MANILA, Philippines - Corruption allegations that rocked the Arroyo presidency dealt serious blows to China's growing trade and economic influence in the Philippines, according to several US embassy cables released by WikiLeaks.
Cable 08MANILA998 titled "Limits of Chinese Soft Power in the Philippines" said China's "soft-power diplomacy" stumbled in the Philippines under a barrage of corruption allegations and scandal investigations that hounded the Arroyo administration.
"China's use of soft power in the Philippines has given it another bruising lesson in the role of a free press and political opposition in a democracy. The current problems are likely a temporary setback for China and the Philippines, as bilateral trade and policy ties continue to rise in concert with the growth in China's economy and influence," said the embassy cable dated April 28, 2008 sent by then US Ambassador Kristie Kenney.
It cited the botched $329-million ZTE-National Broadband Network deal that implicated a number of senior government officials, as well Arroyo's husband, Jose Miguel "Mike" Arroyo.
The embassy cable said Beijing "bungled" its response to the scandal, and allegedly resulted in the swift replacement of China's envoy to Manila.
"Non-Chinese contacts reported to us that the publicity given the ZTE scandal violated the Chinese diplomatic injunction to maintain a low profile. The resulting damage to China's image reportedly hastened the replacement of China's ambassador to the Philippines in September 2007," the memo revealed.
"The ZTE case is typical of the deals that China reportedly uses worldwide to make friends and buy influence," it said.
Another cable, 07MANILA3340 titled "Philippine-China Summit Dominated by Scandal," which was created October 5, 2007, said US embassy sources "report that the Chinese government views the frenzied media reporting linking a Chinese state-owned company with bribery of Philippine officials as a setback to Chinese efforts to expand its influence in the Philippines through low-interest loans."
"These allegations of corruption in the ZTE broadband project only add to cynicism concerning the [Philippine] Government's commitment to root out corruption and certainly have the potential to weaken the Arroyo administration," it said.
Arroyo, who had referred to China as a "big brother," also tried but failed to limit the damage caused by the ZTE scandal, according to the 08MANILA998 cable.
It said Malacañang's reply was to form a panel to review all Chinese government-funded projects in the Philippines, and place on hold the broadband project, a cyber education project, and 2 large agricultural projects involving Chinese companies.
"When Arroyo met Chinese President Hu Jintao in Shanghai October 2, 2007, she reportedly spent much of the meeting explaining her decision to cancel the ZTE contract and suspend other projects funded by China," the cable said.
Arroyo then reportedly urged China to increase its investments in the Philippine agriculture, fisheries, and infrastructure sectors, thanked it for providing loans for the North Luzon Railway project, and asked the PRC to conduct more joint exploration activities in the South China Sea to strengthen its partnership with ASEAN member states.
"However, despite the Arroyo administration's efforts to contain the damage, the spoken and whispered allegations of Chinese corruption expanded to cover virtually all major PRC-funded projects in the Philippines," the cable added.
Another embassy cable, 05MANILA1987 titled "Embracing the Dragon: The Philippines deepens economic engagement with China," had described the 2 countries' growing economic relationship.
Clark airport deal scuttled
The aftermath of the ZTE-NBN scandal also reportedly prompted the Chinese to pull out of a deal involving the Diosdado Macapagal International Airport at the Clark Special Economic Zone.
"In mid-2007, it looked as though China had the inside track on winning the contract for the expansion of the airport at the former Clark airbase. However, allegations of overpricing and kickbacks in China-financed and -built infrastructure projects arguably led China to withdraw its offer of concessionary financing for the project in order to avoid the controversy that might follow the contract," the cable said.
The broadband deal corruption scandal also prompted more intense scrutiny of Chinese-funded projects such as the Bauang pump irrigation project, the General Santos Fish Port Complex, the Northrail Project, and others, it said.
The cable said the controversy over the failed ZTE broadband deal even affected "the delicate status quo" in the disputed Spratly Islands.
"In the wake of the ZTE scandal, allegations emerged that the Arroyo administration allowed the seismic exploration deal in exchange for bribe-tainted loans," according to the embassy memo.
"Legislative and media critics of Arroyo have suggested that the administration is dragging its feet in meeting a 2009 UN Convention on the Law of the Sea deadline for defining the Philippine archipelago's baselines," it said.
The 3 memos were among the more than the 3,000 new cables that whistleblower group WikiLeaks released on the Internet last week.
They carried the advisory, "Sensitive but unclassified... protect accordingly."
Aquino's China state visit
They come at a time when Arroyo's successor, President Benigno Aquino III, is set to head to China in an official state visit starting Tuesday.
The state visit will strengthen "the over three decades of friendship and mutually beneficial relations between the Philippines and China," the Department of Foreign Affairs (DFA) said.
Aquino will hold his first summit meeting with his Chinese counterpart, Hu Jintao, "which is expected to raise the level of Philippines – China bilateral relations to its highest level," according to the DFA.
"A large Philippine business delegation will accompany the President to look into enhancing reciprocal investment, trade and tourism opportunities," it added.
Chinese Ambassador to the Philippines Liu Jianchao had told reporters in Manila that China's top leaders are eager to welcome Aquino and to receive him "with open arms."
Aquino will be attending three business forums with Chinese businessmen, a rare number for a single visit, according to him.
Aquino will be joined by at least 250 businessmen, according to Philippine and Chinese officials.