China eyes a strategic port in the Philippines


Chinese companies look to win control of a bankrupt but strategic shipyard at Subic Bay, the ex-site of US military bases and a potential key outpost on the South China Sea

A sudden and unexpected bankruptcy has provided China with a unique opportunity to win control of a Philippine port facility at Subic, the former site of US military bases that were closed in 1991 amid a surge of anti-American nationalism at the end of the Cold War.

The local subsidiary of South Korean shipbuilding giant Hanjin Heavy Industries and Construction recently defaulted on more than US$400 million in loans from local banks, representing the largest ever corporate default in Philippine history.

Hanjin’s owners sought help from the Philippine government to find new investors to prevent the firing of some 3,000 workers. The company owes an additional $900 million to South Korean banks, according to reports.

Two unnamed Chinese companies, Philippine government sources say, have expressed interest in taking over the 300-hectare shipyard, reportedly the world’s fifth largest. Analysts note that China Ocean Shipping Company (COSCO) and China Merchants Group have recently aggressively bid to operate foreign ports in recent years.

Situated about 50 miles north of Manila, the port opens onto the strategic and contested South China Sea. It also lies just over 100 nautical miles from the contested Scarborough Shoal, currently occupied by China and seen as a crucial link if Beijing moves to impose an Air Defense Identification Zone (ADIZ) in the maritime area.

Chinese companies have also pursued investments in the nearby Clark special economic zone (SEZ), formerly the site of one of America’s largest overseas air bases but more recently converted to a commercial logistics hub. Chinese companies already operate similar facilities in Darwin, Australia and Piraeus, Greece for ostensibly trade-promoting commercial purposes.

Under China’s Belt and Road Initiative (BRI), launched in 2013, Chinese companies have played a key role in the construction and operation of 42 ports across 34 countries. Last November, during Chinese President Xi Jinping’s visit to Manila, Philippine President Rodrigo Duterte signed a series of agreements to enhance his government’s participation in the BRI.