Sizing up economic powers: China, EU, Russia and US

President Duterte wants to shift foreign policy toward China and Russia, and away from the European Union (EU) and the United States, especially the latter.

What will each country offer in terms of trade and consumer markets? This brief assesses each area using imports, population and growth, and per capita income.

Philippine official statistics show that in 2015, Japan, the United States and China were the largest export markets at $12.4 billion, $8.8 billion, and $6.4 billion, respectively. Russia was No. 50 with a measly $45 million. With respect to imports: The Philippines imported $6.8 billion from Japan, $7.6 billion from the United States, $11.5 billion from China and $323 million from Russia.

Country-partners’ profiles tell a somewhat different story, even if adjusted for transport differentials and timing.

China imported $19 billion worth of goods from the Philippines in 2015. The bulk were electrical machinery and machinery parts and nickel ores. Since both the Philippines and China form part of the global value chains for electronic products and machinery, the fortunes of both in these industries are interlinked.

China also imports mineral fuels and bananas. In 2015, China exported $26.7 billion to the Philippines giving China a trade surplus. China is also a major source of smuggled goods.

China, the second largest economy in the world, is a huge market with a large and rapidly growing middle class. China’s new upper middle class will swell to more than half of the country’s urban households by 2020, up from just 14 percent in 2012 (McKinsey Quarterly 2013). The Philippines can export more agri-food products, but it must compete with its Asean peers, which have a more productive agriculture and aqua- culture.

Here are some market shares of Asean players in China imports:

• Fish and shrimps ($6.3 billion): Indonesia 4.4 percent, Thailand 2.6 percent, and Vietnam 1.3 percent.

• Cassava chips ($1.2 billion): Thailand 80 percent and Vietnam 18 percent.

• Fruits and nuts ($6 billion): Thailand 19 percent, Vietnam 16 percent, and the Philippines 10 percent.

• Cocoa and preparations ($872 million): Malaysia 20 percent, and Indonesia 12 percent.

• Starches ($1 billion): Thailand 65 percent and Vietnam 19 percent.

• Vegetable oils ($7.9 billion): Indonesia 39 percent, and Malaysia 23 percent.

• Miscellaneous food preparations ($1.8 billion): Thailand seven percent, Malaysia six percent.

• Rubber products ($14.2 billion): Thailand 28 percent, Malaysia 10 percent, Vietnam five percent, and Indonesia four percent.

The Philippines is an insignificant player with minimal market shares in the above products, except for fruits where the country had a share of 10 percent.

Russia: Russia-Philippine trade is insignificant. In 2015, Russia only imported less than $300 million and exported slightly above that. The main import is electrical machinery while the main export is mineral fuel.

Russia is the 11th largest economy in the world, and the 9th largest in terms of population. But two-thirds of its exports are mineral fuels. Its population is aging and declining. It imports lots of bananas (1.2 million tons from Ecuador) and meat products.

European Union (EU): The EU is the largest collective economy in the world with 28 member countries. In 2015, the EU imported about $7.6 billion worth of goods from the Philippines and exported $6.8 billion. The biggest exporters are Germany, France, the United Kingdom and Italy. It has a 500 million consumer market with high income. But its growth prospect is not rosy given its aging population.

For ease of data, taking only Germany as example, here are the market shares:

• Fish and crustaceans ($4.1 billion): Vietnam 3.1 percent, Indonesia and Thailand less than one percent each.

• Fish and meat preparations ($2.6 billion): Thailand 4.7 percent, Vietnam three percent and the Philippines 1.9 percent.

• Vegetable oil ($4.1 billion): Indonesia 12 percent, Malaysia five percent, and the Philippines two percent.

• Rubber products ($14.6 billion): Malaysia 3.2 percent, Thailand 2.3 percent, and Indonesia 2.1 percent.

United States (US): The US is a huge economy with a very high income per capita. It imported $10.6 billion worth of goods from the Philippines and exported $7.9 billion, giving the Philippines a trade surplus. Its 320 million market is growing with a relatively young population given in-migration.

For relevant products, here are the Philippines and Asean shares:

• Fish and crustaceans ($15.5 billion): Indonesia eight percent, Vietnam six percent, Thailand three percent and the Philippines less than one percent.

• Fruits and nuts (($15.4 billion): Vietnam five percent, the Philippines one percent, and Thailand less than one percent.

• Meat and fish preparation ($5 billion): Thailand 20 percent, Indonesia 11 percent, Vietnam nine percent, and the Philippines three percent.

• Vegetable oils ($6 billion): Indonesia 12 percent, Malaysia 11 percent and the Philippines nine percent.

• Natural rubber products ($28 billion): Thailand eight percent, Indonesia seven percent, Malaysia six percent, Vietnam one percent and the Philippines less than one percent.

Where to? Economic diplomacy is “multiplication.” The more diverse the market, the better the chances for exporters for growth and balancing risks. China is a huge market and room for growth is high. Russia is really a smaller economy compared to the EU and the US. Better to have more partners rather than two.

Competing in the global markets has a major pre-requisite: Competitive value chains. That applies to all industries. For instance, with an unproductive and less diversified agriculture, high power costs and poor infrastructure, the Philippines has a higher mountain to climb than its Asean peers. The current Asean global market shares show this.

The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or MAP. The author is the Vice Chair of the MAP AgriBusiness and Countryside Development Committee, and the Executive Director of the Center for Food and AgriBusiness of the University of Asia & the Pacific. Feedback at map@map.org.ph and rdyster@gmail.com. For previous articles, please visit map.org.ph.