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Philippines Telecom Sept 24

September 24, 2007
Suspended del could hit China ties
The Philippine government's decision to suspend a major telecoms deal with China has weighed on ties with the economic giant and could sour investor confidence, analysts and officials said Monday.

President Gloria Arroyo at the weekend ordered the suspension of a 330-million-US-dollar national broadband project with China's state-run ZTE Corp. amid allegations of corruption and government incompetence.

"It seems like there is a big crack in the wall between Chinese and Philippine relations due to the ZTE deal," said Astro del Castillo, a director of the Association of Securities Analysts of the Philippines.

"Our relations will somehow be affected considering this is supposedly a major and serious contract," he said.

Philippine senator Mar Roxas said in a statement that he recommended cancelling the deal altogether.

"It's not transparent, thus possibly overpriced, overdesigned," he said, adding he felt Manila's ties with China were strong enough to withstand the controversy.

Economist Bing Icamina from AYC Consultants said confidence might be affected, although he argued China still had surplus cash to invest.

"The concern now is dealing with the government on a contract basis, given this experience," he said. "Essentially, you have to be careful when dealing with government agencies."

Castillo said the government should punish those found guilty of corruption over the deal, adding "good governance and transparency" were essential to attracting foreign investment.

"If there is no level playing field, you will see an immediate loss of confidence," he said.

The broadband project was to have set up a national network for the exclusive use of the government and all its agencies.

But allegations of bribery and kickbacks amounting to millions of dollars were made during a Senate inquiry into the project last week.

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