Impact of Filipino-Chinese Enterprises

IMPACT OF FILIPINO-CHINESE ENTERPRISES

ON THE PHILIPPINE ECONOMY

Dean Danny Araneta Cabulay

Institute of Accounts, Business and Finance

Far Eastern University, Manila, Philippines

The Philippines is known to be a melting pot of races in Asia. Long before its first colonizers, the Spaniards, occupied Philippine soil, the Filipinos have already been actively trading with the Chinese, Arabs and Malays. In fact, a flourishing Chinese community in Manila called Parian long existed in pre-colonial times. Chinese merchants became more active in business because they saw opportunities when Spain ruled the Philippine islands for over four hundred years.

The Philippines has many known heroes, statesmen, religious leaders and esteemed professionals who are of Chinese descent. Tracing the roots of Philippine national hero Jose Rizal, former president Corazon Aquino, the late Jaime Cardinal Sin and noted certified public accountant Washington Sycip gives us a hint of the deeply ingrained Chinese heritage in Philippine culture. It is estimated that two out of every five Filipinos have Chinese blood.

The Chinese have lived in the past in a quiet existence in their own local enclave known to many today as Binondo or Manila’s Chinatown. Today, Binondo has a very dense population with many structures used both for residential and commercial purposes. At $9,000 per square meter, the value of real estate in this district of Manila is the highest in the city because of intense trading activities especially in the commercial area of Divisoria where one can find the cheapest bargains mostly coming from China.

Approximately 92% of businesses in the Philippines are micro-entrepreneurs of which 90% belong to the underground economy. After 5 years, only 4% of them survive and remain to be in the same business. About 90% of the country live at poverty or below poverty level.

Let’s look at some national statistics. The inflation rate of the country averages 6.4%. Unemployment is about 8.2%, Education is the second most important personal concern of Filipinos as per a Pulse Asia survey conducted recently.

For the 18 million Filipinos who live in poverty level in Manila, occasions like school opening, Christmas, graduation day and weddings would not pass without having a trip to Divisoria to make their meager budget suffice. To many poor Filipinos, spending for special occasions is important nothwithstanding the looming crisis they face year after year.

It is their only way to escape the reality that they are poor, i.e. to enjoy little pleasures like buying a shirt they do not really need, buying a lottery ticket hoping to get the jackpot, cooking noodles for the entire family, watching the cheapest form of entertainment for the masses – movies, and buying presents for everyone including extended members of the family.

In the early 1990s, the country faced a different kind of development. Many commercial malls were built in many key cities in the Philippines. In the commercial district of Ortigas in Pasig City, there are six malls within 500 meters radius – the SM Megamall, Shangri-La’s Edsa Plaza Mall, Robinson’s Galleria, The Podium, Star Mall and Edsa Central. In most days, they would all be packed with people shopping, dining, or simply window shopping. Five of these six malls are owned and operated by Chinese businessmen.

When we think of entrepreneurship in the Philippines, the Chinese families are usually top of mind because of their (a) business acumen, (b) values like frugality, conservatism and diligence, (c) ability to implement well a succession planning scheme, and (d) calculated risk-taking.

Of the top twenty richest Filipinos, more than half are Filipino-Chinese or of Chinese descent. Lucio Tan has built his empire in the brewery, banking and real estate industries. George Ty has built one of the biggest banks in the country in terms of assets. Henry Sy is responsible for the biggest chain of malls in Southeast Asia. Tony Tan Caktiong’s claim to fame is his Jollibee chain of quick service restaurants. Eduardo Cojuangco is the man responsible for one of the biggest food conglomerates in Asia, San Miguel Corporation. Andrew Gotianun Yap of Filinvest made his fortune in real estate. Former ambassador Alfonso Yuchengco became a taipan via the insurance business. Don Emilio Yap has diverse business interests, e.g. publishing, hospitality and schools. John Gokongwei’s business interests include retailing, hotels and real estate. Plastic king William Gatchalian also venture earlier on in the airline and hotel business. Ben Chan’s famous Bench products have now targeted the lucrative Chinese market.

A brief ocular of Chinese business schools will give us a glimpse of how young Filipino Chinese kids or Chinoys are trained early in life. In some instances, there are stereotypes of Chinoys. They are usually more well-off than their Filipino counterparts. Historically, the Chinese who settle in the Phillippines had to work much harder, i.e. learn the language, engage in trading for no company will hire them and marry a local to avoid deportation. It is because of necessity that they were able to survive and become tough in life.

In terms of commerce, the total volume of trading activities attributed to Filipino-Chinese entrepreneurs is $64 billion per annum. These businesses account for over 5 million jobs for Filipinos. Philippine exports to China are predominantly coconut and agricultural products, human resources (in hospitality and entertainment industries) and electronic spare parts. On the other hand, Chinese exports to the Philippines are mainly processed food, garments and construction supplies.

A close look at these economic activities will expose a deeper relationship between the two countries. What are the implications to the Philippine economy?

(a)  Influx of cheap Chinese imports in the Philippine market. This has also resulted in more smuggling of products into the Philippine to evade taxes. With China’s ascension to the WTO, more Chinese goods flood the commercial center of Manila. There is no way Filipino products can compete with Chinese products because of price. Chinese manufacturers can easily engage in mass production and effectively bring down the production cost per unit of products. It is a common sight in the streets of Divisoria to have toys, decors, fabrics, shoes, accessories, household appliances and gadgets, kitchenware, candies, and many other products from China. Over 40% of items sold in malls in Manila are made in China. This can be very dangerous for the Philippine economy because it is killing many Filipino industries. The Filipino furniture industry, for example, is down because Chinese manufacturers produce good furniture designs which are 30% - 50% cheaper. There is also the concern for intellectual property rights protection.

(b)  Many schools in China and the Philippines are beginning to collaborate on student-faculty exchanges, research, conferences and networking. This is due to the fact that Chinese schools want to benefit from the English language competency advantage of Philippine schools. Meanwhile, Philippine schools want to understand better the Chinese culture to be able to penetrate some of its industries as there are not enough jobs and opportunities in the Philippines. Over 40,000 Chinese students are enrolled in Philippine schools pursuing degrees in business, medical and engineering courses. However, it is extremely difficult for a foreign entity to put up a school in China.

(c)  Political tension slows down economic activities between the two countries. The political instability of the Philippine government, the relationship of mainland China with Taiwan and the dispute over Spratlys Islands affect the way businessmen behave.

(d)  Tremendous growth in tourism. Between China and the Philippines, tourism activities create mutual synergy. This year, almost 200,000 Chinese visited the Philippines and in some cases, for business purposes. The proximity of these two countries enable travel to short and easy.

(e)  Security is still a major concern of the Chinese in the Philippines. The infamous kidnapping industry continues to target wealthy Chinese businessmen in the Philippines. The suspicion by the international community that the Philippines is a training ground from Muslim extremists sends a chilling message to the Filipino-Chinese community. Repeated calls for ceasefire and dialogues have ended and that makes the entire nation even more vulnerable.

What can be done?

(a)  Both countries should simply abide by the rules and principles of WTO.

(b)  Collaboration of schools can result in mutual exchange of professionals if the educational standards of both countries are aligned. Memoranda of agreements between institutions and between the two governments can promote a free flow of services.

(c)  Travel visas of citizens of both China and the Philippines can be made less stringent. This provides impetus in promoting tourism and commerce.

(d)  Put in place a serious open skies policy between Philippines and China to increase accessibility of tourists, businessmen and students. By increasing flights between the two countries, commercial activities are essentially increased, too.

(e)  Deregulation of school operation in China and the Philippines. By allowing the true forces of the market to dictate on the competition, quality of education in both countries can be raised further.

(f)  The entrepreneurial mindset, values and skills of Filipino-Chinese be made a model for business schools in the Philippines so more Filipinos can be more self-reliant and not be dependent on government.

In the final analysis, we have seen how two Asian cultures can bring about prosperity and dynamism in a country’s economy. In order to exploit to the fullest the benefits of learning from each other’s culture, government and private sector institutions can create ways to forge greater cooperation. Mandarin and Confucian studies are taught in some Philippine schools. On the other hand, English (a major language in the Philippines) and Philippine culture can be taught optionally in Chinese schools.

Both governments also have to straighten up their political agenda and the way they run their governments in order to provide a more peaceful and orderly atmosphere. A crackdown on insurgents will only partly solve the security problem. First and foremost, insurgents go to the mountains because of extreme poverty. They abandon everything else and embrace any ideology that will improve their survival chances. This is where the government and the Filipino-Chinese can be of use – teach every Filipino how to be self-reliant by being a micro-entrepreneur. If the country is more peaceful, trading activities will flourish. On the other hand, international disputes between the Philippines and China have to be resolved at once so as not to impact adversely on the economy.

The history of the relationship of the Philippines and China dates back to pre-colonial times. We hope to see more exciting prospects in the years to come. So, let’s hope that the two countries continue to explore possibilities in business and that will ensure a good future for the next generation of Chinese and Filipinos. Hence, the relationship between Zhejiang Gongshang University and Far Eastern University is a perfect example of how we can both train the next generation of Asian entrepreneurs. Mabuhay! (Long live!)