Where is China money going? Gambling, real estate, tours, big cities big winners


The fourth state visit to China of President Rodrigo R. Duterte just 2 weeks ago is said to have yielded business deals worth a total of US$12.165 billion and a grant of one billion renminbi (about US$148.5 million)

The Duterte administration has also said that the deals alone could generate more than 21,000 jobs. So far, however, there seems to be little enthusiasm from the Filipino public over these supposedly laudable results from the President’s latest China trip.

A possible reason for this is the public perception that the Duterte administration has been complicit to Chinese activities in the South China/West Philippine Sea in exchange for deals such as these. This perception in fact is already affecting the public’s reaction to the increasing presence of Chinese nationals in the country, which is being met with wariness, if not outright hostility. And yet, academics are in dispute on whether or not Chinese foreign direct investment or FDI has actually increased under Duterte.

My own research shows that FDI has surged since Duterte took office. But it also shows that Chinese investment was still coming in during the presidency of Benigno ‘Noynoy’ S. Aquino III, who had taken China to the international arbitration court at The Hague on the matter of the South China/West Philippine Sea.

The inflow of Chinese FDI during Aquino III’s term indicates that Chinese firms are capable of overlooking Beijing’s differences with another government and put their money where they think it will be worth the effort. In other words, Chinese firms act not with emotion, but with practicality. They do business for profit and to serve their own interests. They do not necessarily bother themselves with the question of whether or not their presence or monies benefit the people of the country in which they invest. In the real world, that should actually be the lookout of the recipient nation’s officials and business executives.


Chinese foreign capital (FDI, development finance, and other forms of finances) in the Philippines actually lags behind comparable low to high-middle income states in Southeast Asia. While the numbers could change in the next few years, the Philippines currently has one of the lowest amounts of Chinese FDI and official development assistance.

This lack of Chinese foreign capital should be examined in the context of the Philippines’ development strategy, which has been on the upward trajectory in the past few years, but has remained slowed, stagnant, and short-sighted. Indeed, the main comparative advantage of the country, the Business Process Outsourcing (BPO) sector, is bound to decline due to the expansion of artificial intelligence and new innovations; the sector cannot keep up with the number of fresh graduates that the Philippines produces every year.

Apart from the BPO sector, the country has been kept afloat due to the reliance on exporting labor to generate foreign remittance inflows and bolster domestic consumption. But this strategy encourages brain drain or outmigration and relies on servitude in other states. In the meantime, our middle-income Southeast Asian neighbors have made it a crucial policy to actively tap Chinese FDI, culminating in developmental ventures that stress technology transfer, value-chain upgrading, and skills transfer.

While the Aquino III administration was lauded for its economic reforms, the development strategy during its term was short-sighted and did not build up the state’s real economic foundations. In 2009, at the tail-end of the Arroyo era, international capital markets experienced a huge influx of hot money due to the US Federal Reserves’ quantitative easing. In this context, Philippine National Corporations or PNCs capitalized on the influx of hot money in capital markets to fund their commercial ventures.

The Aquino III administration later relied on Public-Private Partnership (PPP) that empowered the PNCs to spearhead Philippine infrastructure construction. But the PNCs were overly cautious, which resulted in institutional paralysis and painfully slow progress, leading to the completion of only a few large-scale projects.

Aquino III’s PPP thus failed to lay down the foundations for a sustainable and competitive Philippine economy. When quantitative easing ended in 2015, much of the “hot money” placed in capital markets left in favor of the recovering US stock market.

At the end of Aquino III’s term, numerous Philippine cities with surging populations needed even more infrastructure services to support their quality of life. Infrastructure was also necessary to offset the cost of production, which would have attracted more FDI into the country. But Aquino III’s overly cautious and PNC-friendly strategy constrained the infrastructure buildup that the Philippines needed to take the next step in economic development. Diversifying the economic portfolio, sustaining long-term growth, and improving quality of life cannot occur without the massive infrastructure investment and FDI to generate jobs.

Most of the Philippines’ foreign direct investments come from Japan, the United States, the Netherlands, and Singapore. China, however, has emerged to be one of the biggest sources of FDI in the world, jumping from a few hundred million US dollars to US$1.3 trillion in 2015, which necessitate our policymakers to attract Chinese investments to bolster Philippine development. Hong Kong has also become the major offshore gateway for many Chinese firms. In 2015, Hong Kong’s FDI stock amounted to US$1.4 trillion.

Attracting FDI — long-term, managerial control of assets in the host state, via greenfield investments, joint ventures, and acquisition of controlling stakes — is extremely necessary for developing countries. Since the 1980s, countries across the globe have competed for FDI in order to achieve their developmental goals, such as revenue generation, employment, and skills transfer.


When it comes to Chinese FDI, however, there have been growing concerns about its inherent differences from more “normal, usual” FDI. A popular notion is that that every Chinese firm is fully control and funded by the Chinese Communist Party (CCP). This is empirically misleading. Many Chinese firms go to Hong Kong to create subsidiaries in order to acquire financing from international syndicate loans, which usually come from Western and global private institutions. This goes back to how the Chinese government tempers the amount of FDI that goes to the developing world. While the conditions of the loans vary largely, one common feature is the weight assigned to commercial considerations and financial returns. These conditions make Chinese FDI behave closer to Western and conventional foreign investments.

The Philippines’ “China pivot” came later compared to its Southeast Asian neighbors. It began in 2016, shortly after Duterte became president. Within months after his presidential inauguration, he went on a trip to Beijing and brought home an earmarked US$24 billion worth of FDI, construction contracts, and ODA.

But many have argued that even after 2 whole years, Chinese investments have not yet reached these amounts. Notwithstanding the wrong expectations on both sides, this issue brings about a crucial question: how much is Chinese FDI in the Philippines?

In order to overcome data limitations, I used the Security Exchange Commission’s firm-registration to create a dataset on the annual number of new firms with Chinese FDI, which is defined as China money having more than 10 percent of shares.

Figure 1 shows that the number of new firms with Chinese FDI across 6 different Philippine presidents – from Corazon Aquino to Rodrigo Duterte. Chinese investments in the post-Marcos era initially began in the early 1990s. The figure also shows, though, that the number of firms vastly increased from 2002 onward, jumping from an average of 309 and 541 during the Arroyo and Aquino administrations respectively to 1,092 during the first 2 years of the Duterte presidency.

In the early 1990s, the dataset shows, there were very few firms with Chinese FDI until Arroyo came into power. This lack of investments, however, cannot be attributed to China’s lack of willingness to invest. After all, in the early 1990s, Chinese ODA increased in sub-Saharan Africa while Thailand, Vietnam, and Zambia were some of the first states to received substantial Chinese FDI.

Chinese FDI initially expanded in the natural resource industry, enabling Chinese state-owned enterprises or SOEs to import minerals to supply China’s export sector, which sent manufactured goods to the West. The uptick of Chinese FDI during the Arroyo administration, however, can be explained by Arroyo’s foreign policy and development strategies, which wanted to bring the Philippines closer to China, and also China’s “Go Out Policy” or 走出去战略, which encouraged Chinese enterprises to invest outside. In the mid-2000s, legal reforms in China allowed Chinese SOEs and private enterprises to pursue mergers and acquisitions; previously, this had not been permitted by Beijing.