Commentary on Political Economy

Wednesday 17 January 2024


Philippines to Ramp Up US Military Ties Amid ‘Aggressive’ China

    Gilberto Teodoro Jr.
    Gilberto Teodoro Jr.Photographer: Geric Cruz/Bloomberg


    The Philippines is planning “more robust” military activities with the US and its allies in the face of a “more aggressive” China, the Southeast Asian nation’s top defense official said.

    “The alliance with the US is extremely strong,” Defense Secretary Gilberto Teodoro Jr. said in an interview with Bloomberg News on Wednesday in his office in Manila. “We would like to build up our capabilities in order for us to be a more effective contributor to regional stability.”

    The Philippines is building on a stronger partnership with the US under the administration of President Ferdinand Marcos Jr. to expand ties with “other allies and like-minded countries” including Australia, Japan, the UK and Canada amid the threat of China’s “domination” in the South China Sea. As the US heads into a crucial election in November, Teodoro hopes that Washington’s defense strategy in the Indo-Pacific will not waver.

    “A lot has been invested already on both sides,” Teodoro said, referring to the US and Philippine engagements. Ensuring security in the Indo-Pacific and rights of passage in the vital trade route benefits not only the US and its allies but the entire global economy, according to the defense minister.

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    Teodoro, 59, a lawyer by training and a one-time presidential contender is helming the Defense Department again at a time when his nation is navigating mounting tensions with Beijing that lays a sweeping claim to most of the South China Sea. Earlier this month, China’s navy and air force conducted joint patrols in the area as the US and the Philippines held drills. Meanwhile, Beijing summoned the Philippine envoy Tuesday after Marcos congratulated Lai Ching-te for winning Taiwan’s presidential election.

    The defense chief, who first held the role between 2007 and 2009, said that what worries him the most about the sea dispute is “the possibility of a miscalculation or a conflict.” He reaffirmed an earlier assessment that the South China Sea is a more valuable target for Beijing than Taiwan, given the promise of oil and natural gas reserves in the area.

    “This could mean that they really want total domination and control over everything from free passage to resources, or they want to bear hug the Philippines to make them the sole joint venture partner in the exploration or exploitation of resources in this area,” Teodoro said.

    “Whatever it is, their legal proposition is untenable and has been rejected by the whole world.”

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    “You’re dealing with a country without any openness, with opaqueness, with unpredictability, with no external indicators to show what its next move will be,” he said of China. As a result, countries like the Philippines have to be prepared all the time, which Teodoro said has kept him busy “hardening and building up our alliances” in line with Marcos’s foreign policy stance.

    The Philippine leader has been bolstering his country’s longstanding defense alliance with the US, notably expanding American access to military bases near potential flashpoints — Taiwan and the South China Sea.

    The deeper defense ties have drawn criticism from China, with its top diplomat warning Manila last month against colluding with “malicious external forces.” Beijing has expansive claims in the South China Sea, and has recently clashed with Philippine vessels in the contested waters.

    — With assistance from Clarissa Batino


    China’s Economic Growth Disappoints, Fueling Stimulus Calls

      China's GDP Grew About 5.2% in 2023, Premier Li Says
      WATCH: China’s Premier Li said the economy grew around 5.2% in 2023, surpassing the government’s target without relying on “massive stimulus.”Source: Bloomberg
      By Bloomberg News
      Updated on


      China is still contending with major challenges from deflation pressures and the property crisis as the year kicks off, with investors underwhelmed so far by policies to keep economic momentum going.

      Data released Wednesday presented a mixed bag for the world’s second-largest economy, which hit an official growth target for the year but has failed to shake off several of the problems most persistently weighing on domestic demand and confidence. A slew of indicators for home prices and property-related spending disappointed, while deflation remains stubborn. A measure of broad price changes recorded its longest stretch of quarterly declines since the wake of the Asian Financial Crisis in 1999.

      “China’s economic data continues to point at stable consumption and services, but with seemingly never-ending challenges in real estate,” said Gary Ng, senior economist at Natixis SA. “Although the macro picture looks somewhat resilient, it is increasingly a glass half-full or half-empty question for households, corporates and investors in 2024.”

      The MSCI China gauge fell while the Hang Seng Index was having its worst day since October as global funds worried about a structural slowdown. The yields on China’s 10-year government bonds have been trading near a two-decade low.

      Chinese markets are also tracking a broader selloff in Asia, as expectations for a US rate cut in March get scaled back by recent pushback from Federal Reserve officials. This week’s advance in Treasury yields has spurred declines in emerging markets everywhere.

      Gross domestic product grew 5.2% last year, data released by the National Bureau of Statistics showed Wednesday, matching expectations. The fact that rate was in line with Beijing’s official target of “around 5%” was no surprise, though, given Premier Li Qiang revealed the number a day earlier in Davos, Switzerland.

      Persistent deflationary pressures and the prolonged property slump proved major challenges through 2023, eventually spurring authorities to roll out more stimulus in the form of rate cuts and fiscal support to help achieve that goal, which was deemed “conservative” when it was announced in March.

      Other indicators were mixed in the final month of 2023:

      Deflation Pressures

      Deflationary pressures aren’t going away, with recent data showing prices dropped in December for a third consecutive month. The GDP deflator — a broad measure of prices — fell 1.5% in the October-to-December period, according to Bloomberg calculations based on official data released Wednesday. That marked a third straight quarter of declines.

      “Business people care about the amount of money that they earn, and nominal growth is really quite weak,” said Louis Kuijs, chief economist for Asia Pacific at S&P Global Ratings.

      Property, Population

      Another big threat remains the property slump, which has weighed on business investment, undermined job creation and curbed consumer spending. Home prices fell the most since 2015 in December, while spending on construction and decoration fell 7.8% for the entire year compared to 2022, NBS data showed. Housing new starts — a key gauge of confidence among developers — plunged 20.9%.

      Other long-term headwinds are looming, too. China’s population extended a historic decline in 2023 as births fell to their lowest on record. A rapidly aging society would bring further headwinds to the country’s flagging economy, in part by shrinking the size of the workforce that drives growth and funds pension systems.

      What Bloomberg Economics Says ...

      “Soft December activity and the first rise in the jobless rate in five months drove home the message that weakness could extend into 2024 unless policy support is stepped up. The government is already turning up the fiscal throttle — and we expect stronger policy steps, especially on the fiscal side, in coming months. A high base from 2023, though, means it will be tough to drive growth higher this year.”

      — Chang Shu and David Qu, economists

      Read the full report here.

      Stimulus Debate

      While policymakers have stressed a focus on growth and suggested they’ll increase fiscal support this year, there remains a debate among economists and investors about what exactly that will entail and how large any aid will be.

      Li stressed in Davos that last year’s target was reached without resorting to “massive stimulus,” adding that “we did not seek short-term growth while accumulating long-term risk.”

      On the monetary policy front, the People’s Bank of China has made use of a lending program to boost property investment and construction. But the central bank has refrained from taking bold steps such as cutting interest rates further — a point reinforced on Monday when it unexpectedly held a key policy rate despite widespread expectations for a reduction.

      Fiscal policy is seen driving growth this year, though the size of any increase in spending also remains unclear. China is considering 1 trillion yuan ($139 billion) of new debt issuance under a so-called special sovereign bond plan, only the fourth such sale in the past 26 years, Bloomberg News reported Tuesday.

      There’s a way out of the nation’s deflation problem “if they rebalance and use money toward consumption — but size and speed matters,” said Robin Xing, chief China economist at Morgan Stanley. “The longer deflation stays, the bigger policy stimulus is required.”

      — With assistance from John Liu, Fran Wang, Yujing Liu, James Mayger, Iris Ouyang, Lin Zhu, and Tania Chen

      (Updates throughout with additional context and analysis.)


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