THE Philippines’s economic managers should stay vigilant as China’s third quarter growth slowed to a disappointing 4.9 percent amid the debt crisis surrounding that country’s largest property developer Evergrande, the chairman of the House Committee on Ways and Means said on Monday.
Albay Rep. Joey Sarte Salceda, an economist, said the Philippines should now have contingencies to insulate the country from spillover effects.
“I don’t think we are headed for disaster, but it’s best to prepare,” he said in a statement.
“There are signs that the situation with Evergrande is systemic. New construction in September slowed down for a sixth straight month in China, that country’s longest period of monthly declines since 2015. There is also another real-estate company that defaulted on its debts,” said Salceda.
Although the Chinese economic authorities are trying to allay market fears, he said, “I would be on high alert, especially since many of our big conglomerates have exposure in the Chinese real- estate market.”
Salceda was referring to a liquidity crisis at China Evergrande Group, which has more than $300 billion in liabilities. The development has rocked global markets.
“Evergrande is not the only company in trouble. The South China-based luxury real-estate developer Fantasia Holdings also said it failed to make a $206-million US dollar bond payment two weeks ago. This is even when the company reported revenue of about $1.7 billion for the first six months of 2021, an 18.5-percent increase from a year earlier, and net profit of $23.7 million,” Salceda added.
Earlier, Bangko Sentral ng Pilipinas Governor Benjamin Diokno said Evergrande’s default would have no direct impact on Philippine banks and the economy.
“Philippine banks are largely domestic-oriented with cross border exposures or claims from counterparties in other countries at 9.4 percent of total banking system assets,” he added.
According to Salceda, the country’s experience with global systemic risks is that the “earlier it prepares, the better it performs.”
“That’s what we did during the Global Financial Crisis. In January 2008, back when people were still debating whether there was a real recession, we already prepared a package of agriculture projects, front-loaded infrastructure, cash-for-work, and other programs to stimulate the Philippine economy and insulate it from any spillover effects from the West,” Salceda said.
Salceda was an economic adviser to then President Gloria Macapagal-Arroyo. Salceda said she instructed her advisers to prepare a package for the country as soon as she returned from the World Economic Forum in Davos in January 2008.
“The President sensed from her meetings with world leaders that time that the world was headed for trouble. So, we crafted contingencies early,” he said.
“China is closer to home, so I would be a bit more proactive than when we were in 2007 to 2008,” Salceda added.
Meanwhile, Salceda said a low-hanging package to prepare the Philippines from possible shocks should include fast-tracking infrastructure next year; increasing food production; a proactive rollback of policy rate reductions early next year so the country can adjust them downward again should it encounter the threat of a slowdown later next year; and continued spending on programs like Tulong Panghanapbuhay sa Ating Disadvantaged/Displaced Workers (TUPAD) of the Department of Labor and Employment.
“We are starting from a low base so we should grow quickly next year,” he said.
“I also hope the Financial Stability Coordination Council assesses the risk soon and assures us that there is nothing much to worry about. I think we will be okay, especially with contingencies in place,” Salceda added.
Meanwhile, Salceda said waning confidence in Chinese growth could also be an “opportunity in disguise” for the Philippines.
Salceda said, however, the Philippines should now open its economy to more investments, including from companies seeking to diversify supply chains.
“CREATE [Corporate Recovery and Tax Incentives for Enterprises law] is the greatest tool in this regard, but we also need to enact the amendments to the Retail Trade Liberalization Act, the Public Service Act, and the Foreign Investments Act this year,” Salceda said.
“If some sort of capital flight happens in China, it will all have to go somewhere. If our economy is not open enough, it will be like catching rainwater with a thimble. Let’s open some of our archaic restrictions, so that when it rains, we have something bigger to catch water with,” Salceda added.