Build Build Build scaledown imminent?

If there is one possible side effect of the ongoing trade war between China and the US, it is the slowdown – or even a total stoppage – of funds for the Philippine government’s ambitious Build Build Build infrastructure program.

From the sidelines, watching America and China exchanging blows is like peering at an ongoing chessboard match. After having successively swapped threats on tariff cuts (the pawns are exchanged), China is now beginning to stiffen her defenses (the rooks are put in proactive position). In a surprise move, supposedly to cushion any potential impact of an all-out trade war with the US, China’s central bank prepped up its economy by making available at least $100 billion to banks to be lent to floundering state-owned companies, as well as threatened small- and mediumsized businesses.

China’s central bank also eased its operational requirements for commercial banks, particularly the reserve requirement ratio, a move that is expected to free up more money for big banks that can be extended to finance debt-to-equity swaps of government corporations, and for small banks to lend to countryside firms.

Part of the future “defensive” policies by China, experts surmise, will be “stimulating” its local domestic consumption via tax cuts and other fiscal measures, thereby mitigating credit defaults of affected companies, and stopping a faster slowing down of its economy.

A ban on many American products in China is also in the offing, and would hurt popular brands like Kentucky, Starbucks, Apple, and McDonald’s. The magnitude of the trade sanctions, so far, has risen to $200 billion, and new threats from the US side will likely increase this twofold.

Financing squeeze

With China busy preparing to go all-out against the US should the ongoing tariff sanctions escalate into a real trade war, this means that the Chinese – both the government and corporates – will be less inclined to look at expanding their portfolios in other parts of the world.

It’s no secret the Chinese government has taken note of potential issues that may arise from debt defaults by both stateowned entities, as well as big Chinese companies, and have acted correspondingly by introducing a slew of new measures.

Among these is prohibiting financial institutions from lending to infrastructure projects that may be economically impractical or may carry uncalled for government guarantees.

Another factor that could be affected is China’s exposure in the ambitious Belt and Road Initiative which aims to modernize the old Silk Road’s economic land belt, as well as maritime road. Expected to reach up to $6 trillion until completion, almost half of the 71 countries involved are now showing signs of defaulting on their loans for the project.

Close look at Chinese financing pledges

In this regard, we should look closely at the pledged financing by the Chinese government and companies to the Philippines’ ambitious infrastructure building project.

So far, China has coughed up just $307.41 million in soft loans and grants for two of the 75 flagship projects, which will require a combined $36 billion in investments this year.

These are the $234.92-million Kaliwa Dam project and $72.49-million Chico River Pump Irrigation Facility project.

Earlier this year, Finance Secretary Carlos Dominguez had announced that the government had secured $7.3 billion in pledges from Beijing for 10 flagship infrastructure projects under the Build Build Build program. Given China’s predicament, we may see delayed action on those pledges in the next months, even this year.

In fact, if a Sino-US trade war escalates, President Duterte may have to scale down his enthusiasm over China’s playing a crucial role in realizing the Philippines’ golden age of infrastructure in the next couple of years.

New white knight needed

Given the potential financing squeeze from the Chinese side for Build Build Build, it may be difficult for the economic team to conjure the $158 billion needed over the next five years for the planned roads, air and sea ports, bridges, and railways.

Definitely, given the massive financing required to usher in the country’s golden age of infrastructure and the commitment to bring infrastructure spending to 7.3 percent of GDP by the end of the President’s term in 2022, a white knight like China was ideal.

Japan, the only other country that has been receptive to helping the Philippines pursue its Build Build Build ambition, cannot do the job alone. So far, Japan has pledged $1.2 billion, with about $380 million committed to two projects: the Manila Metro Rail Transit (MRT) Line 3 Rehabilitation Project and the New Bohol Airport Construction and Sustainable Environmental Protection Project.

Of course, we can’t expect the new tax collections from the recently passed Tax Reform for Acceleration and Inclusion Act (TRAIN), or even future earnings from other planned TRAIN permutations, to finance the rest of the projects.

So far, two years into the Duterte regime, we only have four of the 75 identified flagship projects and a few small ones on the side with committed financing.

I wonder how the President will rephrase his report on Build Build Build during the State of Nation Address next month. It may do well for the President to clearly describe the impact of global economic situation on his dream project to curb unrealistic expectations.

Will there be a new white knight, like Russia? Or will our President decide to play footsies with the US once again, especially now that Trump seems to be gaining the upper hand against the Chinese over the issue of trade sanctions?

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