His Excellency Chen Min’er, Secretary of the Chongqing Municipal Committee of the Communist Party of China (CPC) and member of the Politburo of the Communist Party of China; His Excellency Zhao Jianhua, Ambassador of the People’s Republic of China to the Republic of the Philippines; Honorable Guo Yezhou, Vice Minister of the International Department of the CPC Central Committee; Honorable Wu Cunrong, Executive Vice Mayor of the Chongqing Municipal People’s Government; Honorable Wang Fu, Secretary General of the CPC Chongqing Municipal Committee; Senator Aquilino Pimentel III, the leader of our [PDP-Laban] party, Secretary Alfonso Cusi, also the leader of the PDP-Laban party; Congressman [Weslie] Gatchalian, Congressman [Allan] Velasco, members of the Filipino business community, distinguished guests, ladies and gentlemen: good morning.
At the start, I would like to express my congratulations to the People’s Republic of China on its 70th founding anniversary. I also wish to express my admiration for the past and present leadership of the People’s Republic of China for virtually eliminating poverty among its people. No other country, at the size and scale of China, has ever achieved this in human history.
We are honored by the visit of such a large delegation of senior officials, businessmen and friends from Chongqing. This visit underscores the growing people-to-people relations as well as the improving prospects for mutually rewarding business partnerships.
The relationship between our two countries has never been warmer than it is today. It has never been as productive and as optimistic. In 2018, China was our biggest trading partner with a total trade of 52 billion US dollars, 15 percent higher than the 2017 level. Foreign direct investments from China to the Philippines reached 634 million US dollars in 2018, a dramatic 185 percent increase from the previous year. We look forward to even closer cooperation as we build the best possible future for our two peoples.
Much credit will have to be given to the foresight of both President Xi Jinping and President Rodrigo Duterte.
With President Xi’s astute leadership, China has moved forward with the single largest enterprise in human history: the Belt and Road initiative. This initiative, backed by China’s tremendous financial and technological prowess, involves a massive investment in the future, building the infrastructure that will bring the Asian economies closer together. The vision for a New Silk Road will enhance trade linkages, open seamless links for investment, and reshape the global economy for the new century.
The Philippines fully supports the Belt and Road initiative. We fully appreciate the vast economic potential this holds for all nations of the regions and beyond. Improved infrastructure will enhance trade among our economies. Enhanced trade will encourage more efficient investment flows. Improved connectivity will enhance the inclusiveness of our growth patterns. We have everything to gain from this.
Under the leadership of President Rodrigo Duterte, we have adopted a more forward-looking policy towards China. We understand the great synergy that will be generated by the closer partnership between our two countries. We look forward to more partnerships at ground level, at the level of individual enterprises, and shared wealth-creation. The opportunities that unite us are far greater than the issues where we might have some differences.
Our economies complement each other in many ways. The Philippines has what we call a “demographic sweet spot.” We have a large wave of young people entering the workforce. That wave is composed of Filipinos who are talented, cosmopolitan, well educated and ready to work. We have invested much in our human capital by initiating a universal health care program, improving our educational system, and multiplying opportunities for employment. I believe the Philippines is positioned to be an important “demographic partner” of China.
We, too, have a Belt and Road initiative at the national level. Our economic strategy centers on a massive infrastructure modernization program that will provide the logistics backbone for a dynamic economy. This infrastructure program — known as Build, Build, Build — will lower the costs of moving people and goods across our archipelago. It will bring once remote communities closer to the economic mainstream. It will create numerous investment opportunities that will unleash the latent strengths of our economy.
The Build, Build, Build program of President Duterte involves 75 highly strategic infrastructure projects as well as thousands of infrastructure and logistics improvements all over the country. These projects include construction of high-capacity commuter service railways, a subway for the highly congested Metro Manila area, flood control and management, highways, airports, and new cities. Complementary and just as important are thousands of road and bridge improvement projects in the provinces, as well as local school buildings and community health facilities all over the country.
We are relying on this program to induce internally generated growth that will enable us to expand despite a challenging global environment brought about by protectionist policies in the West.
These investments, no doubt, will involve large costs. We have prepared for that. The Build, Build, Build program is funded by an increase in taxation through the passage into law of key tax reform measures. The increase in revenue was mainly through sin taxes as well as the adjustment of fuel taxes to inflation, which have not been adjusted for over 20 years.
Apart from introducing a comprehensive tax reform program, we are continuing reforms in tax administration to ensure that revenues will support the outlays. To date, we have matched the average tax effort of the best economies in the region.
Last year, our investments in infrastructure breached 5 percent of GDP. This is the first time our government has spent this much on infrastructure modernization. This rate is double the Philippines’ annual average of infrastructure investments as a percentage of GDP for the past 50 years. We aim to increase it further to 7 percent of GDP by 2022.
Our forward-looking investments in infrastructure benefitted from strong support from both the multilateral finance institutions as well as our bilateral development partners. China has provided key support for the last few years with official development assistance, loans and grants to support the infrastructure modernization program. The projects include construction of dams, bridges, and railways.
We have also benefited from Panda bonds floated in the Chinese market that were well supported by Chinese investors and the Bank of China. We look forward to even closer partnership in the coming years.
Notwithstanding the massive investments in much-needed infrastructure, we have maintained our fiscal discipline. We have worked down our debt as a percentage of GDP to 41.9 percent in 2018 from a high of 74.4 percent in the previous decade. We now enjoy record levels of foreign currency reserves at almost 86 billion US dollars—the highest level in the Philippines’ history. These efforts have been rewarded with a credit rating upgrade this year, lifting us to BBB plus. This is again the highest rating we have ever achieved—and we’re just one notch away from the sterling A rating territory. The upgrade puts the Philippines above countries like Italy and Portugal. We aspire to achieve an A rating before the end of President Duterte’s term.
All of these provide us enough headroom to stimulate the economy by reducing both policy rates and bank reserve requirements. In the coming period, as the cost of money falls, we expect lending to increase. Our banking system has sufficient liquidity to meet the financing needs of new businesses.
Investments in infrastructure will only yield value to the economy if they spur new business activity. Private sector participation not only in our country’s Build, Build, Build program, but also in investments that would open up as a result of this should be highly considered by our Chinese investors.
Over the past few years, the Philippine government has introduced comprehensive reforms intending to improve the ease of doing business and reducing restrictive policies.
Last year, we passed the Ease of Doing Business Act that will address lingering investor concerns and make government an enabler of business activities. We also have ongoing efforts to implement our national ID system.
We have begun opening our economy further. For the past 30 years, we tried to open up the rice market in the Philippines. The Duterte administration finally succeeded in doing that. We expect the Rice Tariffication law to be the main driver in modernizing our farm systems and bringing down rural poverty. We are keen to tap agricultural technology from China to rev up our farm and fisheries sector.
We have also sought to improve the efficiency of our bureaucracy by applying digital solutions wherever possible. We are now digitalizing our government’s frontline services, tax administration and payment systems. Through policy improvements, we hope to eradicate bureaucratic inertia, waste and corruption.
The Philippines expects to hit upper middle-income country status by next year. The continued strength of our macroeconomic fundamentals and game-changing reforms enacted over the first three years of the Duterte administration have combined to boost our country’s competitiveness and elevate our status.
More importantly, we have brought down our unemployment to the lowest it has been in 40 years. This is reflected in the dramatic decline of poverty incidence. From 27.6 percent in the first half of 2015, our poverty rate declined to 21 percent in the first half of 2018. Our goal is to bring this down to only 14 percent by the end of President Duterte’s term.
We have confident people and a strong economy ready to do business. We are creating the environment for sustainable and inclusive economic growth. Clearly, there is a rich field for new businesses in the Philippines.
I encourage you to look closely and find the opportunities that might suit your business interests. We hope you will partner with us and help achieve the ultimate goal of freeing our people from underdevelopment.
I wish you a pleasant and profitable stay in this country.
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