The company operating the Subic Bay shipyard in the Philippines defaulted on debt repayments. Chinese companies are interested in taking it over, but there are other options.
By John Pennington
The Subic Bay shipyard is the largest in the Philippines. Its South Korean operators, Hanjin, were its biggest foreign investors and employers. That offered no protection against its local subsidiary, Hanjin Philippines, collapsing. Unable to pay debts of US$3.1 billion, they filed for rehabilitation.
What happens next? The Filipino government has a responsibility to help the thousands of people who are set to lose their jobs. It has already scheduled emergency meetings to address the issue. Labour groups want Hanjin to pay its ex-employees before its creditors.
The next challenge facing the government is securing investment to keep the shipyard up and running. The former US navy base occupies a strategic position in the South China Sea. Inevitably, two Chinese companies are already interested in taking it over, but does the Philippines have any other options?
Local businessmen and investors do not seem interested but foreign companies are
The shipyard has been open for investment since last year. Worth US$2.6 billion 12 months ago, its value now stands at US$1.6 billion.
One avenue for the government to explore would be to invite interest from major investors or companies inside the Philippines. However, leading Filipino businessmen have already decided against investing. Dennis Uy was in 2018 tipped to buy Hanjin Philippines but ultimately chose not to. He still has no interest in taking over.
The lack of interest from within the Philippines pointed towards the government being forced to seek foreign investment to revive the shipyard’s fortunes. The Department of Trade and Industry (DTI) claimed that as well as Chinese firms, companies from Japan, Indonesia and Singapore are interested. The Department of National Defence (DND) is monitoring those companies that have expressed an interest.
Chinese investors smell blood in the water
The Philippines has moved significantly closer to China in recent years. Under President Rodrigo Duterte, the country no longer challenges its advances in the South China Sea. In return, Beijing provides foreign investment and assistance with infrastructure development.
Duterte’s political opponents believe the president has already become too close to Beijing and allowing China access to Subic Bay – an area close to where they once engaged in disputes with the Philippines – would be unacceptable. They feel China would use it to further their own military goals in the region.
Among the most vocal critics is former Philippine navy chief Vice Principal Alexander Pama. “Although it is a commercial shipyard, nothing can prevent the owners from making it into a de-facto Naval base and a maritime facility for other security purposes,” he warned. “Let us all be aware and wary of the serious security and other strategic implications of this issue.”
However, those in power seem less concerned by this possibility. A presidential spokesman said that they would not have a problem if the yard falls into Chinese hands. They do not seem to feel it threatens the Philippines’ sovereignty.
Greg Poling, Asia Maritime Transparency Initiative director, takes the same view. He claims that China could not make Subic Bay into a naval base. The shipyard lacks the facilities, such as a port, it would need to do so. Poling does not see how building ships there would advance Chinese interests in the region.
Labour groups are urging the Philippines to rethink their approach to foreign investment
Labour groups are urging the government to not just sort out the Hanjin shipyard but to rethink their entire approach to foreign investment. They argue the government offers too many incentives to foreigners which prevent internal growth. How can a local company compete with foreign investors that don’t pay income tax and receive subsidised electricity?
Atty. Sonny Matula, chair of the Nagkaisa! Labour Coalition, wants the Philippines to stop relying on China when other options might suit them better. “We encourage the government to explore technical cooperation with other ship building countries that have no territorial ambitions in the region such as Norway,” he advised.
The Philippines already enjoys a good maritime relationship with Norway. Norwegian companies employ Filipinos on their ships. There are Norwegian maritime training schools in the Philippines and Norwegian ships are repaired in Filipino shipyards.
The government could take control of the shipyard itself
The Filipino government can keep the shipyard open by taking over it themselves and then allowing its navy – or local firms – to control it.
This move would satisfy labour groups and those that feel China already has too much influence in the area. It would keep Subic shipyard out of Beijing’s hands.
The reality is that the navy may not be ready to take complete control. The navy currently orders ships from abroad. Taking over the shipyard would enable it to build ships at home. However, it would take time for them to start operating. That would lead to the port not being used to its full capacity. Therefore, to keep the port full-operational, and save the jobs of the thousands of Filipinos in work, the navy would need to take on part-ownership of the port and make a deal with another investor.
The government will likely have to rely on foreign investment to maintain the port and save Filipino jobs. As Poling says, “It’s way too early to know who’s going to end up taking over Hanjin’s Subic shipyard.” Defence Secretary Delfin Lorenzana revealed that as well as considering taking over the shipyard themselves, the government may reach out to their allies in the West.
The government is widening its options to include inviting assistance from Australia, Japan, South Korea or the United States. As the situation develops, the likelihood of China taking control is receding.