China’s Strategic Blunder

Sta. Ana coordinates Action for Economic Reforms. This piece was published in the August 30, 2010 edition of the BusinessWorld, pages S1/4 to S1/5.

Yes, the Philippine government is ultimately accountable for the death of eight Chinese tourists in the bungled operations to rescue the hostages. Exacting accountability means heads must roll.

Yes, the Philippine President failed to immediately answer the urgent call of Hong Kong Chief Executive Donald Tsang.

Yes, some Filipinos displayed insensitivity by having souvenir photos taken, with the bullet-riddled bus where the hostages were killed as background. Or by having the Philippine flag draped over the coffin of the hostage taker.

Yes, Raul Pangalangan is right when he wrote in his Philippine Daily Inquirer column (27 August 2010) that “we should have characterized the hostage situation as a humanitarian crisis. We should have focused less on how it will affect our tourist industry, or how it would dampen investor confidence.”

Yet, China’s retaliatory response was out of proportion. That Hong Kong imposed a Philippine travel ban in the immediate aftermath of the killings was unnecessary but understandable. But the conflict was being escalated by imprudent actions like the impolite treatment by Hong Kong immigration officers of Filipinos, China’s condition not to meet with a high-level Philippine delegation until the completion of a “full, thorough and transparent investigation” of the death of the Hong Kong nationals, and the cancellation of the trip of two China bureaucrats who are recipients of the prestigious Ramon Magsaysay Awards.

This is tantamount to bullying. Apparently, China is using its raw, hard power to punish the Philippines.

But is this the wise approach? Do China’s angry rhetoric and retaliatory serve its China’s strategic objectives? Has China not learned from the catastrophic errors of the United States under the George W. Bush administration that used hard power in conducting international relations?

Both China and the Philippines need each other. It goes without saying that China’s rapid growth has positive spillover effects for the Philippines. For example, the terms of trade between China and the Philippines in the main favor the latter.

Let us nevertheless confine the discussion as to how China strategically benefits from warm relations with the Philippines.

China seeks the rich Philippine resources. China’s major investments can be found in the extraction of natural gas and minerals, biofuel production, and food supply.

In light of its rapid growth and its need to specialize, China seeks to gain greater competitiveness. It recognizes that it has to gradually move away from simply relying on price competitiveness manifested in an undervalued currency. This has led China to seek production sites, especially in neighboring countries like the Philippines, that have specialized labor or technology that China lacks or is still developing.

Further, the surplus of foreign currency that China enjoys and the competitive pressure its corporations face lead to Chinese investments— especially in neighboring developing countries. Chinese investments are found not only in resource-seeking industries but in market-seeking as well as efficiency-seeking industries like electronics, computer products, information technology, garments, and other manufactures.

Geo-political factors are as important as economic considerations. China and several Southeast Asian countries, including the Philippines, are involved in territorial or maritime disputes in the South China Sea. These disputes, also driven by economic interests, are being managed diplomatically and politically.

China’s relationship with the Association of Southeast Asian Nations (ASEAN) is a critical element of its geo-political strategy. China, which soon will be the biggest economy in the world and which competes with the United States and Japan, needs to cement ifriendly ties with the ASEAN members. Historically, ASEAN has been a strategic US ally, and ASEAN countries have tremendously benefited from Japanese investments.

Within ASEAN, the Philippines is perceived to be the US boy, in a manner of speaking. The Philippines and the US, for instance, have special military ties. Hence, in the context of the China-US competition, China has a special concern for the Philippines. At the very least, China’s objective is to prevent the Philippines from representing US interests in the region.

Taking into consideration its strategic economic and geo-political interests in Southeast Asia, China must not adopt an unfriendly strategy towards the Philippines. Bullying a neighbor is self-defeating in the long run.

The Philippines has been embarrassed because of the blunders it committed in handling the tragic hostage incident. But China’s arrogant, aggressive actions will turn out to be the bigger strategic blunder. China has revealed how it uses ugly power not only to the Philippines, not only to the ASEAN, but to the rest of the world. It is a conduct unbecoming of a world power.

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