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CHINA’S CHARM OFFENSIVE: Its Negative Effects and the Philippine Dilemma

Christelle M. Jovenir Practitioner of Consular and Diplomatic Affairs

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List of Acronyms

ACFA-ASEAN – China Framework Agreement

ACFR-American Council of Foreign Relations

ACTIGA- ASEAN – China Trade in Goods Agreement

ADB – Asian Development Bank

ASEAN- Association of South East Asian Nation

BOT-Build-Operate-Transfer

CCM-China‘s Charm Offensive

CEC- Comprehensive Economic Cooperation

CI- Confucius Institute

CMD-China‘s Monroe Doctrine

CNMI-China National Machinery Industry Corp

CPDR-China‘s Peaceful Development Road

CPR-China‘s Peaceful Rise

DWEF-Davos-style World Economic Forum

EHP-Early Harvest Programme

EICA-Export-Import Credit Agency

EU-European Union

FA- Framework Agreement

FTA- Free Trade Agreement

GATS- General Agreement on Trade in Service

GDP- Gross Development Product

HSL-Highly Sensitive List

NAFTA- North America Free Trade Agreement

PC-Peace Corps

PRC- People‘s Republic of China

PSA-Pacific Strategies and Assesments

PSC-Politburo Standing Committee

SC- Security Council

SCS- South China Sea

TIS- Trade in Service

UN- United Nations

WTO- World Trade Organization

ZTE-Zhong Xing Tele-communications Equipment

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Table of Contents List of Acronyms ............................................................................................................................. 2

List of Table and Figures .................................................................................................................. 4

I. Introduction ................................................................................................................................. 5

II. Review of Related Literature........................................................................................................ 6

Soft Power in China‘s Foreign Policy ........................................................................................... 6 Balancing Gambits in the Twenty-First Century, Philippine Foreign Policy: Gains and Possible

Demise? ....................................................................................................................................... 6

China-ASEAN Relations in 2002: Chronology of Events ............................................................. 7

China-ASEAN Relations, October 2002 to June 2003: Chronology of Events ............................. 7

China-ASEAN Relations, October 2003 to March 2004: Chronology of Events .......................... 7

On Studies of the History of the Philippines in China .................................................................. 7

To Build a ―Harmonious World‖: China‘s Soft Power Wielding in the Global South: A .............. 8

China‘s WTO Entry: Effects on its Economy and Implications for the Philippines: A ................. 9

III. Problem Statement ................................................................................................................... 10

IV. Objectives of the Study ............................................................................................................ 10

V. Theoretical/Conceptual Framework .......................................................................................... 10

VI. Research Methodology ............................................................................................................. 11

VII. Scopes and Limitations ........................................................................................................... 11

China‘s Foreign Policy................................................................................................................ 12

ASEAN - CHINA Relationship ................................................................................................. 13

Effects to the Philippines ........................................................................................................... 13 CHINA‘S CHARM OFFENSIVE, CONCESSIONARY LOANS AND THE ISSUE OF

DEPENDENCE ....................................................................................................................... 13

Concessionary Loans .................................................................................................................. 15

ASEAN-CHINA FTA ............................................................................................................... 16

Agreement on Trade in Goods ................................................................................................... 17

Agreement on Trade in Services ................................................................................................. 18

Investment Agreement ............................................................................................................... 20

PROBLEMS WITHIN THE ASEAN-CHINA FTA .................................................................... 21

What could happen to ASEAN? .................................................................................................... 21 CHINA‘S CHARM OFFENSIVE, CONCESSIONARY LOANS AND THE ISSUE OF

DEPENDENCE ........................................................................................................................... 22

Concessionary Loans ...................................................................................................................... 23

CHINA‘S CHARM OFFENSIVE AND MINING IN THE PHILIPPINES ............................... 25

CHINA‘S ―GOING OUT‖ POLICY AND ITS IMPLICIT ―MISSION‖ .................................... 27

POLITICAL GOALS OF THE CONFUCIUS INSTITUTE ....................................................... 28

ANNEX I ...................................................................................................................................... 31

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List of Table and Figures

Figure 1: ASEAN-China Trade is Rising Rapidly…………………………………………………14 Figure 2: Increasing Rate of ASEAN Visitors to China………………………………………….19 Figure 3: Top Five Countries in the China-ASEAN FTA………………………………………..20 Table 1: List of ―Registered‖ Chinese Mining Companies in the Philippines…………………...26-27

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I. Introduction

Trade relations between the Republic of the Philippines and the People‘s Republic of China

had been established several centuries ago since the latter had opened its trading sector to the world beginning 10th century A.D. The earliest history of trading between the Philippines and China dates back to 1003 A.D. (Dacalanio, 2012) which evidently shows that the ethnic Chinese played a decisive role in boosting Philippine economic growth and social development that attended to the interest and benefit of the majority. During the Spanish colonization of the Philippines, many of the ethnic Chinese decided to permanently reside in the country in order for them to trade their goods and services easily. During the Spanish reign, Chinese products and labor were considered to be vital for the colony‘s progress. However, their increasing population made the invaders wary and be threatened. As a result, in 1603, conquerors massacred thousands of them. Through the opening of the ports on both countries, the transfer and exchange of products became simple. Certain examples of exchange in goods were seen in trade situations wherein the Chinese exchanged silk and porcelain for the hemp cloth and pearls of the Filipinos. As it appears in several writings of former Chinese settlers and traders in the country, the most important trade-center is Mindoro or Ma-i because of its large deposits of gold (Ang See, 1997). Becoming important members of a certain state‘s social community was also achieved by the Chinese population. This notion of wide acceptance came prior to the massive Chinese diaspora during the 19th century shortly after the fall of the Qing Empire. Throughout history, the massive emigration of the Chinese population was caused by wars and starvation in the Mainland China (Barme, 2010). As their population migrated, they are trying to carve out their cultural community in each respective host states through the establishment of different Chinatowns. The latter represents their cultural, social, and economic diversity which they are trying to integrate with the locals such as those in the Philippines. Established in the 1590s, it is said that the oldest Chinatown in the world is Binondo in Manila (Buaron, 2010). As a result, large numbers of individuals with Chinese blood had been dwelling not only the said community, but also most parts of the world.

China is considered the world‘s most populous nation and the fastest growing economy. The Rise of China through its economic, political, military and its soft power is said to be the one who will determine the 21st century‗s development (Arsenault, 2007). As China‘s economy grows, so its ―charm‖ and the increasing China‘s Foreign Policy that has achieve in attaining great power in the International Community that is according to Joseph S. Nye, Jr., who argued that the future of International politics will not rest on a country‘s military or economic aspects, but rather on the attractiveness of a country. Charm Offensive is also known as soft power wherein it is to attain the desired results through appeal, seduction, and attraction. It is neither persuasion, influence, sanction, nor a payment for proper behavior (Szczudlik-Tatar, 2011). On the other hand, in order to fully exercise its charm offensive, China tends to integrate in large groups of countries such as the Association of Southeast Asian Nations (ASEAN). In the past, China provided military assistance on one hand and on the other, fought a war with once ally Vietnam in 1979. Now, China encourages increased cooperation in trade and in resolving border disputes and has become a key outside member of ASEAN and APEC. Conversely, upon the application of its charm offensive, China is perceived to be utilizing the US‘ Monroe Doctrine in expanding its territorial demarcation through the seas. Thus, one can see other Asian countries are implicitly losing their authority over their own boundaries (Acharya, 2011).

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II. Review of Related Literature

Soft Power in China’s Foreign Policy

By Justyna Szczudlik-Tatar, 2011

China‘s soft power became the topic of Szczudlik-Tatar‘s article. The author identified three tools that China uses to attain its goals through soft power. This can also identified as the sources from which soft power is derived. The first tool is culture. China‘s use of cultural and educational diplomacy has two strategies—―inviting in‖ (qing jinlai) and of ―going out‖ (zou chuqu). The ―inviting in‖ strategy consists of steps that China create to attract foreigners in their country. Some examples are the enhancement of China‘s higher education system to attract foreign students, scholarship programs and promotion of tourism. On the other hand, the ―going out‖ refers to strategies that targets beneficiaries outside China. Its objective is to make people know more about China in a positive note. One example is the establishment of Confucian Institutes which promotes the teaching of Chinese abroad. Another would be the 2008 Beijing Olympics which gave chance to China to promote its cultural achievements and the country‘s strength not only in sports but its financial capability to host the superb and magnificent quadrennial sports event. The second source of China‘s soft power would be its foreign policy. This includes visits (official and unofficial), informal summits, sending of highly-professional diplomats in various parts of the world, involvement in different international organizations and even in UN Peacekeeping missions. The third source is its economic sources. China has been employing economic diplomacy in many regions of the world, especially in Africa, Latin American and South East Asia. Also, China is also active in giving aids to different countries, as well as, loans and investment projects. Furthermore, Szczudlik-Tatar‘s paper focused on three major regions in the world where China‘s soft power are really evident. In the Southeast Asia, where China wants to be known itself as region‘s ―leader‖, the country has three methods in order to get the countries‘ goodwill. These are the common Asian roots, similar historical experiences and mutual advantages (win-win). China has also established a free trade zone in the area with six ASEAN countries (Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand). Although, China‘s power, specifically the soft one, has been growing in several regions of the world, the article did not deny the fact that there are side-effects of the China‘s involvement in these regions. First is environmental degradation, which spans from over-intensive mining to pollution to other negative externalities. Second is the growing numbers of Chinese Diasporas which as the natives of the different countries accuses them that they transfer ―profit to China.‖ The author challenges the different international organizations such as the European Union to act in order to balance the growing influence of China—that is ―to adopt an open attitude‖ towards China, ―eliminate stereotype thinking‖ and to ―develop its own soft power strategy competitive to China‘s.‖ Balancing Gambits in the Twenty-First Century, Philippine Foreign Policy: Gains and Possible Demise?

By Renato De Castro, 2011

This article tackles the foreign policy of the Philippines and how it came about over the past years. Essential points such as its economic ties with the US (including special topics i.e. counterterrorism efforts) and China were given emphasis. Moreover, the role of the Philippines in the balance of power between the two economic powers in the region was discussed.

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China-ASEAN Relations in 2002: Chronology of Events

By Cheun Hoe Yow, 2002

This is a compilation of the developments in relations with regards to China and ASEAN. It

includes the chronology of events in China-ASEAN relations and essential agreements produced by both parties. China-ASEAN Relations, October 2002 to June 2003: Chronology of Events

By Cheun Hoe Yow, 2003

Following the previous article, this journal provides the important highlights of the China-

ASEAN economic and by extension, political relations within six months. Most of the activities that took place involved the disputed islands of the West Philippine Sea. China-ASEAN Relations, October 2003 to March 2004: Chronology of Events

By Cheun Hoe Yow, 2004

This journal, once again, presents the chronological highlights of the China-ASEAN

relations. Some of the most important highlights were the tariff-reduction programs and state-visits made by the distinguished leaders to strengthen bilateral and multilateral relations with each other. On Studies of the History of the Philippines in China

By Maohong Bao, 2012

This essay provided an overview of the Philippine history undertaken in China since the

1930s. The processes are categorized into three waves showing the internal dynamic relationship of the two countries. Considering the fact that the two are neighboring states, they shared intertwined histories such as: In Basilan, for instance, archaeologists found coins dating from the Tang dynasty and earliest written accounts were collected from a Philippine Kingdom known as Ma-i. Despite these established connections between the two, the method of teaching Philippine history in contemporary China is still in the ―formation stage‖. In view of these historical events, the author attempted to answer the questions about the state of teaching Philippine history in China and the plausible expectations that Filipinos can get from Chinese scholars dwelling on this matter, through the analysis of the two countries‘ historical relations and plausible future development. The first book on Philippine history in China was ―History of the Philippines‖ compiled and translated by Li Changchuan in 1936. This book was a translation of ―A Brief History of the Philippines‖ written by Philippine nationalist historian Leandro Fernandez in 1919. It served as a starting point for the Chinese scholars studying the Philippines having its contents dwelling on nationalist historiography. During 1949, after the establishment of the People‘s Republic of China, Chairman Mao Zedong encouraged the Chinese to learn the history of foreign countries including that of the Philippines. The latter demanded that every country must have a history book written by a Chinese or translated into Chinese. However, due to the period of isolationism and Cultural Revolution in China (1949-1976), Chinese scholars could not execute this important task. Especially that China formerly does not have any diplomatic relations with the Philippines, resulting into the lack of access in academic exchange. The establishment of the Sino-Philippine relations in 1975

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resulted into some books to be translated or written to satisfy the reading demand of government leaders and diplomatic staff, thus, this was the first wave of studies of the history of the Philippines in China. The second wave of historiography of the Philippines in China occurred from 1978 until the turn of the century. During this period, China began to practice an open door policy. Overseas Chinese in the Philippines visited their ancestral hometowns not only to invest but also to conduct academic exchange. In order to satisfy the need for historical understanding, some books on the history of the Philippines and the history of Sino-Philippine relations were published. From an array of different Chinese scholars drew new understandings of the history of Sino-Philippine trade, cultural exchange, and some aspects of the social, political, and economic systems of the Philippines, including the history of the Filipinos‘ struggle against Spanish colonizers. The second wave continued the emphasis on the anti-colonial struggle, while making new inroads into the exploration of economic history. Under the framework of Sino-Philippine relations, economic history became the main topic for Chinese historians delving into Philippine history. The third wave is being pushed mostly by young scholars who earned their doctorates in the twenty-first century. The published books executed the increasing plurality and complexity of Philippine historical studies in China whether in perspective, methodology, or theme. In a departure from the general historical writing prior to 2000, recent historical studies of the Philippines in China are becoming thematic and more detailed. On the other hand, despite the emergence of teaching Philippine historiography in China, these events encountered challenges. First, Chinese historical studies of the Philippines have been strongly influenced by China‘s own internal political culture and circumstances. Second, Sino-Philippine relations and overseas Chinese history remain among the primary foci of historical studies of the Philippines in China. Third, Chinese historians have had a long history of seeing Philippine history against the background of Southeast Asian history. Fourth, historical studies in the field of Southeast Asian studies have been on the decline in China. Fifth, Chinese historians of the Philippines have relied heavily on historical materials in English found in China and also those found in US archives.

The author enumerated his suggestions regarding the matter and articulated the following: Historical studies of the Philippines need to return to the mainstream of area studies in China. There must more time in training professional historians. New doctoral graduates in Philippine history should be guaranteed positions in university or government to continue their research. Chinese historians of the Philippines should actively seek to set up joint programs with their Philippine colleagues. Chinese historians of the Philippines could contribute their own perspective as outsiders and help provide access to valuable Chinese historical material on the Philippines hitherto unknown, unused, and unavailable to other scholars. Finally, Chinese historical studies of the Philippines should be increasingly done on four integrated levels. The first is local, the second is national, the third is regional, and the fourth is global. To Build a “Harmonious World”: China’s Soft Power Wielding in the Global South: A Summary By Sheng Ding

Since it was officially presented by the Chinese President at the United Nations summit in

2005, the term ―harmonious world‖ has become one of the most popular lexicons for talking about Beijing‘s ideal of international order in the age of China‘s rise. Classical international relations theorists believe that, in international politics, the quality of diplomacy—the substance and style of foreign policy—is not only the most important element of national power, but also an immeasurable

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and unstable element. Since the end of the Cold War, China‘s rise has become a global phenomenon. Although there are some disputes about the speed and extent of China‘s rise, much attention has been paid to the question of whether China‘s growing power portends a threat or how China will wield its national power. Many China observers point to China‘s territorial and demographic size, its fast-growing economy, and its continuously rising national defense budget as evidences that China may become a revisionist power capable of dominating the Far East and challenging American interests globally. Under this backdrop, Beijing must carefully design its foreign strategy in order to establish a favorite national image (i.e., a peaceful and responsible great power) and create a friendly international environment for its ascendancy.

Both ideas of ―harmonious world‖ and ―Chinese soft power‖ can find their evident imprints from China‘s ancient ideologies which have embedded in Chinese culture for hundreds of years. This study also finds Beijing has implemented the following specific soft power-based foreign policies toward three targeted regions: (1) to build a harmonious environment with its neighboring countries for common development; (2) to re-define its ―old brotherhood‖ with African countries; and (3) to ―exhibit‖ its own political values in Latin America where undemocratic or semi-authoritarian regimes remain common. China’s WTO Entry: Effects on its Economy and Implications for the Philippines: A Summary By Ellen H. Palanca

China became the 143rd member of the World Trade Organization (WTO) On December 11, 2001. The Chinese economy has grown at an average annual rate of close to ten percent since 1979. Developed countries are the largest importers of China's lowwage, labor-intensive manufactured products. In turn, China's imports of capital-, technology- and knowledge-intensive goods necessary for its economic development as well as those of high quality consumer goods, which are increasing very rapidly because of rising population income, are mostly from the developed countries. The developing countries, on the other hand, face competition from China for markets of similar labor-intensive manufactured exports and foreign direct investments (FDIs). Becoming a member of the WTO means that China has to open its market wider, both in terms of regions and industries. The greater liberalization resulting from its WTO entry is expected to have a positive effect on its economic growth, which will further expand its market. It is evident that China's WTO accession presents opportunities in the area of product and market niches for developing countries like the Philippines. However, China's membership in this world trade system also means that its competitiveness, which has already been a source of challenge for manufacturers all over the world in the past decade, will be further strengthened. The Philippines will face the negative impact of sharper competition from China in the former's domestic market, in China's market, and also in third markets like the US' and Japan's. Another much-feared negative impact for the Philippines is China's attraction for foreign direct investments, which have spiraled because of China's accession commitment to greater capital liberalization and its growing gigantic market. However, the effect of such capital inflow to China may not necessarily result in the hollowing out of economic activities in the developing countries.

Impacts on the Philippines are the following: the Philippines can expect to gain market opportunities in both merchandise and service trade. With liberalization of the service trade, many service industries have become open for access by foreign investors. As China is expected to abide by the rules of WTO, Philippine investments in China and business transactions with the Chinese

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can now enjoy better protection than before; the tariff rate for carrageenan and other seaweed products will be reduced by 20 to 10 percent in three years' time. For the Philippines, one important area of opportunities in service trade is professional services. Professionals comprise a good part of Philippine labor exports. At present, there are already many Filipino business professionals such as managers and accountants working for multinational corporations and joint ventures in China. With such commitments to the WTO, Philippine exporters, professionals and investors will enjoy better protection of their businesses and jobs in China. China's economic growth will also increase its capacity for investments-both domestic and foreign. FDI outflow from China is expected to increase not only because of the predicted economic growth, which will mean more income and foreign reserves for investments, but also because of the liberalization of capital outflow its accession to the WTO implies.

III. Problem Statement

Question: Are there negative effects of China's Charm offensive that can affect the Philippines?

It is true that several countries like the Philippines benefit from China's Charm Offensive but it has negative effects that can affect different sectors in the Philippines.

IV. Objectives of the Study

This paper will try to define Charm Offensive, as well as, to discuss the trade relations of

Philippines and China from the past up to the recent data and statistics. This paper‘s objectives are to discuss the ASEAN-China Free Trade Agreement, to talk about some problems of the ASEAN-China Free Trade Agreement, to identify the different benefits of China‘s Charm Offensive to the Philippines and also to some countries from the ASEAN and other parts of the world. Furthermore, to enumerate and explain the negative effects of China‘s Charm Offensive with respect to the following areas such as economic and trade, environment, political and socio-cultural will also be the main focus of this research work.

V. Theoretical/Conceptual Framework

In examining the case of China‘s utilization of its charm offensive, this paper employed the

Theory of Soft Power and the Theory of Realism. The theory of Soft Power was first introduced by Joseph Nye in his book ―Bound to Lead: The Changing Nature of American Power‖ published in 1990. Joseph S. Nye defined power as ―the ability to change the behavior of others to achieve the desired result by such means as reward, punishment, or attraction.‖ It constitutes the power to appeal, seduce and attract other countries. It is not about persuasion, influencing or sanctioning other countries but ―skillfully shaping their preferences.‖ There are three sources of soft power—culture, values and foreign policies. The culture mainly refers to the elements in one country‘s culture that makes it appealing for others. Values which can include political beliefs and values that are shown either through internal policies or external. Lastly, foreign policies are also a source of soft power as tackled in the whole article. Another source that many scholars debate upon is the

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economic policies such as the official development assistance (ODA) and other humanitarian aid. The use of diplomacy and a nation‘s standing in international bodies enable it to build alliances (Bohorquez, 2005). On the other hand, the theory of Realism is one of the basic theories in international relations and it argues that events in the world follow one system. It is known as the Hobbesian system which was proposed by one of the main proponents of the realist view, Thomas Hobbes. According to the Hobbesian system, everyone must be viewed as a threat and the only way to survive is to gain more power than your rivals. It argues that the international system is anarchical which means that there is no world government to uniformly regulate all the international actors. Another argument centers on the idea that states are the central or principal actor in the international system and this notion is also known as the principle of Statism. Currently, China is perceived to be using the principle of Balance of Power which refers to the tendency of an independent state to balance its economic and military prowess in relation to other countries within its own regional periphery. The final argument of the theory focuses on the idea that cooperation in the international system is difficult and unlikely (Ambersagen, 2011).

VI. Research Methodology

This research paper requires gathering relevant data from several books, journals, electronic books, and periodicals. This project will use both quantitative and qualitative data. Data collection will consist of citing information, recommendation, conclusion, figures and analysis from several authors and organizations that is concerned of the topic.

VII. Scopes and Limitations

Focusing on the trade relations between the People‘s Republic of China and the Republic of

the Philippines, the scope of this research paper covers the historical background of trade patterns and behavior of the two countries upon each other, as well as the evolution of the effects of China‘s rising economic power over the Asian region particularly on the Philippines. By using the historical approach in scrutinizing the given issue, this paper can present an array of specific situations that mainly involve China and the Philippines, accompanied with sets of statistical data and information, as well as research journals and interviews conducted by the researchers. This paper will also take a look at the status of different countries regarding the effects of China‘s Charm Offensive to their countries.

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VIII. Results and Discussion CHINA’S SOFT POWER IN FOREIGN POLICY: PEACEFUL ASCENDANCY AND GOOD NEIGHBORLINESS

China is considered the world‘s most populous nation and the fastest growing economy. The

rise of China through its economic, political, military and its soft power is said to be the one who will determine the 21st century‗s development. Beginning in the 1980‘s, China‘s GDP has been growing from 8 to 10 percent a year for over two decades. Due to the tremendous effort of China‘s government, it was able to attain on lifting millions of its citizen from poverty and enriching the country through making jobs for its citizen—causing the thousands of countryside‘s jobless citizen to move out of the from their homeland and move in the city‘s fast growing industrial sector. Furthermore, with China‘s economic growth, it was able to build new factories, skyscrapers and institutions to facilitate trade and business in the country (Arsenault 2007).

China’s Foreign Policy

China as we know has a great amount of soft power but if they would be able to use it in its

foreign policy it will only be useless as stated by Joseph Nye. According to Niall Ferguson a country not fully utilizing its soft power will just be considered ―soft.‖ China has put great recognition of soft power in formulating their foreign policy. The Chinese government has categorized modernization as a ―development path to a peaceful rise.‖ Accordingly, soft power is subordinated to the foreign policy aims. First is to continue reforms and economic development through political reforms. Second is to search abroad for raw materials base and sales market. Third is to ensure security in the region by coordinating to variety of organizations, including law enforcement, military, paramilitary, governmental, and intelligence agencies whose aim is to protect China‘s national security. China also pursues the one-China principle to establish diplomatic relations with the states that still maintain official relations with Taiwan. Last is to win the developing states‘ goodwill, so that they support China in the U.N on issues concerning human rights, the isolation of Taiwan, or on blocking Japan‘s permanent membership in the UN Security Council. A Chinese foreign policy cannot risk China‘s economic growth and influence in the international system because without these premises China will not be able to ―charm‖ the world. According to Arsenault, in the end, China will have ―comprehensive national power‖—a combination of international prestige, diplomacy, economic power, cultural influence, and military force.

According to Duan Bingren, the rise of China uses soft power so as not to become a threat to other states, especially those in the Pacific region and the United States. Economically, it wants to incorporate itself in the globalizing world, and seeks to be an active player in this kind of system. Politically, China wanted to and is active to different international affairs such as joining several international organizations that will establish the notion of a ―friendly and helpful China.‖ Therefore, the passive emergence of China is a segue for them to achieve their goals without utilizing the idea of ―hegemony‖, ―hot war‖, ―cold war‖, ―China threat‖, ―disintegration of China‖ etc. theories. ―It is a promise to the world that the rise of China is peaceful.‖ (Deepak, 2012)

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ASEAN - CHINA Relationship

The ASEAN (Association of Southeast Asian Nations) countries represent a group of states

where Chinese influence is expanding. The region‘s culture and economies are greatly intertwined with China‘s, thus, prompting the latter to pursue friendly relation with the former and use soft power. In the past, China provided military assistance on one hand and on the other, fought a war with once ally Vietnam in 1979. Now, China encourages increased cooperation in trade and in resolving border disputes and has become a key outside member of ASEAN and APEC. Most of China‘s goodwill in the region stems from how China handled the 1997 Asian financial crisis. The fall in East Asian currency caused massive stock speculation and reversed the Asian Tiger‘s economic growth. China, however, refused to devalue its currency and saving the economy of the affected states.

However, the increased rift between China and many ASEAN states, mostly on territorial disputes, began a speculation from International Relations scholars to perceive a ―Chinese Monroe Doctrine.‖ The Monroe Doctrine was first enunciated in 1823 by the 5th president of the United States James Monroe which stated that ―further efforts by European countries to colonize land or interfere with states in the Americas would be viewed as acts of aggression requiring U.S.‖ Scholars

see parallels between that policy and China‘s rise today. The West Philippine Sea (South China Sea)

is China‘s backyard and, like 19th century-America, China is a rising power. ―China‘s commerce, and hence prosperity, depends very much on access to sea lanes through the Indian Ocean, the Malacca Straits and other areas over which it has little control, and which are dominated by US naval power‖ (China Daily, 2013). Effects to the Philippines

In April 2012 China and the Philippines have been in a standoff regarding the Scarborough

Reef. According to China Daily, the standoff has gone beyond from territorial clash to economic concerns such as those dealing with fruit trade and tourism. The country suffered losses in fruit exports to China after some varieties of fruit were found carrying harmful bacteria and pests, thereby causing massive delays in shipments, following tighter inspections from China. The tourism sector has also faced a major setback, with Chinese nationals now instructed to limit their visits to the Philippines on account of safety reasons. (Sabrina ,2013).

CHINA’S CHARM OFFENSIVE, CONCESSIONARY LOANS AND THE ISSUE OF DEPENDENCE

The political and economic emergence of China in the twenty-first century is beyond

question. In terms of economic ties, China began expanding its networks with the member states of the Association of the Southeast Asian Nations (ASEAN) in the early 2001.While the war on terror revitalized the Philippine-US security relations, China ―decided to apply co-optive or soft power to create a wedge between the Philippines and its former security ally‖ (De Castro, 2011).

During the 5th China-ASEAN summit in November 2001, China offered the Philippines and the other ASEAN states a free trade agreement which enabled China to attain three very important foreign policy objectives: (1) expanding its market access; (2) gaining access to strategic resources

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and; (3) assuring smaller states that it will not undermine their economic interests (Medeiros, 2009). The next year, both parties signed the Framework Agreement on China-ASEAN Comprehensive Economic Cooperation which heralded a China-ASEAN free trade zone in 2010. In 2006, rapid trade growth was evident to the two parties as it escalated to US$160.8 billion, garnering 23.4 per cent increase from the 2005 trade level (Xinhua, 2007).

Figure 1: ASEAN-China Trade is Rising Rapidly

From 1998 to 2007, Philippine-China trade escalated from a mere US$2 billion to an

overwhelming US$30 billion. In the following years, China has become the Philippines‘ third largest trading partner after the US and Japan. Alongside, the Philippines has been enjoying a trade surplus with China, as the latter imports a huge volume of semiconductors from the Philippines which makes almost 85 percent of Chinese imports. In addition, the Philippines exports machinery and electronic appliances to China which are intermediate goods for the manufacture of sound equipment and automated teller machines.

The Philippines was seen to play ‗the China card‘ after a destabilized diplomatic relations with the US when the government withdrew its troops in Iraq (Robles, 2004). The Philippines and China agreed to increase defense cooperation such as sea rescue, disaster mitigation, and exchange of training. The two states also decided to set aside their territorial claim to the Spratlys and to engage in the joint development in the disputed area.

There was an increased exchange visits between the heads of states of the Philippines and China. Alongside were joint projects such as the Chinese-funded North Luzon Railway Project, underwater seismic study for possible cooperation in the exploration and development of maritime resources in the South China Sea, intensification of cooperation in addressing international terrorism and transnational crimes and policy coordination in implementing the ASEAN-China Free Trade Agreement (Xinhua, 2005).

The two countries, along with Vietnam, conducted a joint marine seismic survey of the South China Sea in August 2005. This activity involved a three-phase program of data-gathering, consolidation, and interpretation of about 11,000 kilometers of 2D seismic data in the location. The first phase was completed in November 2005, the second in early 2007, and the last in June 2008.

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President Aquino contends that this project should not have happened because it is an encroachment of the Philippine territory, giving China, as well as Vietnam, valuable intelligence and data about the oil reserves in the contended area.

Furthermore, De Castro contends that as China‘s economic and political influence in the region increases, many of its Asian neighbors are gradually being drawn into its diplomatic orbit, including the Philippines. As a result of China‘s increasing naval prowess, it slowly began asserting its long-held claim to the Spratly archipelago and South China Sea. In 2008, the Philippine-China relations reached a low point upon the corruption allegations intertwined with the ZTE-NBN deal. The controversy sparked when the US$329 million deal with the Zhong Xing Tele-communications Equipment Co. Ltd. was alleged to be overpriced by $197 million. The main goal of the project was to provide more efficient and less costly communications for the government agencies but there was another speculation that did not reach the mainstream Philippine media. Before the partnership with ZTE, an American company named ARESCOM proposed a transparent consideration of the matter, offering a relatively cheaper $135 million deal but the Philippine government chose the former option. Nevertheless, President Arroyo was accused of betraying public trust and was forced to withdraw the deal. A recent study on Chinese activism in the South China Sea commented that China had reverted to a more assertive stance in its territorial claims, which made it rely on its militaristic prowess, ―seeking to undermine the claims of other states through coercive diplomacy‖ (Schofield & Storey, 2009).

Concessionary Loans

Even before China‘s use of charm offensive was fully realized by the international

community, it gradually began building stronger ties with its neighbor Cambodia when China served as Cambodia‘s major supporter during the reign of Khmer Rouge. The Cambodian officials received 15,000 military advisers and external aid from Beijing, which entitled China to be the most important foreign influence to Cambodia up to this day. In addition, China became the major provider of foreign aid to Cambodia as the latter receives one of the larger aid packages of any nation in the world (Kurlantzick, 2006). Along with that was the abrupt growth in the number of Chinese language schools in Phnom Penh, with approximately 10,000 students each.

According to Kurlantzick, China began utilizing its charm offensive during the late 1990‘s at the time of the Asian financial crisis. While the United States and Japan reluctantly responded to the crisis, China manifested a perceptive rejoinder. China refused to devalue its currency, something if did not take place would have buried the Thai and Indonesian currency deep within the crisis. This action proved that China was standing up for its neighbors which earned the trust of the heavily-affected countries in Southeast Asia. Subsequently, China started enunciating a doctrine of ―win-win‖ relations, convincing states that China will not meddle with their internal affairs because it will not make demands on the other states‘ sovereignty. Following that action was the gradual opening of its markets, reversing its previous disdain towards multilateralism, as it signed significant treaties with the Southeast Asian member states which improved political and economic relations between the two parties.

Kurlantzick argues that China‘s strategy also involves strengthening its bilateral relationship with the states that seemed to have a declining relationship with the United States and Japan, a detail that supports how the Philippines was brought closer to China after it withdrew its troops in Iraq back in 2004. Shortly after said event, China invited President Arroyo for a state visit and began offering greater cooperation and aid.

16

China furthered its use of soft power with public diplomacy that enforced peaceful development. In Malaysia and Singapore were museum exhibits to celebrate 600th anniversary of Zheng He, a Chinese admiral who sailed across Asia but did not conquer the lands he set foot into. China‘s public diplomacy also included hosting overseas scholars and creating a version of the Peace Corps to send young Chinese volunteers to work for certain projects in developing countries such as Laos and Burma. China also built networks to bring Asian businessmen for an event like the World Economic Forum.

When it comes to establishments of cultural exchanges and financial aid, China has also become more active in the recent years. According to a study of National Defense University in Washington, in 2003, China‘s aid to the Philippines was four times greater than America‘s, China‘s aid to Laos three times greater, to Indonesia nearly double, and to Cambodia, nearly almost matched with the US levels.

In early November 2006, the construction of the North Rail Project in the Philippines was made possible with funds coming from the state-owned Chinese Export Import Credit Agency. The North Rail project was created in order to fix the congestion in the Ninoy Aquino International Airport (NAIA) by connecting Clark International Airport to the National Capital Region via bullet train. Unfortunately, the project was interrupted when it was found to be tainted with anomalies from the Arroyo administration and also because the Chinese contractor, China National Machinery Industry Corp (Sinomach) had sought more money. In 2012, the Philippine government determined that the project must continue as the need to connect Clark International Airport to the NCR has been more emphasized (Manila Times, 2012). When asked about the renegotiation process, Bayan Muna Representative Neri Colmenares said the following statement, ―The Chinese government was aware of the bloated overpricing and other irregularities in the NBN-ZTE deal; this is why it did not even raise a whimper when former president Gloria Macapagal-Arroyo cancelled it. Recently, the Chinese government immediately agreed for a renegotiation of the Northrail contract which was heavily favorable to China to the disadvantage of the Philippines.‖ The disadvantage that he was referring to concerns the circulation of money from China. The state-owned bank would lend money and contractor to the Philippines for the construction (including labor) of the project but the country would still have to pay for the loan in the following years. China would later on gain more than what it gave the Philippines for the said project.

Kurlantzick further contends that China‘s charm offensive is meant to meet the following goals: (1) to maintain peace on China‘s periphery; (2) to reduce Taiwan‘s influence in Southeast Asia, also to change a regional perception of China to been seen as a positive, benign actor in the region, and finally; (3) to shift influence away from the United States of America to create its own sphere of influence.

With said acts, China was able to build its own sphere of influence within the region, gaining trust and support of its neighbors. Chinese values such as non-interference, respect for other nations‘ internal affairs and economic gradualism added more appeal to China‘s success story. ASEAN-CHINA FTA

In utilizing its charm offensive within its own regional periphery, China managed to integrate

itself with one of the largest regional organizations in the world which is the ASEAN. Due to intertwining culture and preferences, it became an easy task for both parties to amplify their trade relations. This was done through the creation of the ASEAN-China Free Trade Area (ACFTA) which is a free trade area among the ten Member States of the Association of Southeast Asian Nations (ASEAN) and the People's Republic of China. On November 4, 2004, the initial

17

Framework Agreement (FA) was signed in Phnom Penh, Cambodia, with the aim of creating a free trade area among the eleven nations by 2010 and on January 1, 2010, it came into effect. According to world ranking of international organizations in terms of population, ACFTA is the largest and in the aspect of nominal Gross Domestic Product (GDP), it ranks as the third only after the European Union (EU) and North American Free Trade Area (NAFTA) (The Economist, 2010). It has the following three principal agreements wherein they will base their provisions on tariff reduction of certain categories of tariff lines; 1. ASEAN-China Trade in Goods Agreement (ACTIGA), 2. ASEAN-China Trade in Services Agreement (ACTISA) and, 3. ASEAN-China Investment Agreement. According to the statement of the Chairman of the 15th ASEAN-China Summit in Phnom Penh, Cambodia last November 2012, ASEAN is China‘s third largest trading partner and China is considered to be ASEAN‘s largest trading associate. Agreement on Trade in Goods

Under the ASEAN – China Trade in Goods Agreement (ACTIGA), Parties are committed

to reduce their tariffs based on the following schedules:

1. Early Harvest Programme which is a free trade arrangement under the agreement which implements the gradual reduction of tariffs on agricultural products. It was signed and implemented on October 6, 2003 at the 9th ASEAN-China Summit in Bali, Indonesia through a protocol to amend the Framework Agreement on the Comprehensive Economic Cooperation between ASEAN and China. It was planned to be implemented from 2004-2006 and both China and Thailand implemented according to their 2003 bilateral agreement. After the FA was signed to implement the program, some ASEAN Member States found that they are encountering difficulties in implementing the tariff reduction or elimination plan on their products. In order to protect its agricultural sector, the Philippines et up a committee on August 2003 to review its 5,700 tariff lines to know its compatibility under the ACFTA framework. After the evaluation, the government decided to raise its tariffs on 464 products by 2-5 percent from 2003-2007. China allowed ASEAN Member States such as the Philippines to have a list of products that were granted flexibility on tariff rates and the country was able to implement it on 400 tariff lines.

2. Normal Track which refers to the arrangement of gradual tariff reduction or elimination on goods starting from 0-5 percent on July 1, 2005 for the first package, 6 percent tariff reduction by 2007 for the second package, and complete tariff elimination on the products under the normal track by 2010 for the last package. China, Brunei, Indonesia, Malaysia, Myanmar, Singapore, and Thailand instigated the new tariff rate on time since its implementation on 2005. However, the Philippines together with Laos, Cambodia, and Vietnam was not able to join the implementation of the new tariff rate on time due to the fact that they need to complete the requirements for the approval procedure such as list of tariff lines that will be covered by reduced tariffs and the flexibility of the latter. On May 20, 2006, the Philippines became the seventh ASEAN Member State to join the new tariff rate.

3. Sensitive Track which is divided into the ―Sensitive List‖ (SL) and the ―Highly Sensitive List‖ (HSL). The track is comprised of unprocessed agricultural products and the number of

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tariff lines for each Party shall be subjected into a maximum ceiling. The difference between the two factions under the track is that those products under the HSL came from the tariff lines originating from the ASEAN 6 (Brunei, Indonesia, Malaysia, Myanmar, Singapore, Thailand) and China. Their tariff lines shall not be more than 40 percent of the total number of tariff lines under the Sensitive Track and products under this category are granted flexibility options for safeguarding measures when being exported overseas. One example of a product under the HSL is the rice production coming from Indonesia, Malaysia, and the Philippines. Tariffs under this category shall be reduced to 50 percent by 2015. On the other hand, those products covered by the SL have an access on the phasing of tariffs for a shorter timeframe. It requires tariffs to be reduced to 20% by 2012 and shall be followed by a reduction of 0-5 percent by 2018. The implementation of ACTIGA is expected to benefit Parties to the Agreement in terms of fair and equitable/reciprocal market access treatments with each other‘s export commodities. The Philippines implemented its commitments through the following legal enactments which has allowed traders to enjoy low tariffs when exporting to China (1) Executive Order (E.O.) 487 for the implementation of Normal Track concessions covering the first package (i.e. 2005-2008) to comply with the 01 July 2005 milestone, (2) E.O. 613 for the second package of Normal Track concessions following the schedule of reduction beginning 01 January 2007 to 31 December 2008 and (3) E.O. 814 which was signed on 30 June 2009 for the last tranche of tariff reduction concessions. The third package consists of all Normal Track products whose tariff rates will follow the schedule of reduction beginning 01 January 2009 to 31 December 2010/2012 under the ACFTA modality.

Agreement on Trade in Services

The TIS Agreement was signed in January 2007 in Cebu, Philippines and entered into force on 01 July 2007. Under this Agreement, services and services suppliers/providers in the region will enjoy improved market access and national treatment in sectors/subsectors where commitments have been made. Services have taken on an increasingly important role in ASEAN. Faced with exacerbating competitive pressures on the world merchandise trading front, particularly with the accession of China to the World Trade Organization (WTO) in 2001, ASEAN members have stirred into introducing a gamut of measures aimed at improving its domestic investment climate and regaining competitiveness on various fronts. This can be seen through the key initiatives of the ASEAN. In 2005, ACTISA saw the largest foreign-domestic deals taking place in financial services sector in China, rather than manufacturing and industry. This serves to epitomize the heightened interest and opportunities in services trade between China and ASEAN. The mode of consuming abroad became very present and this is perceived to be a part of China‘s ―Go Global‖ strategy since 2000.

The ASEAN – China Trade in Services Agreement (ACTISA) provides for the expansion of trade in services in the region. Under this Agreement, services and services suppliers/providers in the region will enjoy improved market access and national treatment in sectors/subsectors where commitments have been made. The market access commitments of the Parties to the ACTISA are contained in the first package of specific schedule of commitments that are attached to the Agreement. The Agreement provides for liberalization on substantial coverage of sectors/subsectors especially in more than 60 additional subsectors committed by ASEAN Member Countries which are parties to the GATS/WTO. The latter includes management consulting, advertising, accounting, banking, securities, insurance, logistics, movies, construction, shipping, and

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value-added telecommunications services. In 2005, China and the ASEAN started negotiations on finance and insurance. Some ASEAN countries chose to negotiate with China on their issues of greatest concern. Singapore, as an example, is more interested in the service sectors while the less-developed ASEAN-4 (Cambodia, Laos, Myanmar, and Vietnam) are more interested in export opportunities and infrastructures. With the Agreement, it is expected that trade in services in the region would expand and grow in scale through the four modes of service delivery, namely: 1. cross-border supply which refers to the independence of foreign suppliers towards other country‘s consumers (e.g. telecommunication, postal services, e-banking), 2. consumption abroad which refers to the situation wherein the consumers of the services are non-resident in the country wherein the service is being produced and consumed (e.g. travel and training of students), 3. commercial presence which refers to the suppliers of services being an affiliate or branch of a foreign supplier (e.g. local branches of Multinational Corporations, banks), and 4. movement of natural persons which refers to suppliers of services being non-residents of a country in which they temporarily reside to conduct business (e.g. professionals, construction workers, domestic helpers). Aside from increased trade, the TIS Agreement is also expected to bring about higher levels of investments in the region, particularly in sectors where commitments have been made, namely: business services such as computer related services, real estate services, market research, management consulting; construction and engineering related services; tourism and travel related services; transport services; educational services; telecommunication services; health-related and social services; recreational, cultural and sporting services; environmental services; and energy services. The ASEAN-China TIS Agreement was signed in January 2007 in Cebu, Philippines and entered into force on 01 July 2007. ASEAN and China are in the final phase of negotiations on the second package of commitments (Bo, 2006). Figure 2: Increasing Rate of ASEAN Visitors to China

Source: National Bureau of Statistics of China, 2005.

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Investment Agreement

It was signed on August 15, 2009. It is the third of the three main agreements concluded under the 2002 ASEAN – China Framework Agreement on Comprehensive Economic Cooperation. China‘s investment in ASEAN was a cumulative US$6.1 billion up to the end of 2008, while ASEAN‘s investments into China alone totaled US$5.6 billion in 2008 (DTI, 2008). Since 2003, China and the ASEAN Member States held many rounds on negotiations on investment. The ASEAN Foreign Direct Investment (FDI) to China mainly comes from Singapore, Thailand, Malaysia, and Indonesia.

The ASEAN – China Investment Agreement is the third of three main agreements concluded underthe 2002 ASEAN – China Framework Agreement on Comprehensive Economic Co-operation. The conclusion of an Investment Agreement is timely as this provides an enabling environment that will lead to enhanced investment flows between both sides at a time when ASEAN and China are both key emerging economies with strong economic prospects. China‘s investment in ASEAN was a cumulative US$6.1 billion up to the end of 2008, while ASEAN‘s investments into China alone totaled US$5.6 billion in 2008. The ASEAN-China Investment Agreement was signed on 15 August 2009 (DTI, 2008). One of the most visible manifestations of the Investment Agreement between ASEAN and China is the Greater Mekong Sub-region Development which was proposed by the Asian Development Bank (ADB) in 1992, thus, is a much earlier proposal compared to the ACFTA. It is considered to be a very important part in the cooperation between China and the ASEAN countries. It is also perceived to be a helpful aspect in the establishment of a free trade area (Bo, 2006). Figure 3: Top Five Countries in the China-ASEAN FTA

Source: UN Comtrade; Beijing Axis Analysts, (2012).

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PROBLEMS WITHIN THE ASEAN-CHINA FTA

China’s Motivation within the EHP

According to Lu Bo, one of the researchers who was able to produce non-conference papers, China‘s engagement to the EHP has ―real (political or strategic) intentions‖. Lu analyzed the EHP by product categories, implementation timetable, specific list, exclusion list, and rules of origin. According to the FA, a party shall enjoy tariff concessions by all the other parties for the products covered. The EHP covered about 600 agricultural products and Lu Bo found out that ASEAN has advantages on most of them. As a result, China gave unilateral concessions to ASEAN Member States on most of them and the latter agreed to cut tariffs on meat, fish, fruits, vegetables, and milk from the former. It is perceived that the EHP is so generous that many observers wondered at ―China‘s motivation behind‖. Another suspicion from the international community regarding China‘s integration to the EHP is the visible progress of the WTO agricultural negotiation wherein the former has amplified interests. According to Lu Bo, opening China‘s agricultural market to ASEAN is a good test before its opening to the world. Economically, it is important for China to take one step out into its neighboring countries and make sure it is safe before it moves forward to the whole world (Bo, 2006).

What could happen to ASEAN?

1. Macroeconomic Impact

Association of Southeast Asian Nations (ASEAN) - China Free Trade Agreement (FTA) will mainly benefit ASEAN through an increasing market access in China‘s huge market. A rise in ASEAN‘S exports, such as rice, sugar, vegetable oils, textiles, and leather products increases the demand for primary factors of products. The FTA results in a significant trade creation. Namely, there will be a 53.3 per cent surge in ASEAN‘S exports to China while ASEAN‘S imports from China will rise by 23 per cent. This leads to an increase in the total exports of 0.95 per cent. The FTA will create some trade diversion effects. The intra-trade within ASEAN members will significantly decline. For example, exports of Thailand to Vietnam and to the Philippines will be declined by 6 per cent and 5.3 per cent respectively, while the exports of ASEAN to the United States and Japan will drop by 0.83 per cent and 1.41 per cent respectively. (Gill, 2007)

The intra-trade diversion gives a big impact among the ASEAN members regarding their trading with each other including ASEAN‘s trade with the United States and Japan. The logic here is that, the products and services which are the imports of China to the ASEAN members are low-quality but very cheap so the ASEAN members would prefer China‘s cheaper products that the United States‘ and Japan‘s high-quality products but expensive. The intra-trade diversion has two major negative impacts to the relationship of ASEAN and the United States and Japan and the second one is the relationship among ASEAN members themselves. First, the FTA between ASEAN and China hinders the economic trading of the ASEAN members to the United States and Japan because the FTA decreases the trade imports and imports of the ASEAN members to the US and Japan due to the lower cost of import by the ASEAN-China FTA. Second, the FTA also decreases the economic trade of imports and exports by the ASEAN members themselves because ASEAN members would rather choose to patronize China‘s products because they are cheaper than the local products of the ASEAN members.

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2. Sectoral Impact

Due to lower ASEAN‘s lower trade barriers, imports from China will cause a decline in

ASEAN‘s output of vegetables and fruits. In addition, better cost competitiveness of other Chinese

food products, apparel and leather products due to the FTA is likely to cause ASEAN output to

suffer (Chirathivat and Mallikamas, 2005). Chinese products are cheaper but low quality compared

to the products of United States and Japan and even to the SEAN local products, but the ASEAN

would rather choose Chinese products even though it is low quality but cheap and the local products

of ASEAN will be undermined by Chinese products.

3. Negative Impact from Lower Cost of Imports

Trade creation will more offset trade diversion for ASEAN while for China there is no obvious trade diversion. It remains to be seen how ASEAN and China will use these opportunities to strengthen their economic relationships. China would look increasingly at ASEAN as an alternative source of inputs for natural resource-based or intermediate products (Chirathivat and Mallikamas, 2005). Vegetables and fruits will experience a decline in output due to import substitution. ASEAN‘s tariff reduction of 5 per cent will increase imports from China by 19.8 per cent while the sector‘s total imports will rise by 5.1 per cent. As a result, the output will drop by 0.4 per cent and the trade balance will decline by US $72.9 million. Apparels like food will face a higher competition from Chinese lower cost of production and ASEAN‘s 4.51 per cent tariff cuts in imports. These will increase imports from China by 107.5 per cent. Total imports of apparels are likely to increase by 5.9 per cent. As a result, the output in this sector will decrease by 0.38 per cent. (Gill, 2007) Cheap, low-value-added manufactured goods exported by China also dominate in the structure of the most ASEAN members‘ exports, so there is a risk that an increase in imports of these products (e.g. textiles, clothing, footwear) from China will hurt the local enterprise.

CHINA’S CHARM OFFENSIVE, CONCESSIONARY LOANS AND THE ISSUE OF DEPENDENCE

The political and economic emergence of China in the twenty-first century is beyond

question. In terms of economic ties, China began expanding its networks with the member states of the Association of the Southeast Asian Nations (ASEAN) in the early 2001.While the war on terror revitalized the Philippine-US security relations, China ―decided to apply co-optive or soft power to create a wedge between the Philippines and its former security ally‖ (De Castro, 2011).

During the 5th China-ASEAN summit in November 2001, China offered the Philippines and the other ASEAN states a free trade agreement which enabled China to attain three very important foreign policy objectives: (1) expanding its market access; (2) gaining access to strategic resources and; (3) assuring smaller states that it will not undermine their economic interests (Medeiros, 2009). The next year, both parties signed the Framework Agreement on China-ASEAN Comprehensive Economic Cooperation which heralded a China-ASEAN free trade zone in 2010. In 2006, rapid trade growth was evident to the two parties as it escalated to US$160.8 billion, garnering 23.4 per cent increase from the 2005 trade level (Xinhua, 2007).

From 1998 to 2007, Philippine-China trade escalated from a mere US$2 billion to an overwhelming US$30 billion. In the following years, China has become the Philippines‘ third largest

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trading partner after the US and Japan. Alongside, the Philippines has been enjoying a trade surplus with China, as the latter imports a huge volume of semiconductors from the Philippines which makes almost 85 percent of Chinese imports. In addition, the Philippines exports machinery and electronic appliances to China which are intermediate goods for the manufacture of sound equipment and automated teller machines.

The Philippines was seen to play ‗the China card‘ after a destabilized diplomatic relations with the US when the government withdrew its troops in Iraq (Robles, 2004). The Philippines and China agreed to increase defense cooperation such as sea rescue, disaster mitigation, and exchange of training. The two states also decided to set aside their territorial claim to the Spratlys and to engage in the joint development in the disputed area.

There was an increased exchange visits between the heads of states of the Philippines and

China. Alongside were joint projects such as the Chinese-funded North Luzon Railway Project, underwater seismic study for possible cooperation in the exploration and development of maritime resources in the South China Sea, intensification of cooperation in addressing international terrorism and transnational crimes and policy coordination in implementing the ASEAN-China Free Trade Agreement (Xinhua, 2005).

The two countries, along with Vietnam, conducted a joint marine seismic survey of the

South China Sea in August 2005. This activity involved a three-phase program of data-gathering, consolidation, and interpretation of about 11,000 kilometers of 2D seismic data in the location. The first phase was completed in November 2005, the second in early 2007, and the last in June 2008. President Aquino contends that this project should not have happened because it is an encroachment of the Philippine territory, giving China, as well as Vietnam, valuable intelligence and data about the oil reserves in the contended area.

Furthermore, De Castro contends that as China‘s economic and political influence in the

region increases, many of its Asian neighbors are gradually being drawn into its diplomatic orbit, including the Philippines. As a result of China‘s increasing naval prowess, it slowly began asserting its long-held claim to the Spratly archipelago and South China Sea. In 2008, the Philippine-China relations reached a low point upon the corruption allegations intertwined with the ZTE-NBN deal. The controversy sparked when the US$329 million deal with the Zhong Xing Tele-communications Equipment Co. Ltd. was alleged to be overpriced by $197 million. The main goal of the project was to provide more efficient and less costly communications for the government agencies but there was another speculation that did not reach the mainstream Philippine media. Before the partnership with ZTE, an American company named ARESCOM proposed a transparent consideration of the matter, offering a relatively cheaper $135 million deal but the Philippine government chose the former option. Nevertheless, President Arroyo was accused of betraying public trust and was forced to withdraw the deal. A recent study on Chinese activism in the South China Sea commented that China had reverted to a more assertive stance in its territorial claims, which made it rely on its militaristic prowess, ―seeking to undermine the claims of other states through coercive diplomacy‖ (Schofield & Storey, 2009). Concessionary Loans

Even before China‘s use of charm offensive was fully realized by the international

community, it gradually began building stronger ties with its neighbor Cambodia when China served as Cambodia‘s major supporter during the reign of Khmer Rouge. The Cambodian officials received

24

15,000 military advisers and external aid from Beijing, which entitled China to be the most important foreign influence to Cambodia up to this day. In addition, China became the major provider of foreign aid to Cambodia as the latter receives one of the larger aid packages of any nation in the world (Kurlantzick, 2006). Along with that was the abrupt growth in the number of Chinese language schools in Phnom Penh, with approximately 10,000 students each.

According to Kurlantzick, China began utilizing its charm offensive during the late 1990‘s at the time of the Asian financial crisis. While the United States and Japan reluctantly responded to the crisis, China manifested a perceptive rejoinder. China refused to devalue its currency, something if did not take place would have buried the Thai and Indonesian currency deep within the crisis. This action proved that China was standing up for its neighbors which earned the trust of the heavily-affected countries in Southeast Asia. Subsequently, China started enunciating a doctrine of ―win-win‖ relations, convincing states that China will not meddle with their internal affairs because it will not make demands on the other states‘ sovereignty. Following that action was the gradual opening of its markets, reversing its previous disdain towards multilateralism, as it signed significant treaties with the Southeast Asian member states which improved political and economic relations between the two parties.

Kurlantzick argues that China‘s strategy also involves strengthening its bilateral relationship with the states that seemed to have a declining relationship with the United States and Japan, a detail that supports how the Philippines was brought closer to China after it withdrew its troops in Iraq back in 2004. Shortly after said event, China invited President Arroyo for a state visit and began offering greater cooperation and aid.

China furthered its use of soft power with public diplomacy that enforced peaceful development. In Malaysia and Singapore were museum exhibits to celebrate 600th anniversary of Zheng He, a Chinese admiral who sailed across Asia but did not conquer the lands he set foot into. China‘s public diplomacy also included hosting overseas scholars and creating a version of the Peace Corps to send young Chinese volunteers to work for certain projects in developing countries such as Laos and Burma. China also built networks to bring Asian businessmen for an event like the World Economic Forum.

When it comes to establishments of cultural exchanges and financial aid, China has also become more active in the recent years. According to a study of National Defense University in Washington, in 2003, China‘s aid to the Philippines was four times greater than America‘s, China‘s aid to Laos three times greater, to Indonesia nearly double, and to Cambodia, nearly almost matched with the US levels.

In early November 2006, the construction of the North Rail Project in the Philippines was made possible with funds coming from the state-owned Chinese Export Import Credit Agency. The North Rail project was created in order to fix the congestion in the Ninoy Aquino International Airport (NAIA) by connecting Clark International Airport to the National Capital Region via bullet train. Unfortunately, the project was interrupted when it was found to be tainted with anomalies from the Arroyo administration and also because the Chinese contractor, China National Machinery Industry Corp (Sinomach) had sought more money. In 2012, the Philippine government determined that the project must continue as the need to connect Clark International Airport to the NCR has been more emphasized (Manila Times, 2012). When asked about the renegotiation process, Bayan Muna Representative Neri Colmenares said the following statement, ―The Chinese government was aware of the bloated overpricing and other irregularities in the NBN-ZTE deal; this is why it did not even raise a whimper when former president Gloria Macapagal-Arroyo cancelled it. Recently, the Chinese government immediately agreed for a renegotiation of the Northrail contract which was heavily favorable to China to the disadvantage of the Philippines.‖ The disadvantage that he was

25

referring to concerns the circulation of money from China. The state-owned bank would lend money and contractor to the Philippines for the construction (including labor) of the project but the country would still have to pay for the loan in the following years. China would later on gain more than what it gave the Philippines for the said project.

Kurlantzick further contends that China‘s charm offensive is meant to meet the following goals: (1) to maintain peace on China‘s periphery; (2) to reduce Taiwan‘s influence in Southeast Asia, also to change a regional perception of China to been seen as a positive, benign actor in the region, and finally; (3) to shift influence away from the United States of America to create its own sphere of influence.

With said acts, China was able to build its own sphere of influence within the region, gaining trust and support of its neighbors. Chinese values such as non-interference, respect for other nations‘ internal affairs and economic gradualism added more appeal to China‘s success story.

CHINA’S CHARM OFFENSIVE AND MINING IN THE PHILIPPINES

Environmental degradation describes the erosion of the natural environment through the

depletion of resources, the destruction of ecosystems and the extinction of the plant and animal species. It can be caused by direct and indirect human activities and natural events like earthquakes, intense rainfall, tidal waves, and volcano eruption. This issue increased since the Industrial Revolution. This is mainly caused by the extraction of the natural resources, production waste, and pollution in their natural habitat. Some of the human activities include mining, deforestation, fuel burning, and pollution. (FWD Group Pty Ltd, 2012)

Mining is one of the most popular jobs in the rural areas that have good payment for the people in that area to survive. They are paid in a contractual basis that has stable jobs for month, or for a whole year. Some people think that this is a good opportunity especially to those people who does not want to take the opportunity in the urban areas. The hunger for metals, a report from the Pacific Strategies and Assesments (a political and security risk consultancy) said, could partly be responsible for China‘s growing role as a major export market for the Philippines.

There are at least 26 Chinese mining companies that are legally registered for operation in the Philippines. They are here for the digging not just for gold but also for iron, nickel, copper, manganese, lead, zinc, chromite and cobalt. Some of the Chinese largest gold producers have established here in the Philippines. One of these is the Zijin Mining group Company Ltd wherein they have signed, together with the Philippine government, a $1 billion US dollars in gold and copper exploration for 5 years. This is one of the major Chinese mining deals in 2011. However, there has been a passage way for the illegal Chinese mining companies to enter the Philippines. They made it through the small-scale mining companies. They have intermediaries who are responsible for the talks between them and the small-scale companies. They are making these small-scale mining companies as a proxy for them to operate fully with paying a lesser tax. Example of an illegal Chinese mining company is the Prime Rock Mining wherein it was registered under the name of Benito Salandanan of Bicol Chromite. (Our Correspondence, 2012) These illegal Chinese mining companies may be registered as a small-scale mining business but actually it is under a big Chinese company. Some of these companies are Oriental Synergy, Macao Quanta, Nihao Mineral resources, Peng Cheng Metallic resources, Prime Rock Mining (Hote, 2012) and Nicua Mining Corporation. (Hote, Part Four: Filipino or Chinese? 2012) An organization got aware of this problem especially in

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the Palawan area and campaign a no mining in Palawan wherein most of the natural resources extracted came from. Industry sources suggest that Chinese mining firms claiming to manage small-scale ventures actually engage in large-scale operations using heavy equipment, mercury, cyanide, and various types of explosives to extract ore, contracting to national mining laws. In June 2012, the environmental agency sought help from the Presidential Anti-Organized crime task force and the Bureau of Customs after the Mines and Geosciences Bureau reported a 38 percent first-quarter decline from the previous year in production value, and from P31.40 billion to P9.61 billion, a shortfall of P11.79 billion (Asian Sentinel, 2012).

China‘s mine safety record is the worst in the world. More than 2,600 Chinese miners died in

mining accidents in 2009. While China accounts for 40% of the world‘s global coal output, it accounts for 80% of mining deaths in the world (BBC, 2010). Inside China, safety in coal mining in China is a critical issue. The number of fatalities is unacceptably high, particularly due to the number of unregulated small coal mines that have operated in recent years (World Coal Organization, 2012). Industry sources suggest that Chinese mining firms claiming to manage small-scale ventures actually engage in large-scale operations using heavy equipment, mercury, cyanide, and various types of explosives to extract ore, contracting to national mining laws. The Chinese companies thus are gaining a reputation for tramping on environmental standards. The illegal Chinese mining companies seem to go under the Philippines' policies governing mining matters. There are two specific laws that are violated by Chinese mining companies. First is the Small-Scale Mining Act of 1991 which supposedly is for the benefit of the small-scale miners that only utilize shovels to extract underground resources. A small-scale mining company can have a permit directly from the local government units which only cost for about 10,000 PHP ($241) only and an additional of $350 for the environmental permit in the provincial level. Second is the Philippine Mining Law of 1995 that states that the country‘s resources should not be exploited for the supply of other country or for their benefit. Many of this extracted resources, only 3% are being declared in the customs while the 97% are processed illegally (Rodis, 2012). Chinese mining companies are able to export these resources without paying the right taxes thru what we call ―back door‘ wherein they can bribe the local officials. Table 1: List of “Registered” Chinese Mining Companies in the Philippines

27

CHINA’S “GOING OUT” POLICY AND ITS IMPLICIT “MISSION”

CONFUCIUS INSTITUTE

Right after establishing a pilot institute in Tashkent, Uzbekistan, in June 2004, the first Confucius Institute opened on November 21, 2004 in Seoul, South Korea. It has its highest concentration in the U.S, Japan, and South Korea and its headquarters is in Beijing. Hanban/Confucius Institute Headquarters, as a public institution affiliated with the Chinese Ministry of Education, is committed to: providing Chinese language and cultural teaching resources and services worldwide; meeting the demands of foreign Chinese learners contributing to the development of multiculturalism and; the building of a harmonious world (Hanban, 2013). The institutes cultivate simplified Chinese characters rather than the classic Chinese characters used in Taiwan and Hong Kong. Michael Churchman, a PhD scholar working on the history of the bronze-drum-making peoples of the Lingnan region of southern China during the Six Dynasties period and is a writer in the China Heritage Quarterly, argued that teaching only simplified characters will hinder students who also want to learn classic Chinese characters (Churchman, 2011).

28

POLITICAL GOALS OF THE CONFUCIUS INSTITUTE

According to scholars and analysts, the CI also has the goal of enhancing China's picture abroad and removing the notion of a ―China threat‖ in the context of the country's increasingly strong economic climate and military. Li Changchun, the 5th-highest-ranking member of the Politburo Standing Committee – ―The Confucius Institutes were a crucial part of China‘s abroad propaganda set-up. An article from The Economist noted that one site, supported by the Chinese government praised the efforts of unnamed Confucius Institutes in opposing Chinese dissident groups abroad. Chinese analysts viewed CIs as a part of a bigger "soft power initiative" promoted by Hu Jintao, aimed at increasing China's influence overseas by means of cultural and language programs. According to an article published from the American Council of Foreign Relations, China is trying to isolate Taiwan through persuading the world of their peaceful intentions. Other initiatives consist of Chinese modern art exhibitions, television packages, concerts by common singers, translations of Chinese literature, and also the growth of state-run news channels such as Xinhua News Agency and China Central TV (Carlson, 2012). IX. CONCLUSIONS AND RECOMMENDATIONS

Joseph S. Nye, Jr., argued that the future of International politics will not only rest on a country‘s military or economic aspects, but rather on the attractiveness of a country. As China‘s economy grows, so does its influence in the world. It has become such an important state that any decisions about economic or foreign policy have to take China in consideration. China‘s economy garnered and will continue to garner considerable admiration, as it increases global trade, hits many corners of the world and spreads China‘s traditional and pop culture. As long as China continues to maintain their economic status in the International Community, then China‘s soft power will continue to grow. In this time we can clearly see the influence of China everywhere proving its status as a strong nation.

China‘s soft power, because of the positive and negative effects, brings the Philippines in a

dilemma between giving its confidence on China‘s charm offensive and having reservations regarding the topic. Philippines should weigh the pros and cons of the country‘s trade relation with China. Philippines should determine how we can grasp the opportunities that lay ahead of us in terms of the country‘s bilateral relation with China such as the latter‘s big market. However, the challenges and the limitations in the Philippines‘ relation with China should also be considered like the conditions stated above. Given the facts stated on this paper, the country should be careful and take precautions regarding China‘s Charm Offensive. Philippines should assert its sovereignty and its laws above all the external forces such as those concerning China‘s Charm Offensive.

29

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ANNEX I

Laws Violated by Chinese Mining Companies

Presidential Decree No. 704 in 1974 for fishing and fisheries. (With the amendment in 1975)

“Section 33. Illegal fishing; illegal possession of explosives intended for illegal fishing

dealing in illegally caught fish or fishery/aquatic products. It shall be unlawful for any person to

catch, take or gather or cause to be caught, taken or gathered fish or fishery/aquatic products in

the Philippine waters with the use of explosives, obnoxious or poisonous substance, or by the use

of electricity as defined in paragraphs (1), (m) and (d), respectively, of Sec. 3 hereof: Provided,

That mere possession of such explosives with intent to use the same for illegal fishing as herein

defined shall be punishable as hereinafter provided: Provided, That the Secretary may, upon

recommendation of the Director and subject to such safeguards and conditions he deems

necessary, allow for research, educational or scientific purposes only, the use of explosives,

obnoxious or poisonous substance or electricity to catch, take or gather fish or fishery/aquatic

products in specified area: Provided, further, That the use of chemicals to eradicate predators in

fishponds in accordance with accepted scientific fishery practices without causing deleterious

effects in neighboring waters shall not be construed as the use of obnoxious or poisonous

substance within the meaning of this section: Provided, finally, That the use of mechanical

bombs for killing whales, crocodiles, sharks or other large dangerous fishes, may be allowed,

subject to the approval of the Secretary." (Presidential Decree No. 704: revising and

Consolidating all laws and decrees affecting fishing and fisheries)

The penalty is the following:

“(1) By the penalty of imprisonment ranging from twelve (12) years to twenty-five (25)

years in the case of mere possession of explosives intended for illegal fishing; by imprisonment

ranging from twenty (20) years to life imprisonment, if the explosive is actually used: Provided,

That if the use of the explosive results in 1) physical injury to any person, the penalty shall be

imprisonment ranging from twenty-five (25) years to life imprisonment, or 2) in the loss of

human life, then the penalty shall be life imprisonment to death.” (Amendments on Presidential

Decree No. 704)

32

With the amendment in 1981

“WHEREAS, despite the promulgation of PD No. 1058 amending PD No. 704 by

increasing the penalties for certain forms of illegal fishing and dealing in illegally caught fish or

fishery aquatic products and providing that the mere possession of such explosives with intent to

use the same in illegal fishing punishable, it appears that illegal fishing is still rampant;

WHEREAS, some fiscals are hesitant and reluctant to file illegal fishing cases against the

violators of the fishery laws, rules and regulations because of the provision in the last paragraph

of Section 38 of PD No. 704 which states that action on any violation mentioned in Chapter VI

thereof shall be taken if the Minister so decides; and

WHEREAS, to effectively and successfully prosecute, illegal fishing cases, it becomes

imperative to further amend PD No. 704 by deleting the aforementioned constraint;”