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Salceda tells government to keep guards up as China experiences growth slowdown, sees massive real estate insolvencies; House tax chief says opening the economy to investments, contingency plan crucial to insulating PH from spillover effects

October 18th, 2021

House Ways and Means Chair Joey Sarte Salceda (Albay, 2nd district) says that the country’s economic managers should keep their guards up as China’s Q3 growth slowed down to a disappointing 4.9% amid the debt payments crisis surrounding the country’s largest property developer Evergrande.

“There are signs that the situation with Evergrande is systemic. New construction in September slowed down for a sixth straight month in China, that country’s longest period of monthly declines since 2015. There is also another real estate company that defaulted on its debts,” Salceda said.

Salceda was referring to a liquidity crisis at China Evergrande Group, which has more than $300 billion in liabilities. The development has rocked global markets.

“Evergrande is not the only company in trouble. The South China-based luxury real estate developer Fantasia Holdings also said it failed to make a $206 million U.S. dollar bond payment two weeks ago. This is even when the company reported revenue of about $1.7 billion for the first six months of 2021, an 18.5% increase from a year earlier, and net profit of $23.7 million,” Salceda added.

“So, although the Chinese economic authorities are trying to allay market fears, I would be on high alert, especially since many of our big conglomerates have exposure in the Chinese real estate market,” Salceda said.

‘Prepare contingencies and open the economy’

Salceda said that the country’s experience with global systemic risks is that the ‘earlier it prepares, the better it performs.’

“That’s what we did during the Global Financial Crisis. In January 2008, back when people were still debating whether there was a real recession, we already prepared a package of agriculture projects, front-loaded infrastructure, cash-for-work, and other programs to stimulate the Philippine economy and insulate it from any spillover effects from the West,” Salceda said.

Salceda was an economic adviser to President Arroyo, who was in office during the time, and whom Salceda said instructed her advisers to prepare a package for the country as soon as she returned from the World Economic Forum in Davos in January 2008.

“The President sensed from her meetings with world leaders that time that the world was headed for trouble. So, we crafted contingencies early.”

“China is closer to home, so I would be a bit more proactive than when we were in 2007 to 2008,” Salceda added.

“I don’t think we are headed for disaster, but it’s best to prepare. A low-hanging package should include fast-tracking infrastructure next year, increasing food production, a proactive rollback of policy rate reductions early next year so we can adjust them downward again should we encounter the threat of a slowdown later next year, and continued spending on programs like TUPAD, which we pioneered in 2008,” Salceda said.

“I also hope the Financial Stability Coordination Council assess the risk soon and assures us that there is nothing much to worry about. I think we will be okay, especially with contingencies in place,” Salceda added.

“We are starting from a low base so we should grow quickly next year. Waning confidence in Chinese growth could also be an opportunity in disguise for us, especially if we welcome more investments from companies seeking to diversify supply chains. CREATE is the greatest tool in this regard, but we also need to enact the amendments to the Retail Trade Liberalization Act, the Public Service Act, and the Foreign Investments Act this year,” Salceda said.

“If some sort of capital flight happens in China, it will all have to go somewhere. If our economy is not open enough, it will be like catching rainwater with a thimble. Let’s open some of our archaic restrictions, so that when it rains, we have something bigger to catch water with,” Salceda added. #

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