China’s aggressive behavior in the West Philippine Sea and its growing influence within the Philippines are causing significant economic and geopolitical challenges for the country. While the Philippines benefits from trade and investments with China, the long-term economic and sovereignty risks outweigh the short-term gains.
Economic losses
China’s actions in the West Philippine Sea have directly harmed the Philippines’ economy, particularly its fishing and energy sectors.
Filipino fishermen reportedly lose an estimated P1.3 billion (US$22.3 million) annually as access to traditional fishing grounds like Scarborough Shoal remains restricted. The figure highlights the economic impact of limited fishing opportunities in areas now heavily patrolled by foreign vessels
Additionally, China’s massive reclamation projects and the construction of artificial islands have destroyed coral reefs vital for sustaining marine biodiversity. A 2020 University of the Philippines Marine Science Institute study estimated that reef destruction caused by China has resulted in annual economic losses of US$231 million in ecosystem services. These losses extend to fisheries, tourism, and natural coastal protection.
Even more concerning is the Philippines’ inability to explore and extract potentially vast oil and natural gas reserves in areas like Reed Bank (Recto Bank), which could help alleviate the country’s energy crisis.
A 2013 US Energy Information Administration report estimated that the West Philippine Sea could contain 11 billion barrels of oil and 190 trillion cubic feet of natural gas, much of it within the Philippines’ exclusive economic zone (EEZ). However, due to China’s aggressive territorial claims and military presence, these resources remain untapped, forcing the Philippines to rely on costly energy imports.
China is the Philippines’ largest trading partner, accounting for $25.7 billion in imports and $11.5 billion in exports in 2022, according to the Philippine Statistics Authority. While this relationship is essential, it comes with significant challenges. The trade deficit with China reached $14.2 billion in 2022, making the Philippines heavily reliant on Chinese goods while struggling to compete in the Chinese market.
China has also made significant infrastructure investments in the Philippines under the Belt and Road Initiative. While these projects — such as the Chico River Pump Irrigation Project — promise economic benefits, they have faced criticism for favoring Chinese contractors and workers. For example, a 2019 study by AidData highlighted that up to 89 percent of labor in Chinese-funded projects comes from Chinese nationals, limiting job creation for Filipinos.
Domestic impacts of Chinese presence
The rise of Chinese operations, particularly online gambling establishments known as Philippine Offshore Gaming Operators (POGOs), has created additional social and economic challenges.
While the Philippine Amusement and Gaming Corporation reported POGO revenues of P8 billion in 2019, the benefits are outweighed by the costs. POGOs have been linked to increased crime rates, including human trafficking and money laundering, and have strained housing markets in Metro Manila, driving up rental costs for locals. This has prompted the Marcos administration to ban the operations of POGOs in the country.
Moreover, the influx of illegal Chinese workers, reportedly numbering over 200,000 by 2020, has fueled tensions over job displacement and resource allocation. These workers often operate without proper permits, further undermining local industries and tax revenues.
Implications for economy
China’s aggressive actions in the West Philippine Sea also impact the Philippines’ reputation as a secure investment destination. Investors are wary of geopolitical risks, particularly when the country struggles to enforce its sovereignty in its EEZ. For instance, the 2016 ruling by the Permanent Court of Arbitration (PCA) in favor of the Philippines — invalidating China’s nine-dash line claim — has yet to be enforced effectively due to China’s continued disregard for international law.
Countries like the United States and Japan, which have invested in the Philippines, may reconsider their commitments if they perceive the nation as being overly reliant on or compromised by China. This could stifle the Philippines’ efforts to diversify its economic partnerships and enhance regional stability.
To address these challenges, the Philippines must adopt a multipronged strategy:
- Strengthening maritime defense and enforcement
The government should allocate more resources to strengthen the Philippine Coast Guard and Navy to assert its sovereign rights in the West Philippine Sea. Enhanced cooperation with allies like the United States, Japan, and Australia can provide additional support. For instance, joint patrols in the West Philippine Sea with the United States began in 2023, signaling a step toward greater security.
- Diversifying trade and investments
The Philippines must reduce its economic dependence on China by pursuing trade and investment agreements with other countries. Initiatives like the Indo-Pacific Economic Framework (IPEF) and expanded cooperation with ASEAN neighbors can help diversify markets.
- Supporting local industries
Investments in local fishing communities and industries are essential to offset losses from restricted access to the West Philippine Sea. Providing financial aid, better fishing equipment, and infrastructure for alternative livelihoods can help sustain affected communities.
- Leveraging international law
The Philippines should continue to rally international support to pressure China into adhering to the PCA ruling. Strengthening alliances with countries committed to upholding international law can amplify the Philippines’ position on the global stage.
China’s actions in the West Philippine Sea and its growing influence in the Philippines have far-reaching economic consequences. From billions in lost marine resources and untapped energy reserves to domestic issues like illegal workers and crime, the Philippines faces significant challenges in maintaining its economic sovereignty and security.
By standing firm on its territorial rights, diversifying economic partnerships, and strengthening domestic industries, the Philippines can mitigate the economic threats posed by China’s aggression. Sovereignty and economic security are intertwined, and defending both is vital for the country’s long-term prosperity.
Photo credit: iStock/ Igor Yudaev
