The impasse in trade talks between the world’s two largest economies has roiled markets and spurred all sorts of dire predictions, from increasing the odds of a recession to an economic cold war. Less attention has been devoted to what won’t change in Asia.
Even before levies on some Chinese goods rose to 25% from 10%, the broad contours of economic competition between Beijing and Washington were set. China’s footprint is expanding throughout Asia, regardless of the region’s historical allegiances with the U.S. Chinese money is everywhere.
Despite this, the U.S. has a trump card: the power of the dollar; its use a benchmark for the relative value of Asian currencies; and the enormous clout the Federal Reserve is able to exercise in global monetary conditions. The People’s Bank of China isn’t even close to approaching that, let alone overhauling it.
These competing spheres of influence were on display during a visit to Manila last week. A former American colony and Cold War client, the Philippines had long been in America’s orbit, not just strategically but culturally and economically. Now, there’s a distinct tack toward China, according to executives and officials I met with.
Evidence of Chinese investment is showing up in all corners of the Philippines’ economy, including fintech, mobile, tourism, gaming and real estate. The country’s archipelago with its 107 million people is underbanked in terms of bricks and mortar, making it a playground for financial innovation. Alibaba Group Holding Ltd. has teamed up with Globe Telecom Inc., the country’s largest phone company, on a fintech venture. Tencent Holdings Ltd., together with KKR & Co., poured money into a project with PLDT Inc., Globe’s domestic rival. China Telecom Corp. was part of a consortium that was awarded the Philippines’ third telecom license late last year.
Meanwhile, Chinese tourists are reshaping the leisure scene. Their arrivals surged last quarter, making China the second-biggest source of travelers after South Korea. The U.S. was third. Lured by myriad offshore gambling companies — known as Pogos — that cater to the Chinese, downtown Manila has drawn tens of thousands of mainland migrants. These new residents are snapping up apartments and driving real-estate development in the already bursting capital.
This pattern is driven by China’s growing wealth, technological prowess, gross domestic product and proximity. While the U.S. is powerful in Asia, its center of influence is distant.
But that hasn’t changed the status of the dollar and the clout of the Federal Reserve. The Philippine central bank, one of the most aggressive in hiking last year, delivered on a foreshadowed interest-rate cut last week. The reason for its moves both directions? The Fed.
“The world is dollarized,” Governor Benjamin Diokno told me in his office after announcing a quarter-point cut in the main rate to 4.5%. “They were on a normalization path and all of a sudden they stopped,” he said referring to the American central bank.
Emerging markets tend to struggle when the Fed lifts borrowing costs, as it did through 2017 and 2018. The central bank’s abrupt dovish tilt, dating to January, has given other central banks in the region room to maneuver. “The strength of the U.S. economy is in affecting financial flows,” Diokno explained. Until China’s financial markets truly open and the yuan becomes an international currency, it’ll be tough for Beijing to replicate that.
Not that China isn’t doing great things. Diokno urged me to visit Clark, site of a former U.S. air base, which is now being developed into an industrial park with the help of Chinese companies. This is happening under the auspices of President Rodrigo Duterte’s “Build, Build, Build” campaign, and echoes with President Xi Jinping’s Belt and Road Initiative to bolster development — and strategic links.
Beijing is on the hunt in the U.S.’s onetime Pacific backyard. But is it game, set and match for China? Hardly. Its sway will keep growing, regardless of trade wars.
Tariffs, undesirable as they are, didn’t create the current trend and won’t undo it. Daniel Moss, Bloomberg
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