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Manila suspends telecoms deal with China

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 yesterday.

Philippine President Gloria Arroyo at the weekend ordered the suspension of a US$330 million national broadband project with China's state-run ZTE Corp (中興通訊) 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 [and] overdesigned," he said, adding he felt Manila's ties with China were strong enough to withstand the controversy.

ZTE, China's second-largest telecoms equipment maker, has said it was "utterly disappointed" with the decision to suspend the contract.

Arroyo said yesterday she had asked the Department of Communications to seek help from the country's three major telephone companies for an alternative to the suspended project.

She blamed political concerns for her decision to suspend the telecommunications deal.

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 that "good governance and transparency" were essential to attracting foreign investment.

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.

At the center of the scandal is the country's election commissioner, Benjamin Abalos, who acted as a go-between for the Philippines and ZTE officials.

Abalos has admitted he was given "golf holidays" in China by ZTE but denied he was offered the services of prostitutes. However, it remains unclear why Abalos was involved in the deal in the first place.

Arroyo's husband, businessman and lawyer Jose Miguel Arroyo, has also been implicated. One of the unsuccessful bidders, Joey de Venecia, claimed he was offered US$10 million to pull out of the race.
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