Chinese companies are likely to be excluded from bidding to take over operations at the Philippines’ biggest shipyard.
The shipyard in question is located in the Subic Bay, which opens to the South China Sea, where Beijing has made broad territorial claims. Until 1992, Subic Bay was home to one of the largest U.S. deepwater naval bases in the region. During the Vietnam War, it served as a forward base for repair and replenishment for the U.S. 7th Fleet.
In January, the shipyard’s operator, the Philippine branch of South Korean firm Hanjin Heavy Industries and Construction, filed for bankruptcy protection after defaulting on $1.3 billion in loans. Since then, shipbuilders from Australia, China, Indonesia, Japan, South Korea, Turkey, and the United States have expressed interest in taking over the shipyard business at Subic Bay, according to the Philippine News Agency (PNA).
Two unnamed Chinese shipbuilders, one of them state-owned, expressed interest to Manila’s Department of Trade Industry (DTI), which is part of the country’s economic team that decides who will take over the shipyard. Soon after, local politicians and a former Philippines Navy chief expressed concerns that a Chinese takeover would threaten the country’s national security.
On April 24, Japanese media Nikkei reported that it had learned from unnamed sources in the Philippine government that DTI had adopted the position of Manila’s defense ministry, which is that a Chinese takeover could compromise national security.
“The issue of national security and sovereignty takes precedence over anything else,” an unnamed trade official told Nikkei.
DTI would not formally exclude Chinese companies from bidding for the shipyard, according to the Nikkei report, but an unnamed Philippine official said that “it will be difficult for them to get it.”
Philippines Defense Secretary Delfin Lorenzana said in January after Hanjin’s default that his office would monitor possible investors in the shipyard, according to PNA.
Enrique Razon, CEO and chairman of the Philippine port-handling giant International Container Terminal Services, along with a group of investors, has expressed interest in taking over the shipyard, according to an April 11 Nikkei report. The group has engaged five local lenders—local banks that are now partial owners of the shipyard after converting $412 million of Hanjin’s debt into equity—to come up with a rescue plan.
Several Philippine officials have made projections about why China would be interested in taking over the shipyard.
Sen. Antonio Fuentes Trillanes IV, stated that Beijing wants to use the shipyard to extend its influence in Southeast Asia, according to a January report by local news site RMN Networks.
Antonio Carpio, current chief justice of the Supreme Court of the Philippines, said Beijing intends to seize the country’s exclusive economic zone, a maritime zone economic activity, and gain control of the South China Sea, according to a January report by Radio Free Asia.
The relationship between China and the Philippines has been rocky at times due to territorial disputes in the South China Sea, as islands and reefs in the region are claimed not only by the two countries, but also by Brunei, Taiwan, Malaysia, Vietnam, and Indonesia.
In early April, Philippine President Rodrigo Duterte asked Beijing to “lay off” Thitu Island, a Philippine-occupied outpost in the South China Sea, after more than 200 Chinese fishing boats approached the island illegally, according to Reuters.
While the Subic Bay no longer houses a U.S. naval base, its port and nearby waters remain a site of regular U.S. naval visits and drills.
Most recently in early April, PNA reported that U.S. amphibious assault ship USS Wasp visited the Subic Bay as part of Exercise Balikatan, an annual military exercise held by the Philippines and the United States.
U.S. attack submarine USS Chicago has made at least two port calls at Subic Bay in recent years, according to the U.S. Embassy in the Philippines.
While it is not clear whether a Chinese takeover of the Subic Bay shipyard would result in security implications for U.S. naval activities in the region, such concerns have been raised in the case of the Israeli port of Haifa, which will soon be operated by China for 25 years beginning in 2021. The port is home to an Israeli naval base that regularly hosts joint U.S.-Israel navy drills and visits by U.S. vessels.