Phl to benefit from China+1+1 scheme — PEZA

The Philippine Economic Zone Authority (PEZA) said the Philippines could take advantage of the China+1+1 business strategy, being the next preferred destination in ASEAN in light of the new Trump 2.0 trade policy imposing a 20 percent tariff on all imports from China.

PEZA chief Tereso Panga said the affirmation came particularly from Chinese and multinational corporation (MNC) investors who attended the Philippine-China investment meetings in Xiamen, Chongqing, Shenzhen, and Dongguan.

Panga explained that when the Trump 1.0 trade policy was implemented in 2017, it led to the "de-risking of the global supply chain" and "decoupling from China" strategies as the U.S. government's response to arrest its widening trade deficit, especially with China.

He also noted that with the higher tariff imposed on China-originated products, most export manufacturers in China have shifted production to Vietnam to avoid taxes while maintaining access to the U.S. market and benefiting from the China+ASEAN Free Trade Agreement.

Reports from think tanks indicated that the Philippines captured less than 10 percent of the existing manufacturers from China during the first wave of the U.S.-China trade war.

According to McKinsey (based on 2023 data), Indonesia and Vietnam led the manufacturing and trade flow shifts in ASEAN, as shown by metrics like foreign direct investment (FDI) and export volumes.

Under the current Trump 2.0 trade regime, the C+1 strategy has seemingly evolved into C+1+1 (or C + 2), with the Philippines now being regarded as the new "plus one" preferred destination in ASEAN for companies relocating from China.

Panga mentioned that some Chinese companies expressed this view during their roundtable meeting with the leaders of the China Chamber of International Commerce-Dongguan (CCOIC - Dongguan).

The Aoxing Group, an original equipment manufacturer (OEM) for projector equipment, projector screens, and audio-visual products for global brands like HP, Epson, and Skyworth, has chosen the Philippines for its redundant manufacturing facility intended for the U.S. export market. The Aoxing Group, along with its supply chain providers, will join the upcoming CCOIC-Dongguan delegation’s visit to the Philippines.

At the Philippine investment forum in Xiamen (50 participants), Chongqing (120 participants), and Dongguan (50 participants), several Chinese small and medium-sized enterprises (SMEs) from various manufacturing industries expressed interest in locating in the PEZA zones. Apart from exporting to the U.S., they also want to sell their finished products to the domestic market.

Panga added that some existing locators that participated in the forum or invited the Philippine delegation for a factory visit have announced their additional expansion plans for the year, including companies like TE Connectivity, Bocheng Rubbers, Panhua Steel, and HYS Metal Plastic.

The PEZA Board recently approved a P1.7 billion capital investment from TE Connectivity to manufacture electro-optical components and devices, which will generate over 2,000 direct jobs. TE Connectivity has also committed to expanding its IT-BPM operations in the Philippines.

Panga highlighted that, similar to TE Connectivity—an American-Irish company with 20 production facilities in China—several multinational corporations, particularly in electronics and the electric vehicle/automotive sectors, have already transferred part of their operations, including some of their contract manufacturers, to the Philippines.

PEZA continues to receive big-ticket investments from new investors and global industry leaders out of China, such as one of the largest producers of vitamins and dietary supplements, the largest producer of solar cells and panels with the highest efficiency rating, and one of the biggest manufacturers of TV monitors and projector screens.

Panga also mentioned other big prospects, such as Hithium, a global industry leader in energy storage solutions, and Penyao, a Shanghai-based company with more than 40 years of experience in advanced wastewater treatment. Both are looking for Filipino partners to deploy their cutting-edge technology in the Philippines.

With these recent developments, PEZA considers Chinese investors (including those from Taiwan and Hong Kong) among the best bets for attracting FDI this year and in the years to come.

The enactment of CREATE More, which provides the most generous fiscal incentives for investors across ASEAN, along with the Philippines’ large, skilled, English-proficient workforce and its status as one of the best-performing economies in the region, creates favorable conditions that make the country the new "plus one" destination for China-based manufacturers wanting to export to the U.S. and EU.