WHEN SECURITY BEATS ECONOMY

The archipelagic nation of Philippines has finally left the Belt and Road Initiative (BRI) after years of facing severe maritime territorial challenges in the South China Sea (SCS) from China.  Repeated confrontations at sea preventing exploration initiatives to attempted blockades against rotation of troops and supply vessels, Beijing’s aggressive strategy in SCS has been steadily restricting the new Philippine President Ferdinand Marcos Jr.’s ambitions of pursuing an ‘independent foreign policy’.

Despite tensions in the Philippines-China relations —the most crucial being the 2016 arbitration ruling in favour of the Philippines that brought the SCS dispute centre stage in a new avatar — the two countries have tried to maintain robust economic relations amidst deteriorating security concerns. Most recently, upon his visit to China in January this year after securing a decisive victory in the Philippines' presidential election in 2022, Marcos Jr. not only signed 14 cooperation agreements including updating the BRI memorandum between both countries, but also secured USD 22 billion worth of investments for Manila. Trade between the two countries has only grown in recent years, with the Philippines’ imports from China rising at an average annual rate of 20.7 percent from 2010 to 2017, also making China Philippines’ largest trading partner. However, despite economic cooperations, contentious conflicts in the SCS has nonetheless led to troubled bilateral engagements between the two states for decades, providing a lesson for Beijing, Manilla and the world in balancing the delicate swing of economy-security ties.

Lessons and consequences from Beijing’s aggressive strategy at sea

Successive leaders in Manila for decades have attempted to pivot their focus on enhancing bilateral engagements with Beijing, indicating their will to project a healthier relationship that is not marred by territorial conflicts. However, under Marcos Jr’s presidency, fault lines within the bilateral relations have taken greater prominence due to the continued and escalated aggressive approach Beijing has undertaken in and around the disputed region. The Philippine government’s decision to move away from the BRI —and USD 4.9 billion worth of infrastructure projects involving two crucial railway lines —is a clear reorientation from Manila that signals its approach of prioritising the threat to national maritime sovereignty over maintaining healthy economic engagements with an adversary, a strategy that New Delhi too has deployed in light of its territorial skirmishes with Beijing.

The collision of a Chinese Coast Guard’s (CCG) ship with a Philippine Coast Guard (PCG) vessel and a military-run supply boat which was tasked with resupplying the BRP Sierra Madre in October seems to have been the final nail in Marco’s reproachment strategy with Beijing. China’s overlapping claims have led to multiple stand-offs and confrontations between the two country’s Coast Guards specifically around the Sierra Madre. Yet, what stands different in these recent confrontations is the aggressive approach China has undertaken to restrict Manila’s vessels, which have only intensified in both scale and aggression in recent years. Apart from accusations from PCG of firing water cannons upon its vessels, Beijing has also increased the number of patrols its coast guard undertakes. Data from CSIS’s Asia Maritime Transparency Initiative (AMPI) shows that the CCG’s patrolling days in the Second Thomas Shoal region, have increased from 232 days to 279 in just over a year. Furthermore, data sets from other contested regions such as the Luconia Shoals, near an important Malaysian oil and gas operation, the Scarborough Shoal and reefs surrounding the Thitu Island also project a similar strategy of increased patrolling units in terms of both days and force. Such figures not only indicate Beijing’s focus on maintaining a dominant posture in the SCS, but also suggest its growing appetite to undertake such confrontations with the Philippines, thus also leading to Manila’s shift in strategy to a more adversarial approach viz-a-viz Beijing.

These recent developments in China-Philippines’ deteriorating relations also present some critical lessons not only for both the parties involved, but also for other states that find themselves in conflict with Beijing. The situation serves as an example of maintaining stricter red lines with respect to urgent and escalating territorial conflicts, at the expense of impacting bilateral economic relations. By retracting from large-scale infrastructure projects, Manila has clearly indicated that economic engagements will suffer if conflicts at sea continue to escalate, a prospect that Beijing confidently assumes would not be compromised given its economic prowess. Although China holds a significant edge over bilateral trade with Philippines as well as India, the strategy of declining economic as well as political engagements must continue if conflicts at sea or land persist in order to prevent China from maintaining its aggressive approach — a strategy that Beijing has constantly deployed to tilt the balance of power in its own favour. Moreover, such an approach must also be executed in a manner that clearly signals the economic consequences of territorial and maritime ingressions to Beijing while also asserting that democratic economic partners can replace its position as a reliable and safer alternative.

For China, the economic consequences should serve as a valuable lesson in showing a ceiling to its aggressive approach in territorial skirmishes. Such events should remind China that economic ties with Beijing are maintained in spite of it being a regional aggressor, and when pushed, can be reduced. Thus, if its bullish strategy continues to persist, it will not be too long before security consequences begin to take centre stage in bilateral relations impacting its global initiatives such as the BRI, GSI, GCI and others.

China’s aggression a test of Philippines’ alliances

China’s hard-line approach with respect to Philippines is also intended to test its alliance with the U.S, given the Mutual Defence Treaty (MDT) signed between the two states that calls upon Washington’s military intervention during a conflict. Ambiguity around Washington’s hard commitment to intervene in such a case has also played a role in Beijing’s aggressive strategy, encouraging it to test its ground at sea by provoking situations that puts into question such an alliance. Even though President Biden recently asserted that Washington would respond to any attack on Philippine ships, aircraft or soldiers stationed in the SCS as underlined in the MDT, China, for now seems to be willing to hedge its bet against an American intervention to such low-scale confrontations. This has been ensured by repeatedly deploying grey zone tactics, limiting the confrontation to its Coast Guard, maritime police and maritime militias that reinforce its territorial claims and strengthen Beijing’s position in the region. Satellite imagery from the past year have also shown hundreds of Chinese militia vessels continuing their operations and maintaining a strong presence in the disputed SCS region, thereby significantly increasing the chances of reoccurring skirmishes with other regional players.

Beijing’s strategy has also further strained Marcos Jr’s ‘rebalancing approach’ that was underscored throughout his presidential campaign. The aggressive tactics have pushed the present government to expand Washington’s access to critical bases as part of the Enhanced Defence Cooperation Agreement (EDCA) which will provide it with greater access to both the SCS as well as Taiwan’s southern shores. China’s attempt to test Manila’s alliance with the US has further led to greater cooperation with Washington and has enabled more space for economic cooperation between the two, a proposition that can potentially replace Beijing’s economic stronghold over Manila.

More so, the re-orientation of policies away from China has also opened prospects for greater defence engagements with Japan who has emerged as Manila’s top defence partner. Prime Minister Kishida’s recent visit to Manila this month reinvigorated talks of a critical defence pact, the Visiting Forces Agreement, which would permit troops to enter each other’s territory for joint military exercises. Moreover, announcements of providing additional Japanese patrol vessels, defence equipment and radars to enhance the Philippines’ law enforcement capabilities at sea also reflect the will from both parties to enhance Manila’s maritime infrastructure, especially to safeguard its territories.

 Philippines Way Forward

As part of its counter-approach to Beijing’s recent tactics, Manila under Marcos Jr.’s government is further expected to engage closely with both Washington and Tokyo, even to the extent of forming a trilateral defence arrangement. Although Washington may remain sceptical, the optics would provide Manila with some much-needed leverage in preventing China’s persisting aggression in the SCS. The re-orientation away from Beijing also opens up economic opportunities for other partners to encash upon, given that Manila continues with its approach of declining economic cooperation with Beijing in light of security threats. Other states too would be closely viewing the ongoing dispute take shape and will be assessing how Beijing responds to the reorientation of strategic interests in Philippines, for there are lessons to be learnt from the emerging fault lines in Beijing’s aggressive strategy. Until such lessons are not drawn and implemented by states that are in direct confrontation with Beijing, it will continue to deploy its aggressive approach and other grey zone strategies causing further escalation in disputes.