Philippine President Rodrigo Duterte gives a speech at his inauguration ceremony in Manila on June 30 (XINHUA) 

As the old Chinese saying goes, the extreme of adversity is the beginning of prosperity. This echoes the changing relationship between China and the Philippines, following fresh remarks from Philippine President Rodrigo Duterte and his administration's interaction with the Chinese side since taking office on June 30.

Before being sworn in, Duterte said that disputes with China in the South China Sea were no reason to go to war. He also ruled out the possibility of following in his predecessor Benigno Aquino III's footsteps by sending warships to conduct joint patrols with U.S. naval forces in the area.

In his inauguration ceremony, which was probably the most frugal of its kind in the Philippines since World War II, Duterte pledged greater efforts to clamp down on crime and to relieve poverty. He mentioned not a word about the South China Sea disputes with China but did reveal his administration's plan to chart an independent relationship with the United States.

Several hours after Duterte's speech, Philippine Foreign Secretary Perfecto Yasay said that the Philippines hopes for a "soft landing" in terms of disputes with China.

In his first cabinet meeting on July 1, Duterte reportedly said that he wouldn't "taunt or flaunt" the ruling made by an arbitral tribunal in The Hague on the case brought by the Aquino III administration concerning the South China Sea disputes, even if it favored his country.

A timely change

The stance of the Duterte administration has received a positive reaction from the Chinese side.

On June 30, President Xi Jinping sent a congratulatory message to Duterte upon his inauguration. Duterte reportedly expressed his gratitude to Xi, saying that he was "honored" to receive a congratulatory message from "a great president."

Moreover, China could become the destination for Duterte's first foreign visit after taking office. Soon after he was officially declared winner of the presidential election, Duterte met three foreign ambassadors in Manila on May 16, including Chinese envoy Zhao Jianhua. At the meeting, Zhao invited Duterte to a commemorative summit marking the 25th anniversary of the dialogue relations between China and the Association of Southeast Asian Nations (ASEAN), which will convene in China in September. On July 2, Yasay said that Duterte was likely to visit China this year.

It's about time that the Philippines improved its relations with China instead of being mired in disputes with the largest nation in the region and allowing itself to remain a chess-board piece of a remote superpower. In order to improve domestic security and tackle economic challenges, the country is in dire need of a peaceful and stable external environment.

Crime, especially the drug trade and homicides, is a critical issue that the Philippines must confront. According to data from the UN Development Programme (UNDP), prisoners accounted for 0.11 percent of the country's total population from 2002 to 2013, which was much higher than the ratio in neighboring Indonesia. It was due to his firm stance on crime and his previous performance in this regard that voters elected Duterte president.

In addition, extremist groups and anti-government forces are a thorn in the Philippine Government's side with the potential to tear the country apart. Abu Sayyaf militants have made international headlines for bomb attacks and the taking and beheading of foreign hostages. Defense Secretary Delfin Lorenzana told the media before taking up his post that more military equipment—speedboats and helicopters—would be purchased to bolster the fight against Abu Sayyaf extremists.

In the meantime, armed conflicts between government forces and separatist groups in the Muslim Mindanao region in south Philippines, which resulted in 288,900 refugees in 2014 according to UNDP data, pose a bigger threat domestically, as those groups actually threaten national unity.

Philippine artists perform at the 11th China-ASEAN Expo in Nanning, south China’s Guangxi Zhuang Autonomous Region, on September 16, 2014 (XINHUA) 

The economic side

From 2010 to 2015, the Philippines' economy expanded at an average rate of over 6.28 percent, far faster than most ASEAN member states such as Indonesia, Malaysia, Singapore and Thailand. Among major Asian economies, only the growth rates of China, India and Viet Nam surpassed that of the Philippines over the same period.

The Aquino III administration which has left office predicted that the Philippines' economy would expand 6.8-7.8 percent in 2016. The International Monetary Fund and the Asian Development Bank forecasted growth of 6 percent this year, which is quite high among world economies. But despite this, simmering risks remain.

The country's per-capita GDP remains comparatively low. In 2015, it stood at a mere $2,875, equaling just over 60 percent of the level that defined a middle-income nation in 2014, according to the World Bank.

Income disparity is also evident in the Philippines, where most ordinary people have yet to enjoy real benefits from the country's economic growth. The country's poverty rate was as high as 25.2 percent between 2004 and 2014, according to the government's own measure, and UNDP data show that between 2002 and 2012, 19 percent of the population lived on the equivalent of $1.25 or less per day.

Moreover, unemployment, especially among young people, has been reduced little, making poverty relief still more difficult. According to UNDP, the Philippines' total unemployment rate averaged 7.1 percent between 2008 and 2013, and the rate among young people aged 15 to 24 reached as high as 24.8 percent. In April 2014, the total unemployment rate stood almost unchanged from 10 years ago at 6.8 percent.

A deeper look into the Philippines' economic structure reveals more severe problems that can hardly be ignored. The country's GDP growth relies heavily on household consumption and the service sector, with industry playing a minor role and agricultural production lagging far behind. In 2015, primary, secondary and tertiary sectors respectively accounted for 9.5, 33.5 and 57 percent of the country's GDP. Sluggish growth in manufacturing has hampered overall industrial growth. Coupled with a prolonged trade deficit, this means the Philippine economy is bound to be vulnerable to external fluctuations.

Any adverse change in the global economy will sooner or later deal a heavy blow to the Philippines. Consumption, the backbone of the country's economy, is largely underpinned by remittances from Filipinos working overseas. Although the total of such income stood at $25.77 billion in 2015, 4.6 percent higher than in 2014, the year-on-year growth rate was much lower than in previous years due to the appreciation of the U.S. dollar and military conflicts in the Middle East, where more than 2.5 million Filipinos work in a variety of sectors.

Notably, the recent rapid increase in the Philippines' trade deficit has been caused mainly by a plunge in its trade with China. According to data from China Customs, in 2015, yuan-denominated Chinese imports from the Philippines decreased 8.6 percent from the previous year, and the decrease widened to 13.1 percent in the first four months of 2016. In the meantime, Chinese exports to the Philippines increased 15 percent in 2015 compared with 2014, and the increase soared to 27.4 percent in the first four months of this year.

As elsewhere around the world, made-in-China commodities and equipment have become an indispensable part of the Philippines' economy. But, whereas some other ASEAN members have done quite well by increasing exports to China amid the country's rising demand, the Philippines has failed to seize opportunities to do likewise. By fundamentally improving its relations with China, the Philippines could secure potentially vast economic benefits.

The author is an op-ed contributor to Beijing Review and a researcher with the Chinese Academy of International Trade and Economic Cooperation

Copyedited by Chris Surtees 

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