Economic Planning Secretary and NEDA Director-General

The Manila Times Business Forum
Business As Usual in Unusual Times: Fostering Prosperous Business Relations between Philippine and Chinese Entrepreneurs

Dusit Thani Manila, Makati City
29 October 2014

To our friends from Manila Times and media, experts and entrepreneurs from the Philippines and China, representatives from the private sector, officials of the Philippine Government, colleagues and partners in development, distinguished guests, ladies and gentlemen, good morning.

Allow me to express my appreciation to the Manila Times for the invitation to speak before this forum.

Today, I intend to discuss with you the recent performance of the economy together with our development plans and targets. I will also talk about the current standing of the Philippines-China bilateral relations, highlighting the existing stronger business ties between Filipino and Chinese entrepreneurs as well as discuss the prospects and opportunities for growth and investments in the country.

In recent years, the Philippines regained global attention by emerging as one of the best performers among Asian economies. From 2010-2013, the economy grew, on average, by 6.3 percent in real terms. It is notable that despite the series of natural disasters that hit in the latter part of 2013, the Philippine economy managed to meet and even exceed the target growth of 6.0 to 7.0 percent. This expansion reflects the stronger manufacturing sector on the supply side and the resurgence of investments on the demand side.

The country is also seeing marked improvements in translating its remarkable economic performance to employment generation and poverty reduction.

It is worth noting that in the latest Labor Force Survey, the country’s employment level increased by around 1.1 million, bringing down the unemployment rate to 6.7 percent in July 2014 from 7.3 percent in July 2013. The underemployment rate declined to 18.3 percent from 19.2 percent in the same period a year ago. However, the quality of employment remains a concern.

Meanwhile, the estimated poverty incidence among Filipinos declined by 3.0 percentage points (ppts) to 24.9 percent from 27.9 percent, while individuals in extreme poverty also declined by 2.7 ppts to 10.7 percent from 13.4 percent last year.

While these numbers imply that our inclusive growth strategies are gaining traction, we still need to sustain our growth momentum in order to lift even more Filipinos out of poverty.

In pursuit of this objective, the government has set the following targets:

First is to achieve economic growth of 6.5 to 7.5 percent in 2014, 7.0 to 8.0 percent in 2015, and 7.5 to 8.5 percent in 2016. The industry sector is projected to grow the fastest, while the services sector is expected to remain robust during the period.

Second is to reduce the unemployment rate from 7.0 percent in 2012 to 6.6 percent in 2016. Of equal importance is to improve the quality of employment, measured in terms of reduction of underemployment rate from the current 20.0 percent to about 17.0 percent in 2016.

Third is to improve the well-being of Filipinos, by reducing income poverty to 19.0 percent by 2016. By monitoring these indicators, we demonstrate our commitment to ensuring that economic growth will benefit all and redound to better quality of life, especially of the poor.

The Philippine Development Plan 2011-2016 Midterm Update outlines actions and strategies to attract more investments instrumental in creating quality employment. This will be done by improving the country’s pull factors for investments such as (a) ensuring macroeconomic stability, (b) improving business climate, (c) providing adequate and appropriate infrastructure, (d) enhancing the quality of labor through human capital development and (e) harnessing science, technology and innovation, among others.

Part of our development agenda is to strengthen our international relations. We need to take advantage of the vast economic opportunities that are available in an increasingly globalized and interconnected world.

Our economic relation with China is definitely no exception. Through the years, we have seen increased economic and socio-cultural cooperation; frequent high-level exchange of visits; and conclusion of various bilateral agreements between the Philippines and China.

As a result of such initiatives, bilateral trade with China has risen tremendously in the past four years. The Philippines and China’s total bilateral trade for the first seven months of 2014 increased by 19.0 percent to US$ 10.3 billion from the US$8.6 billion in the same period in 2013. This made China the Philippines’ second largest trading partner after Japan.

Also, China remains to be the top source of Philippine imports in 2014. As of July this year, the Philippines imported US$5.5 billion worth of goods from China, up by 20.0 percent from US$4.6 billion in the same period last year.

The bulk of our exports to China is comprised of semiconductors, which holds 25 percent of total exports. This was followed by electronic data processing services, other mineral products, other manufactures, machinery and transport equipment, and copper meal.

Meanwhile, telecommunication equipment and electrical machineries comprised the largest share of Philippine imports from China, at 15.5 percent. This was followed by other mineral fuels and lubricants, power generating and specialized machines, miscellaneous manufactures, iron and steel, and non-metallic mineral manufactures.

Furthermore, tariffs on 100 percent of total tariff lines (7,388 lines) in the Normal Tracks of ASEAN-6 and China have been eliminated since January 1, 2012. The applied most favored nation (MFN) tariffs on lines placed under the Sensitive Tracks of the ASEAN-6 and China have also been reduced to 20.0 percent by January 1, 2012. These rates shall be subsequently reduced to 0 to 5.0 percent not later than January 1, 2018.

Thus, I urge all of you to take full advantage of deeper trade relations supported by lower trade barriers and greater market access. Firms should maximize gains from trade and specialization by continually innovating and exploring possible export niches on the basis of growth and changes in the bilateral trade structure. Current data suggests a shift of Philippine exports to China from resource-based products to industrial products.

In bilateral investment, the Philippine foreign direct investment or FDI in China is relatively small compared to other Asian countries. In 2012, the value of Philippine FDI in China was US$132.2 million, accounting for only 0.15 percent of Asia’s total value of FDI in China. However, this is 18.2 percent more than what was recorded in 2011, according to China’s National Bureau of Statistics.

Moreover, China’s overall investment in the Philippines also remains comparatively small. In 2013, China’s net FDI amounted to US$6 million. Furthermore, the approved investments from China in the Philippines declined in 2013 by 37.6 percent to PhP1.24 billion from PhP1.99 billion in the previous year. However, it is encouraging that in the first semester of 2014, approved investments from China increased to PhP9.62 billion from PhP245.6 million in the same period last year, according to the Philippine Statistics Authority. Manufacturing, administrative and support services, and information and communication activities were the main recipients of approved investments from China.

Meanwhile, the latest figures from the Department of Tourism show that Mainland China is the fourth largest tourist market in the country, accounting for 9.4 percent of total arrivals. In 2013, arrivals from Mainland China posted a 69.9 percent growth compared to the 2012 tally.

In terms of overseas employment, China accounted for 0.3 percent share of the total overseas Filipino deployment stock estimate in 2012. These include temporary, permanent, and irregular workers. China has been a major destination for teachers in the last five years.

Keeping in mind the aforementioned indicators, I believe that economic opportunities and growth potentials are promising for our country. I encourage you to keep up your confidence in the Philippine economy as we are now on a higher growth path.

This year, we expect GDP to grow within our target of 6.5 to 7.5 percent, with the services and industry sectors as major drivers.

Investments in the industry and services sectors will be most viable for both Filipino and Chinese investors to explore. But investments in the agriculture sector are also encouraged as part of the country’s industrialization strategy. These investment areas will benefit from the upbeat domestic demand, continued strong inflow of remittances from Filipinos overseas, increased tourist arrivals, public and private construction activities, as well as the continued robust performance of the manufacturing sector, among others.

More specifically, growth potentials will be more evident in the key sectors identified under the PDP 2011-2016 Midterm Update, as these will be developed in view of their potential to contribute to employment generation, as well as a rapid and sustained growth. These include manufacturing, agribusiness, tourism, IT-Business Process Management or IT-BPM, logistics, and construction.

From the first quarter of 2013 to the second quarter of 2014, the manufacturing sector accounted for an average of 32.0 percent of the country’s quarterly GDP growth. The food and electronics manufactures remain the top performers, while there are also bright prospects for automotives, non-metallic manufactures and other heavy manufactures. Continued robust performance of the manufacturing sector makes it a good venture.

There is also a bright prospect in agribusiness as we continue to increase forward linkages of agriculture to the industry and services sectors. The government is keen on expanding existing markets, exploring new markets, and linking small-holder farmers to these value chains and commodity clusters.

The government welcomes business linkages in filling the gaps for accommodation requirements and better facilities and services. Also, active promotion of tourism by the Filipino-Chinese business community through marketing and investment cooperation will benefit private business entities.

Investments in the IT-BPM sector will remain profitable as the country strives to remain as the leader in voice BPM services while it also continues to nurture the Filipino talent pool needed for higher-value IT-BPM services.

But in order to take advantage of numerous business prospects for both Filipino and Chinese investors, collective efforts to strengthen bilateral economic ties are necessary.

I believe that there is a mutual desire for stronger economic ties as well as a commitment towards regional peace and stability. We assure you that the Philippine government values enhancing mutual trust and bolstering economic cooperation in our development policy.

To complement our efforts in enhancing economic ties, I am encouraging all of you to deepen people-to-people business relations. Engagement in joint research projects and trade missions will not only serve as an avenue for networking and expansion but will also forge cooperation. Joint endeavors involving education, applied science and technology, and cultural exchanges should also be pursued and promoted. This is to widen perspective and emphasize the positive facets of the multidimensional Philippines-China relations.

Market opportunities abound for both Filipino and Chinese investors. I call on you to check these out and continue to nurture the existing business relations towards realizing prosperity for the benefit of our people.

Thank you and good day!