The Chinese Antidote to a Covid-battered Philippines

November 20, 2020, 6:00 PM EST

Map of China and the Philippines highlighted

Filipinos were once solidly in the U.S. sphere of influence. With two huge sources of national income battered by Covid-19, they may have to turn to their intrusive neighbor across the South China Sea.

Contested Waters: The Dangers of Making Fast Friends With China

To the Filipino fishermen who for generations worked the seas off the northern coastal village of Masinloc, China’s maritime ambitions aren’t just dashes on a map. Like his father and grandfather before him, Mario Porones once made a living by selling his daily catch. Now he’s given up after run-ins with the Chinese coast guard. Porones says he’s been on boats that were sprayed by water cannon, tracked by helicopters and shooed away from a nearby lagoon with guns.

“Of course, you are scared,” says Porones, now a grandfather himself—his sun-weathered skin and calloused feet a testament to this lineage. “They are armed and we have no weapons, so we just leave.” He points out his boat to me, rotting in scrub behind the bungalow where he lives, a short drive from town. Sitting around a billiard table, one of his friends recalls a day when Chinese maritime forces boarded a nearby vessel. The officers took the fish, but left wine, cigarettes and instant noodles.

Porones and his friends say China does what it pleases in waters around the Scarborough Shoal, about 120 nautical miles from Masinloc. That’s despite an international tribunal ruling in 2016 finding that Beijing has no legal basis for its claims to waters within the so-called nine-dash line. The area, roughly the size of Mexico, is demarcated on official Chinese maps and encompasses as much as 90% of the South China Sea. “In the real world, China is winning,” one of the fishermen concluded, lamenting the reluctance of the Filipino navy to protect him.

Source: Center for Strategic and International Studies

Until the pandemic struck, the Philippines seemed to have been on a winning streak itself. During the past five years, its gross domestic product increased more than 6% on average. It might even have reached 7% this year, easily surpassing onetime stars such as India, Indonesia and China itself. Now, those kind of numbers look fanciful with the International Monetary Fund projecting a contraction of more than 8% this year—and the specter of China is rising not only as a military hegemon but an economic one as well.

China has shaken off the first great outbreak of the virus and has restarted its formidable economic engine. It is likely to be the major beneficiary of the 15-nation free-trade treaty announced on Nov. 15, which Manila has signed on to. The Philippines, like other countries in the region, has to navigate between integration into a Chinese-dominated economic sphere and subservience to Beijing’s broader agenda.

Mario Porones, fisherman — Mario Porones

It’s easy to caricature China’s growing sway in Southeast Asia as a product of Donald Trump’s “America First” rhetoric and neglect of long-time partners. In reality, Philippines President Rodrigo Duterte began cozying up to Beijing when few observers thought Trump likely to ever set foot in the Oval Office. China’s economy became too big to ignore and its security designs on the South China Sea too forceful to shrug off.

Might Joe Biden have a shot at putting the relationship back together, to start with a fresh slate—and not just with the Philippines? It’s a difficult sell, but not impossible. With the right incentives coupled with consistent and disciplined messaging, the incoming leader of the free world might have a shot at enhancing America’s standing in the region. Painting such a position as anti-China would be ill-advised, however. “We all want to work together with the U.S., we all want to work together with other vibrant economies, we would like to cooperate within the region,” said Singapore Prime Minister Lee Hsien Loong, in an interview with Bloomberg Editor-In-Chief John Micklethwait at the New Economy Forum. Even so, some kind of coalition that could be perceived as anti-China would be a non-starter, Lee warned.

Embracing China has its downsides. Big projects can bring big debts, as we saw with a Chinese-backed port in Sri Lanka. When payments proved insurmountable, Beijing simply took control of the facility, which sat along strategically and economically sensitive waters.

Whom else can the Philippines rely on? America left its enormous military installations at Subic Bay and Clark Air Base almost three decades ago. Strolling around the wharves at Subic, steps from where U.S. Navy ships once docked, signs are now in Chinese and English. Filipinos have always had a peculiar relationship with the U.S., the country’s former colonial master and economic partner for much of the late 20th century. Are they about to exchange living in the shadow of one empire for another?

The choices for the Philippines will depend to a large degree on the fate of the two sectors that have propelled the country’s growth since the turn of the millennium: the global outsourcing of services and migrant labor. Earlier this year, I traveled around the country’s main island of Luzon to gauge the vitality of those important components of the economy. Outsourcing accounted for 8% of the Philippine GDP as financial institutions and other companies employed its large English-fluent workforce in call centers. Meanwhile, remittances from millions of migrant Filipino workers contributed 10% of GDP. The virus has revealed those strengths to be vulnerabilities.

Call Centers: Those Faraway Voices Are Now Even More Remote

On a grimy block, above a barbecue pork joint, a couple dozen employees of a call center sit inside a nondescript Manila building, hard at work in hoodies, jeans and T-shirts. They deploy almost perfectly Americanized English to field calls from across the U.S., where it’s lunchtime in New York. These days questions to call centers might range from whether coronavirus testing is covered by insurance, or if an airline ticket is refundable, but not long ago it could just as easily have been as banal as complaints about steak knives.

Today, even these faraway voices in the Philippines have to deal with new realities of working remotely as Covid-19 continues to lock down Manila and much of the surrounding island of Luzon, whose 60 million people account for about two-thirds of GDP. Call center employees are key contributors to the business-process outsourcing sector, which has helped boost growth after being depicted as a laggard in the region for years.

The sector’s success helps explain why Duterte has granted exemptions for BPOs to keep running despite the broader lockdown. But the hassles of getting to work make the loophole almost worthless. Earlier this year, when local news bulletins were just starting to flicker with news from Wuhan, I visited RPV Native Commerce, which has since been renamed Scalewind Corp. It planned to allow sales staff to temporarily sleep at the office, where they would be provided with a resting area and meals. Scalewind shelved the idea after mixed signals from the government. Now, some employees work from home on laptops distributed by the company.

Malou Sebastian, a manager at a call center in the Philippines. — Malou Sebastian

Malou Sebastian, who runs the facility, said over the phone as lockdowns began in March that it felt like she was living in the television action-drama “24,” which compresses a season into a day in the life of a counter-terrorism agent. The biggest single problem was public transport, Sebastian said. There was little use being open for business when employees had trouble just walking through the door. “I just went out on the street and couldn’t see a single bus.”

These are challenges Derek Gallimore, chief executive officer of Outsource Accelerator, has been hearing about since day one of the pandemic. His Manila-based firm helps companies build and operate their offshore teams. The biggest pain points are prohibitions on accessing customer financial records from home and finding safe close-by accommodation for those who do have to be in the office. A wildcard: dealing with clients who wonder why they outsource when their own employees are working remotely anyway. “Most BPOs will put on a brave face, but everyone has been dragged through the bush backwards,’’ says Gallimore.

To be sure, the outsourcing scene faced challenges even before the coronavirus outbreak. While the sector has thrived thanks to Filipinos’ relatively low wages and bilingualism, its workers need to come to terms with the fact that they aren’t immune from the technological trends such as artificial intelligence, which is reshaping workplaces across the planet.

Even before the pandemic, forecasts for the next two decades predicted that almost half the jobs in the Philippines will be in jeopardy because of automation, according to the International Labor Organization. “Skill requirements in the Filipino BPO sector will significantly change,” it said in a 2017 review of technology and employment in Southeast Asia. “English proficiency and a service-oriented personality will not be enough.”

Source: International Labour Organization

Sebastian confronts this head-on. She’s concerned about AI but she says but “there is a lot robots can’t do.” Chief among those is talking irate customers down from a ledge, something few robots outside Hollywood can manage. “Sometimes you feel like a punching bag,” said Riz Tameta, who worked in call centers for eight years. “Then [callers] break down and cry. They just lost their job or a loved one or are getting a divorce. Part of our role is to be empathetic.”

“Filipinos are very flexible and resourceful people,” Sebastian told me. “We will get through this.” For now, fielding calls in Manila is still far superior to life as a laborer in Manama. But nobody keeps a niche in the global economy forever. The pandemic shows how vulnerable even successful industries can be to black-swan events.

Migrant Workers: An Economy Reliant on Exporting Mothers and Fathers

There is a Little Italy is in the Philippines, a neighborhood dominated by residents who head to the European country for work. Delio Manalo and his wife Amelia now live in this inland community, nestled a few hours southeast of Manila, after spending their working lives in Italy as household employees. Over moist coconut- and sticky-rice cakes on their small porch, the couple talked about the three of their four children currently working in Milan, whose wages pay for the home we sat in. Neighbors and extended family pass in and out of the bungalow; it takes some time to get a straight answer about who’s related to whom.

Source: Philippines Statistics Authority, 2019 Survey on Overseas Filipinos

More than 10 million Filipinos, or about 10% of the population, work abroad at any given time, cooking, cleaning, providing care, building things and staffing commercial ships. About a quarter of the global merchant marine workforce hails from the archipelago.The top destinations are as far-flung as Saudi Arabia and Singapore, where it is common for middle-class families, including my own, to hire live-in help. This year, in spite of the virus, their remittances have held up after a nosedive during the early months of the pandemic; but prospective employees have trouble reaching destination countries and deep recessions in host economies jeopardize existing jobs.

Even before the pandemic, it was hard to square why a country with one of the region’s fastest-growing economies wasn’t able to keep its most vital resource at home. The nation has a fertility rate of more than 2 per woman, way ahead of China, Japan and South Korea, whose demographic challenges I wrote about here and here.

The uncomfortable truth is that the Philippine economy has become overly reliant on its workers abroad. Dependence on money wired home can produce what’s known as a “remittance trap,” according to a January IMF paper. One outcome is a stronger exchange rate and lower export competitiveness, especially in small, open economies. The countries named in the report are even more exposed to this challenge than the Philippines: Tajikistan’s receipts from residents overseas make up about 40% of gross domestic product, followed by Kyrgyzstan, Liberia, Nepal and Comoros, off the eastern coast of Africa.

Husband and wife outside their home in Little Italy in the Philippines. — Amelia Manalo and Delio Manalo

There’s also a sociology trap as the sense of family and social order gets warped. Other members of the Manalos’ community spoke to me about the toll overseas labor takes on marriage. One woman said she split from her husband, who was working in the Saudi construction industry for 18 years. He returned home after getting laid off, but they grew too remote during their separation and she found out he was unfaithful. Another young woman swore that after her own experience as the child of an overseas foreign worker, she and her husband would never work apart. Some children are raised by a supportive network of extended families, but others can fall through the cracks: The absence of mothers has made delinquency, addiction and emotional scarring more common, according to a study in the Journal of Marriage and the Family.

And yet, as I shared meals with former workers and their family members, I was struck by their pragmatism. Living in a different continent than your spouse and children is a common way of life. The family arrangements many Filipinos endure to make ends meet would be barely tolerated in much of the developed world.

Overseas workers aren’t just maids and nannies in Hong Kong or Dubai. Rizal Park in central Manila is the epicenter of the maritime recruitment scene, men walked around with sandwich boards seeking crew for tankers and dry bulk carriers. On the sidewalk, merchants offered shipping-exam text books for sale. Pamphlets were thrust into the hands of passers-by advertising “seaman’s loans” with interest rates that seemed to change by the hour. The crowd is thinner these days because of the pandemic, but the shipping industry and its hangers-on still ply their trade.

Between Empires: China’s Next Door But the Philippines Could Pivot Toward the U.S. Too

To its detriment, the Philippines hasn’t embraced global markets and foreign investment like other Asian countries, says Ramon Clarete, a professor at the University of the Philippines. Neighbors including Taiwan, South Korea, Japan, Malaysia and Singapore became manufacturing-export powerhouses.

Instead, the main Philippine export is human capital. Some of that draws back to the legacy of Spanish imperial rule, which gave way to protected local oligarchies. Relaxing restrictions on multinational corporations would give more people more of a chance to participate in the local economy, Clarete reckons. America did little to alter this landscape during its half-century as ruler.

That brings us back to China. Despite the South China Sea dispute, there are clear signs of a warming relationship between the two countries. Chinese investment has raised the fortunes of Filipinos. Mainland money has flooded into sectors spanning infrastructure, telecommunications and gaming, which helped the Philippines go from a relative pauper in a prosperous region to one of its fastest growing economies.

When the rest of the Philippine economy is back up and running, Beijing’s support will be sorely needed. Many worry that Duterte has been too accommodating with Beijing. Yet it’s hard to see how the Philippines succeeds by spurning overtures from what will remain Asia’s behemoth. To do so would risk squandering the progress of the past few years.

Ties may also depend upon a change of leadership in Manila, not just in Washington. Next year, jockeying to succeed Duterte will begin in earnest; Duterte is limited to one term and can’t run in national elections scheduled for May 2022.

In recent months, Duterte himself has shown signs of hedging his bets. In September, he defended the 2016 international ruling on the South China Sea, while his officials stressed a desire for “balance” in the maritime region. Even if the U.S. military presence recedes, the Philippines should take heart in America’s steadfast role as a financial backstop: The Federal Reserve’s massive stimulus and support for global markets offers more security than any aircraft carrier could, as I wrote here.

Duterte isn’t dumping on China. He is looking to Beijing for vaccine supplies, for one thing. And when tourism cranks up, Chinese visitors will be welcomed back with open arms. But if Biden wants to try a more conciliatory approach, he will be knocking on a door at least partly open.

The Chinese Antidote to a Covid-battered Philippines

Contested Waters: The Dangers of Making Fast Friends With China

Just a Dash

Sending Money Home

Call Centers: Those Faraway Voices Are Now Even More Remote

Exposure to AI

Migrant Workers: An Economy Reliant on Exporting Mothers and Fathers

Global Workforce

Baby Booms... and Busts

Now That You Have Arrived

Between Empires: China’s Next Door But the Philippines Could Pivot Toward the U.S. Too