South China Sea: Duterte rejects call to drop contracts with Chinese firms

As Philippine President Rodrigo Duterte rejected his foreign secretary's strong recommendation to end business deals with Chinese firms that built artificial islands in the South China Sea, an analyst said banning these companies would make them accountable for their "crime against humanity".

Chinese envoy to Manila Huang Xilian praised Duterte's pursuit of an independent foreign policy and said, "the pragmatic cooperation between China and the Philippines has always been based on mutual respect, mutual benefit and win-win results, and all projects are all conducted in compliance with the existing laws and regulations....I believe that any attempt to undermine the normal economic cooperation between China and the Philippines will never succeed."

In an interview with a local radio station, Huang also said, "The participation of Chinese companies and individuals in domestic construction activities is legitimate, lawful and beyond reproach, lies entirely within its sovereignty. The move by the US side, under the pretext of protecting the South China Sea, grossly interferes in China's internal affairs and aims to drive a wedge between China and regional countries."

On August 26, the US commerce department announced sanctions on 24 Chinese state-owned companies that had played a "role in helping the Chinese military" build up seven South China Sea reefs into islands with military installations. These firms would be banned from buying US technology and products and doing business with US corporations.

Two days later, Philippine foreign secretary Teodoro Locsin, Jnr. told CNN Philippines that if any of these Chinese companies have government contracts or are in any way involved in the reclamation of the islands, "then I would strongly recommend we terminate that relationship with that company".

However, Locsin's recommendation appears to have fallen by the wayside. On Tuesday, presidential spokesman Harry Roque said Duterte had stated that the US can blacklist Chinese companies in American territory. "But the president clearly said he would not follow the directive of the Americans because we are a free and independent country and we need the investors coming from China," Roque said.

"The Sangley project will push through," Roque said, referring to a US$10 billion plan by ethnic Chinese tycoon Lucio Tan's MacroAsia Corp to upgrade the Sangley Air Force Base in Cavite, south of Manila, into a second international airport.

The group was the lone bidder for the project last February, and is working in partnership with China Communications Construction Company (CCCC), which was blacklisted by the US last week.

"So Sangley and all other projects, whoever is the Chinese contractor, those will continue because it is in our national interest to ensure that these flagship projects continue under the Build, Build, Build [infrastructure programme]," Roque said.

Philippine Foreign Secretary Teodoro Locsin Jnr recommended terminating contracts with Chinese companies involved in building artificial islands. Photo: AP alt=Philippine Foreign Secretary Teodoro Locsin Jnr recommended terminating contracts with Chinese companies involved in building artificial islands. Photo: AP

A senior government official with knowledge on the issue told This Week in Asia that Duterte's position need not reflect negatively on Locsin, who said last week that his appointment was proof that the president had confidence in him.

"The foreign secretary is entitled to his views and recommendations, but in the end the president makes the final decision on foreign policy," the source said.

"This decision is in a sense an example of the Philippine independent foreign policy. While we seek to maintain friendly and cooperative relations with the US, it does not mean the Philippines will follow the US in all cases. It will depend on [our] national interests."

Besides, "there is no legal obligation to follow the US decision to ban these companies. The US decision is binding on US companies. Whether [we] should follow the US is something for [us] to decide".

For South China Sea expert and retired Supreme Court justice Antonio Carpio, however, the issue is not about an independent foreign policy or following in US footsteps.

"The Philippines, the country most affected by the destruction of the marine environment in the Spratlys, must hold CCCC to account. The least the Philippine government can do is to ban CCCC from doing business in the Philippines, not reward it with juicy government contracts," he told This Week in Asia.

"Hundreds of millions of people living along the coastal states of the South China Sea, including the Philippines, depend on fish from the South China Sea for their protein. The destruction of the seven atoll reefs by CCCC is a crime against humanity," he said, referring to Fiery Cross, Cuarteron, Gaven, Johnson South, Mischief, Subi and Hughes reefs.

Chinese structures and buildings are seen on the Subi Reef in the Spratlys in 2017. Photo: AP alt=Chinese structures and buildings are seen on the Subi Reef in the Spratlys in 2017. Photo: AP

"The CCCC did this dredging in Philippine territory (Fiery Cross Reef), in Philippine territorial sea (Subi Reef) and in Philippine EEZ (Mischief Reef) - all in gross violation of Philippine sovereignty and sovereign rights," Carpio said.

"It does not make sense for the Philippine government to be rewarding the CCCC with a multibillion-dollar dredging contract in Manila Bay after CCCC caused 'severe and permanent damage' to the marine environment in the Spratlys in gross violation of Philippine sovereignty and sovereign rights," he added.

Carpio was referring to the fact that China Harbour Engineering Company, a subsidiary of CCCC, also won a massive US$650 million reclamation project in Manila Bay in 2019 and CCCC Dredging, another subsidiary, won a 208-hectare land reclamation project in the harbour of Duterte's hometown, Davao City, in 2016.

Carpio, who has made the South China Sea his advocacy issue, pointed out that the 2016 arbitral tribunal ruling had cited the "severe and permanent damage" caused by the CCCC dredging on seven atoll reefs in the Spratlys. These reefs are collectively three times bigger than the two atoll reefs of Tubbataha, a world-renowned heritage site in the Sulu Sea, he said.

In 2015, the US Navy paid the Philippine government US$1.97 million in damages after the USS Guardian ran aground on the reef two years earlier.

"The Philippines is not obligated to follow the US, but since the Philippines is the most affected state, it must be the first to ban CCCC," Carpio said.

The disputed Spratly islands. Photo: AFP alt=The disputed Spratly islands. Photo: AFP

In the Senate, opposition senator Risa Hontiveros called for an investigation on China's island reclamation to find out if "there is collusion ... who are the traitors in the Philippines" who reportedly allowed soil, sand and other materials from the Philippines to be used in the artificial islands.

"It is alarming that the island bases have put the Philippine archipelago within range of Chinese combat aircraft and bombers. This is a clear threat to our national security," she said.

But it is unclear whether such an investigation would happen since the Senate foreign relations committee is chaired by an official of Duterte's ruling party, PDP-Laban.

This article originally appeared on the South China Morning Post (SCMP).

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