China pledged more to Philippines than any SEA country but spent the least

From 2015 to 2023, China committed $30.5 billion in official development finance — including grants, loans and other forms of assistance — to the Philippines. This represents about 20% of all its pledged aid to Southeast Asia, according to a new report by the Sydney-based Lowy Institute released Sunday, July 20.

Yet only $700 million was actually disbursed — less than one-twentieth of what was committed — with several big-ticket projects either losing the interest of Chinese investors or being later shifted to alternative sources of funding.

Outliers in the region

As a result, the Philippines trails behind most of its Southeast Asian neighbors in terms of actual Chinese development financing received from 2015 to 2023, according to the annual report.

The study uses data that spans three administrations: those of Benigno Aquino III (2015), Rodrigo Duterte (2016 to half of 2022), and the first year of Ferdinand Marcos Jr. (half of 2022 to 2023)

According to the database used for the report, the actual disbursements from China to Southeast Asian countries from 2015 to 2023 rank as follows:

So why does the report show a large gap between how much China committed and spent in aid for the Philippines?

Data from the Lowy Institute report show the majority of China’s committed funds to the Philippines were for transport and storage projects — such as the $1.6-billion Mindanao Railway Project and the $7.3-billion Panay-Guimaras-Negros Inter-Island Bridge Project, among others.

Several of the loans for these projects ended up not materializing because China had later lost interest in funding the project, or the Philippine government went for an alternative source of funding.

For instance, the Philippines dropped China as a funding source for the Mindanao Railway Project in 2023 after China was largely unresponsive or slow to act on the Duterte administration’s loan applications for railway projects, which then led to their cancellation.

Also mentioned in the report’s aid map is the Panay-Guimaras-Negros Inter-Island Bridge Project, which was supposed to be funded by the Chinese government through a grant before they walked away from the project in 2020.

According to the report, the projects that did end up being funded by China include a “military grant” from China’s defense ministry in 2022 where around P1 billion worth of donated Chinese military equipment was acquired by the Department of Defense under then-Secretary Delfin Lorenzana.

China’s financing of the P4.497-billion Chico River Pump Irrigation Project — which started in 2018 and was inaugurated in 2022 — also went through.

Mixed portfolios

China, however, is far from being a primary source of development financing for the Philippines.

Instead, the Asian Development Bank is Manila’s top development partner — accounting for more than a third of its official development finance from 2015 to 2023, according to Lowy Institute’s analysis.

Meanwhile, the World Bank accounts for 25%, while Japan is the source of 18%.

This is well below the figures for countries like Laos and Cambodia, where China accounted for over 60% to 40% of their source of bilateral grants or aid from 2015 to 2023, respectively.

“Lower-middle income economies such as the Philippines and Vietnam have taken a more restrained approach, engaging with China only when it aligns with domestic priorities,” the report read.

“Poorer economies such as Cambodia, Laos, and Myanmar, which have limited access to alternative financing, remain heavily reliant on China and have much less room to negotiate,” it added.

Western aid cuts to shift the balance

The report warns that this dynamic in Southeast Asia’s source of funding may be poised to change as Western governments, specifically the United States, slash their foreign aid budgets and, in effect, cede ground to Beijing.

According to the study, Western aid cuts will “shrink the pool of development financing options for Southeast Asian countries, leaving them with reduced room to manoeuvre and less leverage to negotiate favourable terms with Beijing.”

The United States, for instance, has cut its aid spending by more than 80%, while the United Kingdom is redirecting billions in foreign assistance toward its defense budget.

The Lowy Institute says this will cause the “centre of gravity” in Southeast Asia’s development finance landscape to drift eastward, notably to Beijing but also to Tokyo and Seoul. — Cristina Chi