Malaysian Prime Minister Mahathir Mohamad unwittingly sparked new controversy around China’s investments in the Philippines during a recently concluded two-day visit to Manila.

Though Mahathir did not comment directly on the state of Philippine-China relations under President Rodrigo Duterte, the nonagenarian leader repeatedly and pointedly warned against the pitfalls of reliance on Chinese investment.

Widely popular among Filipinos for his straight-talking manner, Mahathir’s comments struck a raw nerve inside Duterte’s administration, which is now pushing back against suggestions of the potential emergence of a Chinese “debt trap” in the Philippines.

Duterte’s government has recently embarked on an ambitious, decade-long US$180 billion infrastructure-building initiative which aims to transform the country’s decrepit roads, rails and ports and attract new foreign investment.

China and Japan have so far been the leading foreign partners of Duterte’s so-called “Build, Build, Build” drive, a signature economic policy of his elected administration.

Philippine President Rodrigo Duterte wears a hardhat at the country's customs bureau. Photo: AFP/Ted Aljibe
Philippine President Rodrigo Duterte wears a hardhat at the country’s customs bureau. Photo: AFP/Ted Aljibe

However, China skeptics and others have pointed to the case of Sri Lanka, which was pressed into a 99-year lease of a major port facility after defaulting on Chinese loans, to warn of the dangers of infrastructure projects under China’s Belt and Road Initiative (BRI).

But Mahathir’s comments arguably have had deeper resonance in the Philippines, which shares an economy of similar size in terms of gross domestic product to Malaysia’s. This makes Mahathir’s pushback against Chinese investments compelling to many in Manila.

Though Mahathir seemingly shares Duterte’s open antipathy towards Western powers, particularly on what they see as often cynical stances on human rights and democracy, the Malaysian leader has also taken up the cudgel against what he sees as a “new colonialism” under China’s BRI. He first made waves by using the term during an official visit to Beijing last year.

“When we talk about new colonialism… what the Chinese are doing is not exactly that but it has the effect of diminishing the freedom of action of other countries that are owing to much money to China,” Mahathir told this correspondent in an exclusive interview.

“If you borrow huge sums of money you [will eventually] come under the influence and direction of the lender,” Mahathir said, warning about the dangers of “subservience” if smaller nations borrow beyond their “capacity to repay” Chinese loans.

His decision to postpone retirement and context last May’s election in Malaysia was partly driven by his desire to reverse the previous Najib Razak administration’s excessive reliance on Chinese capital.

Mahathir said in the interview his decision to rejoin politics was motivated by a desire to “do something” to save his country from what he saw as a downward spiral of corruption and unsustainable foreign debt.

Since taking power, Mahathir has suspended more than $30 billion worth of Chinese infrastructure projects, including railway, port, and pipeline schemes, to roll back his country’s galloping debt, which hit $251 billion in recent years.

Malaysian Prime Minister Mahathir Mohamed (left) and Chinese Premier Li Keqiang talk during a signing ceremony at the Great Hall of the People in Beijing on August 20, 2018.Photo: AFP / POOL / How Hwee Young
Malaysian Prime Minister Mahathir Mohamed (L) and Chinese Premier Li Keqiang at a signing ceremony at the Great Hall of the People, Beijing, August 20, 2018. Photo: AFP/ Pool/How Hwee Young

Malaysia and China are currently renegotiating the terms and costs of multi-billion dollar BRI-related high-speed railroad project for peninsular Malaysia entered by the Najib government but halted under Mahathir.

“If you have the capacity to borrow, it must be because we can repay. But when you borrow money which we cannot repay, you are endangering your own freedom,” he said in the same interview in Manila.

Mahathir made it clear, however, that he isn’t against Chinese investments in principle.

“We have a very definite definition of what constitutes foreign direct investments, we don’t mind them setting up plants to produce goods,” he argued, emphasizing the necessity for quality investments which create jobs for local labor and business opportunities for domestic companies.

Alleged illegal Chinese workers at a Philippine police station, November 2018. Photo: Twitter

What the leader rejects, however, is the often accompanying large-scale influx of Chinese labor and citizens that he says comes at the expense of recipient nations’ populations.

“[W]hen it comes to developing whole towns and cities and bringing their people to live there… [that] will have bad political effect on the country,” Mahathir added.

Mahathir also emphasized China’s flexibility and ability to evolve its investment strategy, a shift some analysts are referring to as BRI 2.0. He said it is important to “find other ways of dealing with the [debt trap] problem rather just open confrontation.”

The Malaysian leader also made clear that it’s “important for China to take notice of other [countries’] views and perceptions” in order to fine-tune its investment strategy under the BRI, lest it receives a more permanent backlash among the scheme’s recipient nations.

The Philippine media, however, was quick to cite Mahathir’s warnings against blindly welcoming Chinese investments. In recent months, the Philippine Senate has launched investigations into an influx of hundreds of thousands of illegal Chinese workers.

The migrants are mostly employed by Chinese-run online casinos that have inflated the domestic real estate market to the consternation of ordinary Filipinos, many of whom are now grappling with rising rents across major cities, including the capital Manila.

Chinese President Xi Jinping (L) gestures as Philippines' President Rodrigo Duterte (R) looks on during a state banquet at the Malacanang Presidential Palace in Manila on November 20, 2018. Photo" AFP/Mark R. Cristino/Pool
Chinese President Xi Jinping (L) gestures as Philippines’ President Rodrigo Duterte (R) looks on during a state banquet at the Malacanang Presidential Palace in Manila on November 20, 2018. Photo” AFP/Mark R. Cristino/Pool

“Of course, we will take [Mahathir’s] advice and the economic managers are evaluating all kinds of loans we are having with the Chinese government,” Presidential Spokesperson Salvador Panelo said during a press conference on March 11.

Philippine Finance Secretary Sonny Dominguez has maintained that all Chinese loans are put through rigorous scrutiny to ensure compliance with good governance standards before they are signed and agreed.

The finance chief also questioned fears of a Chinese “debt trap” by citing data from the Department’s of Finance’s International Finance Group, which showed China only accounts for 0.11% of the country’s total debt.

Nearly three years into Duterte’s administration, China’s promise of multi-billion-dollar investments and aid for infrastructure-building has gone largely unfulfilled.

Only two loan agreements, namely the $350 million dollar (18.7 billion pesos) New Centennial Water Source-Kaliwa Dam Project and the $72.5 million Chico River Irrigation project, have so far cleared the initial phases of implementation.

As such, some wonder whether the Philippines will receive any big-ticket Chinese infrastructure investments, or whether the vows were a front to protect the passage of Chinese workers into local industries, including online gaming and casinos.

Duterte has said he is reluctant to expel the illegal Chinese workers due to fears of a possible retaliatory response against Filipinos working in China. But Mahathir’s warnings have reinforced deep-seated suspicions in Manila about the true terms and conditions behind the Duterte’s warm ties to China.