Economic reality: China, an indispensable partner

At stake is maintaining our bilateral trade with China that reached P2.43 trillion in 2023. 

The desire of top Philippine economists to achieve economic gains by managing the political strain with China would be difficult to navigate.

This observation is consistent with the current geophysical realities, as the ongoing political strain between China and the Philippines significantly complicates their substantial economic ties, making further gains difficult without careful management.

China is the Philippine largest trading partner, yet the territorial dispute in the South China Sea frequently impedes the relationship.

The primary source of tensions is the territorial conflict in the South China Sea (which the Philippines calls the West Philippine Sea).

Despite the political friction, the economic relationship is vital for both nations.

Top trading partner: China remains the Philippines’ largest trading partner, with bilateral trade reaching approximately P2.43 trillion in 2023. Trade volumes generally rebound even after political conflict.

The difficulty: Navigating cooperation amid the coercion.

As noted by an analyst, achieving economic gains while managing political strains is difficult. 

Philippine officials explicitly state they want to separate the economy from politics, but this is challenging in practice.

In short, the Philippines is pursuing a delicate balancing act, committed to diplomacy and dialogue while simultaneously pushing back against actions that infringe on its sovereignty, recognizing that sustained economic cooperation is difficult without respect and adherence to international law.

“Hot economics, cold politics” describes a situation where strong, thriving economic ties (trade, investment) persist despite tense, adversarial political relations, famously seen in China-Japan ties where trade booms while historical issues fuel political friction. 

This also applies to the China-Philippines relation amid the South China Sea dispute. It highlights a paradox where shared commercial interests drive cooperation, while nationalism, unresolved history (like WWII), and strategic rivalry create political distance, with business communities navigating the challenges.

Key characteristics

1. Political tension: Diplomatic relations are strained by historical grievances (e.g.,Japan’s colonial past), territorial disputes (e.g., South China Sea), or strategic competition.

2. Nationalism: Domestic nationalism and anti-foreign sentiment can flare up, impacting business but often subsides as economic benefits are realized.

3. Business resilience: Businesses often factor political instability in their plans, maintaining operations and investments despite political headwinds.

4. Economic interdependence: High levels of trade, investment, and business activity continue or even grow. 

Examples in practice:

1. China-Japan: A classic example where massive trade and investment coexist with strong anti-Japanese sentiment in China and historical disputes, creating a “cold politics, but hot economics” dynamic.

2. China-Philippines: Characterized by robust trade (China as top trade partner) despite ongoing territorial conflicts showing economic ties often outpace political resolution.

Underlying dynamic

Economic interdependence theoretically fosters peace, but in these cases, it creates a complex reality where countries gain so much economically, that they continue interacting despite political friction, using economics as a tool or buffer, says this analysis of Sino-Japanese relations and a South China Morning Post article on China-Philippines ties.

Governing guide

Ensure that national interests guide policy: Base foreign policy decisions on specific needs and interests of the domestic stakeholders, rather than allowing one area to entirely dictate the relationship.