Due diligence

Before Filipinos begin doing cartwheels over the billions in business deals struck and funding access offered by the Chinese during the state visit of President Duterte last week, it’s always prudent to conduct due diligence and scrutinize the fine print.

There are international rules and best practices that are meant to discourage both public and state-owned companies from engaging in corruption, underperforming and breaching contracts. Violators have been debarred or blacklisted by institutions such as the World Bank Group, which can be consulted by those who want to conduct due diligence on new partners.

This goes for Chinese investors as well who are interested in forging partnerships with Philippine firms. Both sides have seen the consequences of becoming embroiled in corruption scandals in the Philippines.

A government broadband deal was scrapped over the corruption scandal that tainted the project of China’s ZTE Corp. with the Arroyo administration. Filipinos are still waiting for the revival of the Spanish-era Luzon railway after the Northrail project with CNMEG or China National Machinery and Engineering Group suffered the same fate. The Metro Rail Transit III continues to break down because light rail vehicles delivered by the Dalian Locomotive & Rolling Stock of China do not contain engines.

Senators and the Department of Finance have promised to scrutinize funding facilities to be made available by Chinese banks and other institutions. Chinese financing assistance has to be repaid, even if under highly concessional terms, and a common conditionality is that contractors must be Chinese, with the lending institution picking the participating companies.

It is healthy for the Philippine government and private partners to check the Chinese companies for their reputation and proven track record. With ties improving, the last thing both sides should want is another corruption scandal involving a joint project.