Doing business with China means mining in PH

Duterte’s comments came in the wake of a ratings assessment by Standard & Poor’s, which expressed some mild alarm at the potential for policy instability under his administration. S&P was not actually critical of Duterte, and did note that the Philippine economy, at least from the perspective of sovereign debt management, is for now in sound condition.

The plan to cultivate more business ties with China is sensible; the relationship between the Philippines and China is problematic in some ways, but when it comes right down to it, the two countries need each other as markets, and unless Duterte suddenly decides the Philippines should be the Mouse That Roared – which he is unlikely to do – the friction over maritime claims will probably be limited to just that, friction that serves as an occasional bargaining chip by one side or the other. China is the biggest player in this part of the world, so it would be foolish for the Philippines not to seek a broader economic relationship.

Doing so, however, is going to require some compromises, and one of the biggest will be a retreat from the administration’s antimining stance. Duterte chose Gina Lopez to head the Department of Environment and Natural Resources (DENR) precisely because she is an environmental activist and an admitted anti-mining crusader, and she has certainly lived up to her reputation; on Tuesday, the DENR announced that only 11 - try passed the strict environmental audit ordered by Lopez.

- tion of the virtual shutdown of three-fourths of the mining industry is that it essentially ends nickel mining in the country, at least for the time being. A majority of the 30 mining operations that “failed” the audit – some of which had already been suspended – are nickel operations, and among those that passed, there has not been much production over the last year or more, largely due to low ore prices.

Notwithstanding environmental concerns, nickel production is one of the easiest ways for the country to earn a substantial export income, largely because of Chinese demand for the metal for stainless steel production. A recent move to consolidate a large part of the Chinese steel industry should help to stabilize prices, according to some analysts, and with China’s economy increasingly looking as though it will have a ‘soft landing’ from its slowdown over the past year, the forward- looking prognosis for the steel sector is rather upbeat.

Before Gina Lopez and her campaign to hold the mining indus was one of China’s biggest sources of nickel, and it is unfortunate that just when things start looking up for the sector, it has essentially been put out of business.

The other side of the coin, of course, is that environmental concerns cannot be completely ignored. President Duterte himself has strong opinions on environmental protection, and even Lopez distastefully zealous in her environmental activism, there is something undeniably rational about appointing a committed environmentalist to head the DENR.

If China and its massive appetite for minerals were not part of the picture, the mining industry according to Duterte’s conception of it might be possible: A much smaller sector, operating under extremely tight regulation and exporting little if any of its harvest, instead feeding domestic processing and perhaps even a domestic milling industry.

But China cannot possibly be excluded from the picture. Even if Duterte’s exhortation to develop the country’s own heavy industry sector – meaning steel making and other metal production, making the development of other heavy manufacturing economically viable – was taken seriously, the Philippines does not have the technical competence or resources to build it. The most likely source for those things is China. And Duterte can hardly approach China without the latter assessing what the most valuable gain from a broader trade and economic relationship with the Philippines is, which is minerals – nickel in particular, but also copper, chromite, gold, and even coal.

One way or another, Duterte’s “pivot” towards China is going to run counter to his administration’s environmental policy orientation, at least as far as mining is concerned, because it will result in new mining operations, or the reopening of operations that the administration, through the efforts of DENR’s Lopez, have already judged should be closed. And China, whose environmental record is best described as “appalling,” is unlikely to be of any help to the Philippines in maintaining a sustainable or environmentally responsible mining sector.

That’s going to leave Duterte with a tricky balancing act to manage both politically and economically. For a guy whose dictionary seems to lack words like “delicate,” and “subtle,” that may prove too big a challenge.