruled in favor of the Philippines with regard to several of its claims in 2016, although China has rejected this ruling.
China and the Philippines have made efforts to resolve these issues on several occasions. These include an agreement for “Shelving disputes and going in for joint development” during a state visit to the Philippines by the then-president of China Jiang Zemin in 1996, a joint statement signed between China and the Philippines in 2000 which sought to “establish a long-term and stable relationship on the basis of good neighborliness, cooperation, mutual trust, and benefit”, and the issuing of a joint statement “reaffirming the commitment of taking further steps to deepen the strategic and cooperative relationship for peace and development between the two countries” during former Chinese President Hu Jintao’s visit to the Philippines in 2007.
The dispute over the territory in the South China Sea has nonetheless still not been resolved. Despite this, relations between China and the Philippines have been growing considerably stronger over the last five years, and in particular during the tenure of the former Philippine President Rodrigo Duterte. The former President’s state visit to China in 2016 led to investment and credit line pledges that amounted to approximately US$24 billion in business and trade deals.
What will happen during the state visit?
President Marcos’ trip to Beijing marks a continuation of this effort to improve relations between the two countries, with the president stating that he will seek to “shift relations into a higher gear” over the course of the visit.
In addition to raising the issue of territorial disputes, the Philippines Office of the Press Secretary also stated that the two countries would sign “several business agreements” during the president’s visit. These include agreements on the trade of agricultural products, the renewal of the Philippines’ agreement on its participation in China’s Belt and Road Initiative (BRI), a planned memorandum of understanding (MoU) in digital cooperation, and an MoU on tourism cooperation.
On Wednesday, the Office of the Press Secretary issued a news release stating that the two sides had already signed 14 bilateral deals. These include:
- A joint action plan for 2023 to 2025 on agricultural and fisheries cooperation;
- An MoU on cooperation on the BRI;
- An MoU on digital and information and communications technology (ICT) cooperation;
- A protocol of phytosanitary requirements for the export of fresh durians from the Philippines to China;
- An MoU on tourism;
- An MoU on electronic commerce cooperation;
- An MOU on the Development Cooperation Plan for the years 2023 to 2025; and
- An agreement on economic and technical cooperation.
In addition to the above agreements, the two sides have reportedly agreed upon several infrastructure investment and financing agreements, which serve to fill a funding shortfall. These include sealing the handover certificate of two China-funded bridge projects in Manila (the Binondo-Intramuros bridge and the Estrella-Pantaleon bridge), a framework agreement for the RMB portion of the loan financing for three priority projects of the Philippines’ Department of Public Works, and Highways (DPWH), and four loan agreements for the mixed-credit financing (USD and RMB) of three priority bridge projects.
A separate news release from the Office of the Press Secretary also stated that President Xi Jinping had committed to addressing the trade deficit between China and the Philippines, which will largely be achieved through the increase of Philippine fruit exports to China. President Marcos stated that the two sides were “in the process of finalizing the rules and regulations for the import by China of fruits from the Philippines” and that the import of Philippine fruit would “balance the trade situation that we have between China and the Philippines”.
More information on the bilateral talks between the Philippine delegation and Chinese officials will be released over the coming days. In addition to the agreements that have already been announced, it is possible that the two sides will continue discussions on the Philippines’ ratification of the Regional Comprehensive Economic Partnership (RCEP), a China-backed regional free trade agreement. The Philippines is one of only two remaining signatories that has not yet ratified the agreement, whose current area covers a third of the world’s population.
The role of the Philippines in the Belt and Road Initiative
The recent shift in China-Philippines ties has led to several bilateral cooperation agreements and projects valued at billions of dollars and strongly supported by Chinese investments. The Philippines’ involvement in China’s BRI is one of the key elements of this rapprochement.
For example, the Philippines’ “Build Build Build” (BBB) program, which seeks to address the enduring issues of poverty, economic growth, and industrial development by increasing public spending on infrastructure, is expected to benefit from this particular development as the influx of Chinese investments will provide the necessary financial support for such a large-scale domestic infrastructure project.
Indeed, despite its rising maritime disputes with China, the Philippines signed to become a founding member of the Chinese-led Asian Infrastructure Investment Bank (AIIB) – the main funding source for the BRI projects. Together with the Asian Development Bank (ADB), in 2016, the AIIB financed two transportation and flood control projects in Manila, the Philippines’ capital.
In November 2018, the two countries signed a Memorandum of Understanding (MoU) on Cooperation on the Belt and Road Initiative in which China and the Philippines agreed to cooperate in strategic sectors such as infrastructure, trade, investment, development, transportation, telecommunication, and energy. The MoU will likely be extended beyond 2022 (its original termination date).
The Sangley Point International Airport (SPIA) is one of the many symbols of the Philippines’ participation in the BRI. Opened in 2020, Sangley Point was built primarily to serve general aviation and turbo-propped airlines in the proximity of South Luzon and the Greater Manila Area. In April 2022, former President Duterte inaugurated the China-funded Binondo-Intramuros Bridge, the second of two bridges funded through a Chinese grant. The Binondo-Intramuros Bridge is part of a US$96 million Chinese grant agreed upon during Duterte’s visit to China in 2017. The other bridge is Estrella-Pantaleon, which was completed in July 2021. Both bridges were initially planned to be constructed by 2020 but were delayed due to the pandemic.
The Philippines can benefit from participating in the BRI also from the point of view of human capital deployment and development: in 2020, the BRI-related projects were expected to employ almost 21,000 Filipino citizens, while other arrangements with Chinese companies would bring in US$12 billion in investment to the country.
Arguably, a key component of the Philippines’ engagement in the BRI involves the creation of maritime corridors and commercial networks, which also entail the planning of ports, bridges, routes, and other key infrastructure.
21st Century Maritime Silk Road
In 2013, President Xi Jinping presented a two-way plan for the BRI development, simultaneously launching the Silk Road Economic Belt (SREB) and the 21st Century Maritime Silk Road (MSR). A few years later, in 2017, China’s National Development and Reform Commission (NDRC) and the State Oceanic Administration released more details on maritime cooperation, unveiling a vision for three maritime “blue economic passages” connecting Oceania, Africa, and Europe. The China-Oceania-South Pacific route, in particular, is responsible for linking the South China Sea to the Pacific Ocean.
In the case of the Philippines, the MSR is expected to link the north and south of Manila in the Philippines to the Chinese cities of Ningbo, Qingdao, and Shanghai. According to the Xinhua-Baltic International Shipping Centre Development Index Report, the establishment of a shipping network in these seaports will create a great advantage in providing direct services from Qingdao and central China to Manila.
China-Philippines bilateral trades
Total trade between the Philippines and China has continued to grow in recent years, with the Philippines’ imports from China growing at an average annual rate of 20.7 percent from 2010 to 2017. This enabled China to leapfrog Japan to become the Philippines’ largest trading partner in 2016.
According to statistics from the Philippine Department of Trade and Industry, in 2021, while remaining the Philippines’ largest trading partner and largest source of imports, China also rose to become the Philippines’ second-largest export market.
From January to November 2022, the import and export volume of bilateral goods between China and the Philippines was US$80.4 billion, an increase of 8.3 percent compared with the same period in 2021. During the same period, China’s export to the Philippines increased 14.5 percent year-on-year to US$59.2 billion, while the Philippines’ export to China decreased 6.1 percent year-on-year to US$21.2 billion. The trade balance between China and the Philippines was US$0.37 billion.
|China-Philippines Bilateral Trade 2017-2021 (billion US$)|
|Year||Trade in total||Export from China to the Philippines||Import from the Philippines to China|
|Source: National Bureau of Statistics, China|
In 2021, the top exports from the Philippines to China included electrical machinery and equipment, sound recorders and reproducers (US$12,963.5 million), mechanical appliances, nuclear reactors and boilers (US$3,718.7 million), ores, slag and ash (US$3,424.4 million), copper (US$1,439.7 million), and other minerals (US$675.9 million).
|Top 5 Products Exported from the Philippines to China in 2021|
|Product category||Amount (million US$)|
|Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles||12,963.5|
|Machinery, mechanical appliances, nuclear reactors, boilers; parts thereof||3,718.7|
|Ores, slag, and ash||3,424.4|
|Copper and articles thereof||1,439.7|
|Mineral fuels, mineral oils, and products of their distillation; bituminous substances; mineral wax||675.9|
|Source: ITC Trade Map|
Meanwhile, the top products exported from China to the Philippines included electrical machinery and equipment, sound recorders and reproducers, television image and sound recorders and reproducers (US$7,380.9 million), machinery, mechanical appliances, nuclear reactors, and boilers (US$3,073.2 million), mineral fuels, mineral oils, and products of their distillation, and other minerals (US$2,574.4 million), iron and steel (US$1,958.3 million), and articles made of iron and steel (US$1,502.4 million).
|Top 5 Products Exported from China to the Philippines in 2021|
|Product category||Amount (million US$)|
|Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles||7,380.9|
|Machinery, mechanical appliances, nuclear reactors, boilers; parts thereof||3,073.2|
|Mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral wax||2,574.4|
|Iron and steel||1,958.3|
|Articles of iron or steel||1,502.4|
|Source: ITC Trade Map|
China-Philippines bilateral investments
According to China’s Ministry of Commerce (MOFCOM), by the end of 2019, China’s direct investment in the Philippines had reached US$664 million. In 2020, China’s direct investment in the Philippines increased by US$130 million.
From 2016 to 2019, the Philippines’ direct investment in China increased year by year, reaching US$276 million in 2019. But in 2020, this number decreased to US$52 million.
With regard to contract projects between the two countries, in 2020, the value of new contracts signed by Chinese companies in the Philippines reached US$9.60 billion, up 53.8 percent year-on-year. In 2021, the turnover of Chinese underwriting projects completed in the Philippines was US$ 3.25 billion, up 14.8 percent year-on-year.
China-Philippines investment and trade agreements
Bilateral treaties and agreements
China and the Philippines have signed hundreds of bilateral agreements in several cooperation areas, such as defense, tourism, agriculture, finance, and trade. The BIT and the DTA treaty, in particular, aim to facilitate investment and business exchanges between the two countries.
The 1992 China-Philippines BIT ensures that investors from both contractual nations would have their investments in the other contracting country protected. This is codified in the most-favorable-nation (MFN) provision, which also guarantees that investors from the other contracting country receive the same treatment as investors from each party’s own country and investments from a third country.
Investors covered by the BIT include:
- Citizens of the PRC or the Philippines;
- Economic entities established in China; and
- Companies, which may be corporations, partnerships, or other associations, incorporated or constituted and doing business in the Philippines.
Meanwhile, investments covered by the BIT include:
- Movable and immovable property and other property rights;
- Shares in companies or other forms of interest in such companies;
- Claims to money or to any performance having an economic value;
- Copyrights, industrial property, know-how, and technological process; and
- Concessions conferred by law, including concessions to search for or exploit natural resources.
The BIT also ensures investors from both nations the ability to return earnings made on the territory of the other contracting party to their own nation. This involves the distribution of earnings such as profits, dividends, and interest as well as other types of revenue such as royalties and funds resulting from the partial liquidation of investments.
The BIT also includes articles addressing dispute resolution procedures, such as litigation before an independent international tribunal.
The BIT mandates that both countries take actions to encourage and facilitate bilateral investment in addition to ensuring the protection of investments. This includes making sure there are resources available to allow citizens of the other party to apply for visas so they can visit and conduct business in the other party’s country.
In 1999 China and the Philippines signed a DTA to prevent investors operating in the other party’s country from having to pay tax on profits and income twice.
The DTA applies to the residents of either one or both contracting countries and it generally applies to the taxes on income. In China, the DTA covers the following taxes:
- Individual income tax (IIT);
- Income tax for enterprises with foreign investment and foreign enterprises; and
- Local income tax.
In the Philippines, the DTA applies to:
- Income taxes on individuals, corporations, estates, and trusts;
- Stock transaction tax.
Moreover, the DTA also applies to any identical or substantially similar taxes which are imposed after the date of signature of the Agreement in addition to (or in place of) the existing ones.
To understand China’s tax regime, refer to our country portal here.
Under the DTA, the “permanent establishment” of a company is a fixed place of business through which the business of an enterprise is wholly or partly carried on. It may include:
- A place of management
- A branch
- An office
- A factory
- A workshop
- A mine, an oil or gas well, a quarry, or any other place for the extraction of natural resources.
It also refers to:
- A building site, a construction, assembly, or installation project, or supervisory activities in connection therewith, but only where such site, project or activities continue for a period of more than six months.
- An installation, drilling rig, or ship used for the exploration of natural resources, but only if so used for a period of more than three months.
- The furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by the enterprise for such purpose, but only where activities of that nature continue (for the same or a connected project) within the country for a period or periods aggregating more than 6 months within any twelve-month period.
The DTA ensures that a company’s profits shall all be taxable only in the contracting state where the business is registered – unless the company carries on business in the other Contracting State through a permanent establishment situated therein. Likewise, the Agreement also establishes that profits from international shipping will not be taxed in the state other than the company’s resident one, which also applies to profits from the participation in a pool, a joint business, or an international operating agency.
ASEAN – China Investment Agreement
As members of the Association of South East Asia Nations (ASEAN), the Philippines are covered by the ASEAN-China Investment Agreement (hereafter “Agreement”) signed in 2009. The objective of the Agreement is to promote investment flows and to create a liberal, facilitative, transparent, and competitive investment regime in China and ASEAN through the following:
- Progressively liberalizing the investment regimes of China and ASEAN;
- Creating favorable conditions for the investment by the investor of a Party in the territory of another Party;
- Promoting the cooperation between a Party and the investor who has an investment in the territory of that Party on a mutually beneficial basis;
- Encouraging and promoting the flow of investment among the Parties and cooperation among the Parties on investment-related matters;
- Improving the transparency of investment rules conducive to increased investment flows among the Parties; and
- Providing for the protection of investments in China and ASEAN.
The MFN treatment included in the Agreement ensures equal treatment for all parties involved when importing or exporting “similar products,” using the same tariff and regulatory treatment to all Parties as is applied to the product of any one Party.
In addition, the Agreement specifies the transfer of investments of each Party to their territory in a freely usable currency at the prevailing market rate of exchange. Transfers protected by this clause include:
- The initial capital, plus any additional capital used to maintain or expand the investments;
- Net profits, capital gains, dividends, royalties, license fees, technical assistance and technical and management fees, interest, and other current income accruing from any investment of the investors of any other Party;
- Proceeds from the total or partial sale or liquidation of any investment made by investors of any other Party;
- Funds in repayment of borrowings or loans given by investors of a Party to the investors of any other Party – recognized as investments;
- Net earnings and other compensations of natural persons of any other Party;
- Payments made under a contract entered into by the investors of any other Party or their investments including payments made pursuant to a loan transaction; and
- Payments made pursuant to Article 8 (Expropriation) and Article 9 (Compensation for Losses).
Lastly, the Agreement also covers provisions for safeguarding payments and dealing with investment disputes among parties.
China and the Philippines are both WTO members, hence they both take part in a range of multilateral agreements on trade and investment. These include (but are not limited to):
- The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which requires WTO members to extend intellectual property (IP) rights to the IP owners in any member state or region. It includes a most-favored-nation (MFN) clause, guaranteeing equal treatment for IP rights protection for all member countries and regions, and offers dispute resolution and compensation mechanisms.
- The Agreement on Trade-Related Investment Measures (TRIMs), which prohibits members from implementing investment measures that have the effect of restricting trade with other members, such as local content requirements (requirements for a company to use locally-produced goods or local services in order to operate in the market).
- The General Agreement on Trade in Services (GATS), which guarantees MFN status to service providers of any WTO member (except governmental services such as social security schemes, public health, education, and services related to air transport).
Conclusion and future prospects: a new golden era
Before his election as President of the Philippines, Marcos publicly defended his predecessor’s Beijing-friendly approach, declaring that the policy of engagement applied by the Duterte government was more than appropriate and that engagement with China would be the only way to move forward.
After the election, Marcos immediately received high-ranking Chinese officials, including the Chinese ambassador to the Philippines, Huang Xilian, and former Foreign Minister, Wang Yi. On this occasion, he made it clear that China would have a central role as the “strongest partner” for the post-pandemic economic recovery, and that the Philippines would be sustaining a “new golden era” of bilateral ties.
Both China and the Philippines seem to understand that the cooperation between the two countries in the areas of bilateral trade and economics, people-to-people, and high-level exchanges, as well as the synergy of the BBB program with China’s BRI, and the anti-pandemic cooperation, have brought tangible benefits on both sides.
All the cooperative projects between China and the Philippines are a testament to their solid relations as well as a compromise to which both countries aspire.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at firstname.lastname@example.org.
Dezan Shira & Associates has offices in Vietnam, Indonesia, Singapore, United States, Germany, Italy, India, and Russia, in addition to our trade research facilities along the Belt & Road Initiative. We also have partner firms assisting foreign investors in The Philippines, Malaysia, Thailand, Bangladesh.
- Previous Article China Tax Filing and Payment Deadlines for 2023
- Next Article China to Optimize Travel between the Mainland, Hong Kong, and Macao Starting January 8, 2023