Chinese Investments in the Philippines

Journal of Political Risk, Vol. 4, No. 6, June 2016

By Dr. Tom K. Stern

In this May 17, 2013 photo, trading continues at the Philippine Stock Exchange at the financial district of Makati city, east of Manila, Philippines. As the Philippine economy skyrocketed 7.8 percent in the first quarter, outpacing China, the middle class in the Southeast Asian nation that has been held back by widespread poverty, political strife and corruption is for the first time in decades reaping the profits of an economic boom. (AP Photo/Bullit Marquez)

Introduction

On June 30, 2016, Rodrigo Roa Duterte will be sworn in as President of the Republic of the Philippines. How he handles the tensions over Chinese land-grabbing, a regional arms race, plus brushes with danger when American and Chinese forces grate against one another will decide how well the Philippine economy can perform during President Duterte’s term.

What is the main risk?  That China turns warlike when told to withdraw from Philippine territory, according to an expected ruling by the International Court of Justice. Or, a risk equally bad for America, the Philippines could cave in to Chinese pressure and trade territory for big money, which China has to spend. When evaluating potential for the Philippines to acquiesce to Chinese expansion or even to favor Chinese hegemony, economic factors come into play.  China’s comprehensive strategy to tilt the Philippines into China’s orbit includes the common tools of geopolitics, including a precisely calibrated balance combining coercion and friendship.  A relationship between the countries pre-dates Jesus Christ.

Trade between the Philippines and China is documented for more than 2,000 years. Today many of the Philippine wealthy trace their roots to China. They may carry a Spanish name, but believe in Buddha as well as Jesus.  They speak Chinese, eat Chinese food in Manila, and work hard in a difficult economy. They may choose to be buried in Manila’s vast Chinese Cemetery. Many of them have family in China, travel there regularly, and enjoy modern life in the big cities.  Most of them love America and our society, but prefer to avoid having to choose sides. Others with democratic commitments wish to stay friends with their big brothers in Beijing, but not finally at the cost of losing America.  As in most political struggles, one can find widely divergent points of view in Manila on the desired nature of the Philippines-America-China relationship.

The territorial dispute between China and the Philippines has been straining the relationship between these two Asian countries, the two fastest growing economies in the region. However, this has not resulted in complete cutting of economic ties between them. China has not withdrawn its business interests in the country.

Still, Chinese Ambassador Zhao Jianhua admits that China’s investments to the Philippines may not be considered satisfactory. He acknowledged that the Philippines has more investments in China than China has in the Philippines. In a welcome dinner organized by the Philippine Chamber of Commerce and Industry (PCCI) on July 3 last year, the ambassador said that China hopes to pour more investments into the country.  China’s new bank WIIB invites all in the region to be investors.  The Philippines joined the new bank.  Reconsideration of America’s Trans Pacific Partnership (TPP) trade bill is widely discussed in the Philippine business sector.

Based on the records of the Central Bank of the Philippines, China’s net direct investments in the Philippines for 2014 was at $41.38 million. This sum is small compared with compared to Chinese investments in other ASEAN countries like Vietnam, which has already received over $18 billion. Also, in 2014, the Philippines only attracted 2% of the investments China made in the ASEAN region.

It seems likely these figures represent punishment being passed by Big Brother upon Little Brother for objecting to being bullied.  Partly the low figures represent suspicions in Manila about allowing Chinese to buy the country.

Chinese Investment and Influence in the Philippine Power Sector

In late February 2015, Senator Miriam Defensor-Santiago claimed that the National Grid Corporation of the Philippines (NGCP) has been “infected by a national security virus.” She alleged that the Chinese Government invaded the Philippine power sector through its 40% stake in the NGCP.

NGCP controls power distribution for the entire nation. Thus it can be argued that because Beijing controls NGCP, Beijing controls the power in Manila. Manila’s sole power distribution company, MERALCO–along with every regional power company in the far-flung archipelago–need to work with NGCP to buy power to be distributed to households, business establishments, government offices, and other users of electricity.

Reacting to Senator Miriam Defensor-Santiago’s revelation, the Aquino government, through the Department of Energy, decided to end the technical involvement of the Chinese in the NGCP’s operations. All of the Chinese technicians working at NGCP will have to leave the country by July, 2015 as their visas will no longer be renewed. State Grid Corporation of China, however, will retain its 40% ownership of Philippine power transmission.  There is no doubt that Chinese technicians inserted remote control devices and software throughout the entire Philippine national power grid before they were instructed to leave the country. Thus all power utilized by America while transiting through the Philippines should be run through our cleansing process before it can infect our gear.

The 40% NGCP stake was obtained in late 2007 when the State Grid Corporation of China (SGCC) joined a consortium with the Monte Oro Grid Resources Corp. (MOGRC) and Calaca High Power Corp. (CHPC) to submit a bid for the 25-year franchise to run the Philippine power grid. In the consortium, State Grid Corporation of China had the highest stake at 40% while MOGRC and CHPC both had 30%. The SGCC-MOGRC-CHPC consortium’s offer of $3.95 billion outbid San Miguel Energy, TPG Aurora BV (a Dutch firm), and TNB Prai Sdn Bhd of Malaysia.

The National Grid Corporation P, now a private company, operates the Philippines’ electric power transmission system. Previously a spin-off of the government owned and controlled National Power Corporation (NPC), it was created to take over the functions of the NPC in delivering the electricity generated by power plants to distribution channels nationwide. It became completely private-owned after the winning bidder for the auction for the 25-year Philippine power grid operation franchise was determined.

The 40% Chinese Government stake in NGCP is a major issue because it operates, maintains, improves, and expands the country’s more than 19,490 kilometers of power transmission lines.

As a nation, the Philippines suffers from lack of electricity.  Fully aware, Government is trying to develop every form of electricity generation…wind farms, biomass, natural gas, geothermal, building new coal-fired plants, and ongoing talk about how to make its moth-balled Westinghouse nuclear power plant be revitalized in some form. Power producing companies such as First Philippine Holdings Corporation and Energy Development Corporation, likewise, need to work with the NGCP for their electric production to reach users.

While this issue has not significantly affected Chinese investment and business activities in the country to date, it has made the Philippine Government more cautious or prudent in accepting Chinese investments.

Chinese Investments in the Philippines in 2014

In 2014, the Chinese only invested in the power sector of the Philippines. This investment was worth $1 billion, invested by Power Construction Corp on AC Energy Holdings and Power Partners Ltd. for the engineering, procurement, and construction of a coal-fired power plant in Lanao del Norte, Mindanao. The facility is estimated to be completed within three years, and to become at least partially operational by early 2017.

Note: This $1 billion investment from China in 2014 is different from the net direct investments figure mentioned above. It does not take FDI outflows into account.

There were no recorded Chinese investments in the Philippines in 2013.  Nevertheless, a frequently heard comment is that China has gained significant control of Philippine shipping and mining.

Chinese Investments in the Mining Industry of the Philippines

Increasingly, the issue about China’s ‘improper” investments in the Philippine mining sector has resurfaced, to be described below.

It is difficult to find conclusive documents that detail the actual practices of Chinese mining companies in the Philippines. However, based on investigative media reports, industry sources claim that most Chinese mining companies misrepresent their operations to reduce tax payments, engage in operations that tend to be rejected by government authorities or objected to by anti-mining advocacy groups, and to bypass Philippine mining laws. Most of the Chinese mining operations in the Philippines do not have the required exploration permits. When necessary, Chinese frontmen bribe local politicians for approvals. Enormous bulk loaders take on loads of ore and sand, some of it rumored to be used in China’s reclamation work.

Whatever their direct investments in the top mining companies of the Philippines, Chinese nationals exert influence on the Philippine mining industry in two ways: (1) by being a major customer of the country’s mining products and (2) through “improper” and “less than legal” mining operations.

In 2012, the Chinese presence in the Philippine mining industry became a hot issue. While not appearing as the top mining companies operating in the Philippines, the Chinese were somehow able to exploit minable resources through companies that were barely noticed by the Philippine government. One cannot find listings of Chinese mining companies in the Philippines but a number of investigative reports from various media outfits have exposed dozens of Chinese mining companies already operating on Philippine soil, with secret processing permits and sharing agreements. Some operate using the licenses of their Filipino subsidiaries or counterpart firms.

Available records and interviews give the following brief descriptions of the biggest mining companies in the Philippines, along with details on their percentage of Chinese ownership.

Philex Mining Corporation

Philex Mining, the largest gold and copper mining company in the Philippines, has been continuously operating the Sto. Tomas II gold-copper mine at Padcal in Benguet since 1958. It has already produced around 2.048 billion pounds of copper, 374,785 pounds of gold, and 409,200 pounds of silver. The company is 20.73% owned by First Pacific Company, Limited, a Hong Kong based investment management company headed by Indonesian Chinese entrepreneur Anthoni Salim.

Nickel Asia Corp (NAC)

Nickle Asia Corporation is one of the world’s biggest producers of lateritic nickel ore and is the biggest producer in the Philippines. The company currently has four operating mines that have already yielded more than 96 million tons of ore, all of which have been exported. The Chinese don’t have a stake in Nickel Asia Corp but China is one of the only two major buyers of the company’s ore production.

Benguet Corporation

The country’s first and oldest mining firm, Benguet Corporation was established in 1903 and has now grown its portfolio into an expansive network of nickel and gold mining operations across the Philippines. Benguet Corporation’s major mining operations include the Sta. Cruz Nickel Project,

Lepanto Consolidated Mining Company

Lepanto is dubbed as a “Filipino primary gold producer.” Its mines are located in Mankayan, Benguet. It is a publicly-listed company traded on the PSE as LC and LCB, with almost all shares owned by Filipinos.

OceanaGold Corporation (Philippines)

OceanaGold Corporation is a gold producer publicly listed on the Australian, New Zealand, and Toronto stock exchanges. In the Philippines, the company owns and controls the operation of a high-grade gold-copper mine (Dipidio FTAA-001) in a mountainous area located between Nueva Vizcaya and Quirino. It is foreign-owned but the Chinese don’t have a stake in it.

Atlas Consolidated Mining and Development Corporation (Atlas Mining)

Atlas Mining specializes in metallic mineral exploration and mining. It operates one of the largest copper mines in the Philippines, the Toledo Copper Mine in Cebu, through Carmen  Copper Corporation, its wholly-owned subsidiary. Other mining projects of Atlas Mining include Berong Nickel, Aquatlas, and Atlas Exploration. Less than 20% of the shares of Atlas Mining are foreign-owned and none of the foreign investors are Chinese.

TVI Resource Development (Phils.) Inc.

TVI Resource Development (Phils.) Inc. is the Filipino affiliate of the publicly-traded TVI Pacific of Canada. It is engaged in precious base metal exploration and production. It has operations in a number of islands in Mindanao and in Panay. The company has majority interest in the following joint ventures: Agata Mining, Agata Processing, and Pan de Azucar. TVI Resource Development (Phils.) Inc. is Filipino-owned but its corporate nationality is Canadian.

Manila Mining Corporation (MMC)

With nearly 2,000 prime mineral lands, MMC is one of the largest mining operations in the Philippines. It was forced to shut down operations in 2001 but it has already returned to the industry and has grown bigger. The company is owned and controlled by Filipinos.

Sagittarius Mines, Inc. (SMI)

SMI is popularly associated with the development and operation of the Tampakan Copper-Gold Project in Mindanao. It operates as a contractor of the Philippine Government following the terms of an FTAA or Financial and Technical Assistance Agreement. Along with Filipino firm Tampakan Group of Companies, SMI’s two other major shareholders are foreign mining companies namely Indophil Resources NL and Glencore. These foreign shareholders are not Chinese, though.

Apex Mining Company, Inc.

One of the country’s oldest mining companies, Apex Mining Company was incorporated in 1979 to undertake gold, silver, copper, lead, and other precious metal mining operations. Its current operations are centered on Compostela Valley. It is a public company with shares listed on the Philippine Stock Exchange. The company is run and controlled by Filipinos.

Chinese Activities in the Philippine Mining Industry

The following is a list of major Chinese mining investments in the Philippines as of December 2012:

-China Metallurgical Construction Corp.

-Echeng Iron and Steel Group Co, Ltd.

-Epochina Mining Corporation

-Guo Long Mining Corporation

-Jiangxi Rare Earth & Metals Tungsten Group

-Jiangxi Rare Earth and Rare Metals Tungsten Group

-Jinchuan Nonferrous Metals

-Konka Fulim Mining & Dev Corp.

-Lian Xing Song Carving Co, Corporation

-Macao Quanta Mining Co, Ltd.

-Nicua Mining Corporation

-Oriental Synergy Mining Corp.

-Peng Cheng Metallic Resources Corp.

-Prime Rock Mining Company

-RockCheck Steel Group Company Ltd.

-Shanghai Baosteel Group

-Shenzhen Zhao Heng Industrial Co. Ltd.

-Shenzhou Mining Corporation

-Singtech Mining & Trading Co. Ltd., Inc.

-Sinian International Corporation (Bohol and Cebu operations)

-Sinophil Mining and Trading Corp

-Wei-Wei Group

-Yinlu Bicol Mining Corporation

-Zhongli Mining Corporation

-Zijin Mining Group Company Ltd.

In the Philippines, (partially or fully) foreign-owned companies may be granted mineral processing permits, mineral exploration permits, as well as financial technical assistance agreements (FTAA). However, only Filipino individuals or corporations can be granted the necessary mineral agreements to be able to conduct full mining operations. Mineral production sharing agreements (MPSA), on the other hand, are only given to firms that are 60% owned by Filipinos.

Chinese Investments in Shipping Lines in the Philippines

The following are the 10 largest shipping lines of the Philippines based on the number of ships in operation:

2Go Travel

2Go is perhaps the best known shipping services provider in the Philippines. It is the largest shipping company in the country, operates the most number of inter-island vessels, and has the most up-to-date shipping fleet. Its distinct logo can be easily identified even by those who don’t use shipping services. The company offers cargo, parcel, document, and money delivery and transportation services nationwide and internationally. The company also provides roll-on/roll-off (RORO) and rolling cargo services.

Montenegro Shipping Lines (MSLI)                                           

A domestic shipping line headquartered at the port of Batangas City, Montenegro Shipping Lines (MSLI) is a private company that operates passenger, cargo, and RORO services to facilitate island-to-island vehicular traffic. The company has 26 RORO vessels, 7 fast crafts, 1 tugboat, and 11 marina ferries providing services in the Luzon and Visayas areas.

Matsya Shipping Lines Corporation

With 35 vessels in operation, Matsya Shipping Lines Corporation is one of the largest shipping service providers in the Philippines. It is based in Talamban, Cebu.

Oceanic Container Lines Inc. (OCLI)

OCLI is a provider of trucking, hauling, container freight, and brokerage services. It also offers equipment rentals and cargo consolidation solutions. With a total of 15 vessels and 14 years of experience in the shipping business, the company provides services nationwide.

Lite Shipping Corporation

Lite Shipping is a wholly owned subsidiary of general trading firm Lirio Enterprises, Inc. Based in Cebu City, it has 15 RORO vessels, 3 cargo vessels, and 12 passenger ships. It serves the shipping needs of Visayas and Mindanao. The company provides cargo shipping, freight, lighterage, and charter services.

Cokaliong Shipping Lines Inc.

Another Cebu-based shipping company, Cokaliong Shipping Lines Inc. is a provider of passenger and cargo ferry services with 13 routes. Except for the Nasipit-Jagna route, all of Cokaliong Shipping’s routes originate from Cebu. The company has 11 ships that provide passenger and cargo services for Visayas and Mindanao.

Solid Shipping Lines

Solid Shipping Lines Corporation is one of the largest and oldest domestic shipping companies in the Philippines. It operates 9 vessels with a combined capacity of 57,529 deadweight tonnage. It provides full container load, loose container load, and perishable shipping services nationwide.

Aleson Shipping Lines

With 8 vessels, Aleson Shipping Lines provides cargo and passenger services across the Philippines. The company has cargo shipping routes from Manila to Bacolod, Dipolog, and Zamboanga, as well as from Zamboanga to Bacolod, Dipolog, and Cebu.

Trans-Asia Shipping Lines Incorporated (TASLI)

Formerly known as Solar Shipping Lines, TASLI is a private shipping company that provides passenger and cargo services in Visayas and Mindanao. It is based in Cebu City, where the company’s home port is located.  Destinations include Zamboanga, Ozamis, Tacloban, Tagbilaran, Masbate, and Cagayan de Oro. TASLI also provides chartering, freight forwarding, and container services.

Gothong Southern Shipping Lines Incorporated

Gothong Southern is a shipping and cargo company based in Cebu City. It currently has 8 vessels that provide logistics, shipping, and freight services. The company also offers container and chassis repairs and integrated port services. It has hubs in Luzon, Central Visayas, Western Visayas, Northern Mindanao, and Southern Mindanao.

Chinese Stake and Influence in the Philippine Shipping Industry

Other than the Chinese-sounding surnames or the Chinese ancestry of the founders and owners of many of the top shipping companies listed above, only Matsya Shipping and 2GO Travel are owned and controlled by the Chinese. Matsya Shipping Corporation is owned by Chinese national Christopher O. Yu,  while 2GO Travel is owned by the Chinese government through China-ASEAN Investment Cooperation Fund. The owners of the rest of the private shipping companies mentioned above are officially Filipinos by citizenship.

2GO Travel is the result of the acquisition of the Chinese Government of a controlling stake in Negros Navigation Corporation (NENACO). The controlling stake was obtained through equity infusion by the China-ASEAN Investment Cooperation Fund, a private equity firm based in the Netherlands, launched by the China Export-Import Bank and wholly owned by the Chinese Government. Details on the amount of controlling interest obtained by the Chinese Government in 2GO Travel were not disclosed.

Other shipping lines that operate in the Philippines, which are fully or partly owned by the Chinese, include the following: Cosco Philippines Shipping, Inc., China Shipping Line, South China Manila Express, ZIM, SITC Line, Philhua Shipping Agency Group, and China Shipping Manila Agency, Inc.

JPR Status: Working Paper

Archived: 6/28/16  

Endnotes:

“China Wants More Investments in Phil.” Philstar.com. The Philippine Star. 3 Mar. 2014. Web. 18 Mar. 2015.

“PH Share of China Investment 2nd Lowest in ASEAN.” Manilatimes.net. Manila Times. 2 July. 2014. Web. 18 Mar. 2015.

“Ayala Joint Venture Bags Financing for Coal-Fired Power Plant.” Interaksyon.com. Interaksyon. 29 Dec. 2014. Web.

“Infected by Security Virus.” Interaksyon.com. Interaksyon. 22 Feb. 2015. Web. 18 Mar. 2015.

Bangko Sentral ng Pilipinas. Net Foreign Direct Investment Flows, By Country of Origin (BPM6). Bsp.gov.ph. Web. 18 Mar. 2015.

American Enterprise Institute. Derek Scissors. Worldwide Chinese Investments & Contracts (2005-2015). n.p. Aei.org. Web. 21 Mar. 2015.

World Public Library. List of Shipping Companies in the Philippines. n.p. Netlibrary.net. Web. 21 Mar. 2015.

“Negros Takes Out Remaining Aboitiz Stock.” Bairdmaritime.com. Baird Maritime. 7 Jan. 2011. Web. 21 Mar. 2015.

“Chinese Firm to Become Top Philippine Ferry Operator.” ABS-CBNNews.com. ABS-CBN News. 1 Dec. 2010. Web. 21 Mar. 2015.

“Palace Defends Decision to End Chinese Involvement in NGCP.” GMANetwork.com. GMA News Online. 28 Feb. 2015. Web. 21 Mar. 2015.

Lepanto Consolidated Mining Company. Disclosure Department. List of Top 100 Stockholders. Lepantomining.com. 30 Sep. 2014. Web. 22 Mar. 2015.

Philex Mining Corporation. SEC Preliminary Information Sheet 2014. Philexmining.com.ph. Web. 21 Mar. 2015.

“Ramos Family to Infuse P4.26B into Anglon Holdings.” MB.com.ph. Manila Bulletin. 13 Mar. 2014. Web. 22 Mar. 2015.

Apex Mining Co., Inc. Corporate Information Officer. SEC Form 17-C re: Results of Special Meeting of the Board of Directors. Apexmines.com. Web. 22 Mar. 2015.

“Apex Mining Acquires Monte Oro Resources.” Philstar.com. The Philippine Star. 13 Sep. 2014. Web. 22 Mar. 2015.

“Razon, Malaysian Investors Join Apex Mining.” MB.com.ph. Manila Bulletin. 29 Aug. 2013. Web. 22 Mar. 2015.

“Indigenous Miners Help China Loot the Philippines.” Asiasentinel.com. Asia Sentinel. 13 Nov. 2012. Web. 22 Mar. 2015.

“China’s Mining Occupation of the Philippines.” Inquirer.net. Inquirer.net. 12 Dec. 2012. Web. 23 Mar. 2015.http://globalnation.inquirer.net/59379/chinas-mining-occupation-of-the-philippines/