China’s pursuit of lease agreements on several islands in the northern Philippines, including one situated near Taiwan, has set off new strategic alarm bells in Manila, marking a clash between private commercial and national security interests.

Chinese investors have expressed interest in taking over three key land features in Philippine waters, including the Fuga Island in the northern province of Cagayan and the adjacent Grande and Chiquita islands near Subic Bay, the ex-site of America’s largest overseas military bases during the Cold War.

The proposed mega-infrastructure projects, ostensibly aimed at transforming largely vacant islands into tourist hotspots, already faces opposition from the Philippine defense establishment.

The deals are being negotiated by Philippine and Chinese private sector interests.

Philippine Defense Secretary Delfin Lorenzana has said that the local business groups involved did not consult defense agencies, raising the prospect that the deals will be nixed in the name of national security. “I’ll have the intel make an assessment,” the defense chief told local media.

The pristine 10,000-hectare Fuga Island, perched among the Philippines’ second northernmost island groups, marks the intersection of the South China Sea and Pacific Ocean.

Photo: Facebook

In recent years, Cagayan province has attracted close to US$4 billion of Chinese investment, including the establishment of industrial parks, industrial farmlands and medical schools under the supervision of the Cagayan Economic Zone Authority (CEZA).

The Xiamen-based Fong Zhi Enterprise Corp has proposed to build a $2 billion “smart city” on Fuga Island, in cooperation with the Philippine-based Isla Fuga Pacific Resorts.

Formerly owned by Chinese-Filipino businessman Tan Yu, the island is now reportedly ran by local businessman Roger Serafica, the majority owner of Fuga Island Holdings Inc, which is an affiliate of the Isla Fuga Pacific Resorts group.

Part of the municipality of Aparri in Cagayan province, Fuga is situated close to Taiwan, which China views as a renegade province. Chinese President Xi Jinping has vowed to “reunite” the island nation with the mainland by military means by 2020.

Amid rising cross-straits tensions, Philippine security experts suspect that China may use investment deals facilitated through state-backed companies to surround or even facilitate military action against Taiwan in the near future.

Navy spokesperson Captain Jonathan Zata recently described the northern Philippine islands including Fuga as “strategic features”, since “[they] can potentially control access to [the] Luzon Strait,” a waterway that connects the Western Pacific and South China Sea.

“It is one of the rationales for establishing a presence on Mavulis Island at the border with Taiwan,” the spokesperson said, referring to the deployment of a new naval detachment to a northern Philippine island earlier this year.

Chinese President inspects a joint military exercise in the South China Sea in April 2018. Photo: Xinhua

The Philippine Navy views the island as strategically “unique” due to its private airfield and proximity to undersea fiber optic cables, which connect the Philippines to mainland Asia.

Meanwhile, Chinese companies have also set their sights on the country’s northwestern waters. GFTG Property Holdings and Sanya CEDF Sino-

Philippine Investment Corp recently signed a $298 million project which aims to develop the adjacent Grande and Chiquita islands under the supervision of the Subic Bay Metropolitan Authority.

The two islands were strategically used by Spain and the United States during their respective colonial periods over the island nation.

Grande Island is perched at the mouth of the Subic Bay, lying a mere 260 kilometers from the contested Panatag Shoal, which China seized from the Philippines following a months-long naval standoff in 2012.

Security concerns about the potential for Chinese private investments to have dual strategic purposes are rising as US-China competition for influence reaches fever pitch in the region.

Washington has already raised concerns over Chinese companies’ involvement in the $3.8 Dara Sakor property project in Cambodia.

Plans for the establishment of a deep-water port and a three kilometer-long runway have raised suspicions that the nominal tourism project may have dual purposes, potentially paving the way for China’s first naval facility situated Southeast Asia.

The Philippine defense establishment, which maintains close ties with the US Pentagon, has remained broadly skeptical of Chinese investments in strategic infrastructure promoted broadly by President Rodrigo Duterte’s administration.

Philippine Defense Secretary Delfin Lorenzana (C) tries a CQ-A5b (M4) rifle donated by the Chinese government during the ceremony at the military headquarters in Manila on October 5, 2017.Photo: AFP/Ted Aljibe
Philippine Defense Secretary Delfin Lorenzana (C) tries a CQ-A5b (M4) rifle donated by the Chinese government during the ceremony at the military headquarters in Manila on October 5, 2017.
Photo: AFP/Ted Aljibe

Earlier this year, Lorenzana vetoed plans by two Chinese shipping companies to purchase the financially distressed Hanjin shipping yard in Subic, a major port adjacent to the South China Sea, for national security reasons.

The facility is now expected to be jointly developed by a consortium of private companies, including from the US and Australia, with the Philippine Navy likely gaining access to some portion of the large facility.

A Philippine defense official who spoke on condition of anonymity to local media warned that China’s presence on the Fuga islands could turn the Philippines into “an accessory to China’s attempt to take over Taiwan.”

“The current threat to Taiwan is currently from the west. If China establishes its footprint in Fuga, the threat would also be from the south,” the spokesman added.

Prominent Filipino maritime law expert Jay Batongbacal criticized the government for “only focus[ing] on bringing money in, not the wider and longer term effects of the projects it approves.”

Protesters holds placards with portraits of China’s President Xi Jinping during a rally in front of the Chinese consulate in Manila to coincide with his visit, November 21, 2018. Photo Ted Aljibe/AFP

“Investments should be promoted based on a comprehensive review not only of economic cost-benefit analysis, but also in terms of direct and indirect non-economic impact. The latter should include possible implications to national security,” he added.

Those concerns are rising across various Philippine agencies. Last week, Philippine National Security Advisor Hermogenes Esperon expressed his concerns over a recent sharp rise in Chinese tourists, many of whom allegedly stay in the country to work.

Manila is now considering to revoke visa upon arrival privileges for Chinese citizens to curb the influx. It may next, goaded by Philippine defense officials, veto the China’s ambitious property projects in Fuga and Subic, too.