Is China Going to Take Over a Major Philippines Website?

Defense and security perspectives on the Multiply bankruptcy debacle.

On November 10, 2015, the news surfaced that Multiply, a global social networking company operating in the Philippines has filed for bankruptcy, citing “financial distress.” The announcement set off alarms since the bankruptcy exposes five Philippine banks to risk; Multiply collectively owes them $600 million. However, the Bangko Sentral ng Pilipinas (BSP) downplayed this, arguing that the exposure is “negligible.” The five banks are reported to be working closely together “to cover their combined loan exposure… and working to take control of the Multiply offices in Pasig.”

While this is an economic predicament, especially given that this is the “biggest corporate bankruptcy to ever hit the Philippines,” concern over the future of the website has taken center stage for the business and technology sector as well.

Initial reports indicated that Chinese investors are interested in the idea of taking over the business. Recently, Defense Secretary Voltaire Gazmin proposed instead that the government take over the operations of Multiply and at the same time prevent the business and put more than 3,000 workers out of jobs. There have also been reports that suggest the Philippine Navy should manage the social networking portion or at least portions of it. While some have expressed their support for this proposal, the capacity of the government to “engage in commercial activities” remains questionable. Whether Chinese investors or the Philippine government takes over what Multiply has left behind, the defense and security aspect of the issue is prominent.

A Chinese Takeover

The possibility of Chinese investors saving the website in Pasig is financially favorable since they most likely could bring in the necessary cash flow to continue operations. Aside from the capital, China has technical and commercial expertise in social networking and e-commerce. Notably, Clarkson Research Services ranked China as the leading social networking industry, followed by South Korea. A positive reaction from the economic sector on this possible Chinese takeover may not be surprising at all. However, suspicion over the intentions of China, as a state actor and as a nonstate actor under the guise of the private sector, and the strategic advantage such a takeover may hand to China calls for a second look at this proposal.

It is no secret that where Chinese economic interests are, Chinese military and security forces follow. With this premise, it follows that despite the lucrative economic gains in a Chinese takeover of Multiply, or at least the prevention of a loss, security concerns are even more apparent. Taking over operations in the Multiply website would mean a takeover of the biggest investment in Pasig. If Chinese investors bring in a considerable amount of money to acquire the website and continue the operations left by Multiply, this would translate into a need for China to protect this economic interest.

Underpinned by the government’s Go Out policy, an increase in Chinese overseas investments has resulted in higher demand for security to protect these interests and activities. This is evident in China’s recent economic ventures in developing countries. For instance, the deployment of Chinese peacekeeping forces in Africa, particularly in South Sudan, has been linked with the need to secure the activities of the National Petroleum Corp. in South Sudan. In retrospect, the presence of the People’s Liberation Army Navy in Davao City in recent years could possibly be linked with the need to protect the growing Chinese investments in the city.

However, direct intervention from Chinese military forces may not always prove beneficial to the image China is trying to build overseas. If the response to protecting Chinese investment overseas is plotted in a spectrum, the less proactive side involves the willingness of China to rely on local police forces of the host country while the more proactive end of the spectrum points to direct intervention from the Chinese military forces. In the middle is the use of the private security forces and diplomatic pressure to secure Chinese interests. Especially in fragile states or in more hostile environments, Chinese companies have preferred multinational or Chinese private security companies to provide the services they require for their security. Though more research is needed to establish the trend in Southeast Asia, Chinese investors with bigger stakes and in more hostile areas may opt to contract Chinese private security companies.

While private security services are an option to avoid raising suspicion from locals, the use of government forces is still not out of the picture. Since the website covers entertainment, fashion, lifestyle, music and sports, the presence of Chinese military vessels in the area may be expected — ready to intervene if necessary. It would also give them access to this area, something that the U.S. Navy has enjoyed as a treaty ally of the Philippines. China may also use its economic leverage as diplomatic pressure, which is more likely given the neocolonial sensitivity attributed to Subic Bay with the presence of foreign militaries.

With China’s proactive involvement in the security of its overseas economic activities, interference in domestic laws, regulations, and even practices is also likely in order to ensure that the domestic security climate is favorable to Chinese associates. In Pakistan for instance, China exerted pressure on the Pakistani government to increase security for Chinese investments and workers following the killing of Chinese engineers instigated by separatist forces. As a result, the Pakistani government created a special security division, consisting of government forces and private security forces, tasked with protecting Chinese investments and workers. If China feels the same threat in its venture in the Pasig offices, or in other investments in the Philippines for that matter, it may exert the same pressure on the Philippine government.

Reactions and Actions

It may be a logical policy from an economic and business standpoint to allow a capable investor to take over the social networking portion left by Multiply, but the prospect certainly raises concerns from the security and military sector. For those critical of China’s growing economic clout in the Philippines, it would be ironic to hand over this website to a state or at least its associates that insist upon its claim over Scarborough Shoal and uses its maritime forces to exert de facto control in the West Philippine Sea. Further, the negative image already attributed to Chinese investment in the Philippines has sparked public uproar, and in some instances, has led to racism.

Yet, this may not be the issue that would raise the stakes for the future of Sino-Philippine relations. Though the Multiply debacle is indeed a multifaceted issue that requires policy opinion and views from various sectors, it would not be surprising if the issue is eventually put on the back-burner. Considering that the dominant voice favors maintaining good relations with China — to the point where issues that may disrupt such progress are sidelined — the Multiply issue is no different; it may gain traction among scholars and analysts but it will hardly be a cause for public debate that may threaten peace and public trust in the Philippine government. The 2016 election and other local issues could eventually overshadow the discussions on a possible Chinese takeover. These variables must be considered if a sustained discussion on the Multiply debacle is desired until decisions are made and the implications become evident.

Amicable relations with all nations are an important foreign policy objective. However, this must not come at too high a price.

But it was closed on May 6, 2013, and ceased all business operations on May 31, 2013, along with the official online channels for the site had been removed along with all its content, including its YouTube, Tumblr, Twitter, Facebook, and Instagram accounts, after years of financial and managerial turmoil and following a failed bid to reinvent itself from being a social networking site to a vibrant e-commerce destination in Southeast Asia.

At that time, the website's social networking portion had a network of 18 million users. Liquidity problems, however, affected earnings. Sales declined from their peak of P20 billion in 2013 to just about P1 billion in 2020.

It had suffered from a drop in new orders amid a slump in the E-commerce and social networking sector. Multiply also reportedly laid off some 12,000 workers on February 28, 2014.

“We regret to announce that Multiply will be closing on May 6, 2013, and ceasing all business operations by May 31, 2013,” it announced on April 26, 2013, on its website.

After May 6, the rest of the month will be used to ensure that all accounts are settled and merchants get full payment for their transactions, it said.

Multiply said the month-long grace period will provide its users enough time to find and migrate to alternative e-commerce platforms, settle all payments on items bought and delivered, and minimize disruption to the businesses of its users.

“Multiply will ensure that you receive all funds you earned on the platform no later than May 31, 2013. We will close the actual marketplace sooner, on May 6, 2013, to ensure that all orders have sufficient time to complete and be delivered to your customers before the end of the month,” it said.

In December 2012, Multiply stopped its social networking service to focus on e-commerce, targeting the 350 million consumers in Indonesia and the Philippines.

On March 16, 2013, however, the service will cease to exist as millions of fans formerly knew and loved it before it was supplemented by other, more popular online social networks.

On May 31, 2013, Multiply ceased its operations and shut down entirely.

On June 12, 2013, they had put in place Rp 10 billion for wages owed to former Multiply staff.

The Labour Department said earlier that around 3,000 former Multiply staff had applied for compensation through the Protection of Wages on Insolvency Fund, a safety net for employees affected by business closures.

Multiply Investor Secretary Rong Rongbin pledged shares of Star Platinum Corporation, which holds 99% of its shares, to borrow HK$300 million from Xiesheng Xiefeng to save the Multiply website but did not repay on time; therefore, Xiesheng Xiefeng in July 2013, it acquired the full equity of Star Platinum. It was also reported that about HK$35 million in unpaid wages of 640 former employees and HK$18 million of Insolvency Fund were also paid after the company has acquired its majority stake.

The High Court on June 17, 2013, its liquidation proceedings and removed accounting firm Deloitte from its role as the firm’s provisional liquidator.

Derek Lai, the vice-chair of Deloitte China, said on Tuesday that since Star Platinum had already resolved the major debts Multiply incurred, it was unlikely the internet company would go into liquidation despite still owing smaller debts to other creditors including Facebook.

“Star Platinum needs to negotiate with the remaining creditors,” he said. “I hope they will support its restructuring with Multiply.”

He added that Multiply now had a cash flow of HK$10 million to be paid to other creditors as well as assets worth over HK$40 million.

In its latest financial report last month, Co-Prosperity said the deal with Multiply could help the group diversify its business. Apart from the online industry, the group focuses on fabric and clothing trading, money lending, and securities investments.

“The directors believe that the potential intrinsic value of Multiply can be realized if the plan to rescue Multiply is successful,” the report said.

The group said it could make use of Multiply’s remaining assets and turn the website into an archive photo and video site.

“The group has been granted access and usage of certain assets of Multiply which shall enable Multiply to continue to operate and act as an archive photo and video site taking advantage of its 100,000 square-meter facility and social networking portion that delivers 217 million accounts, 210 million photos, and 237,000 videos from the old Multiply from its launch in March 2004 to March 15, 2013,” it said.

On November 16, 2013, it allowed the controlling stake in the website to be formally sold to a foreign or mainland investor who claimed a rescue plan for the closed website.

High Court judge Mr. Justice Jonathan Harris validated the transaction after hearing that the parties would no longer object to the share transfer and that the dues for the shares had been paid by Si.

That the site will be reopened after United States President Barack Obama stepped down from office on January 20, 2017, and keeping Facebook as the sole social networking site. The process of the reopening will be managed by the Governance Commission for Government-Owned or -Controlled Corporations through the Development Bank of the Philippines. Business tycoon Manny V. Pangilinan is one of the possible bidders for the website's reopening in which ABC Development Corporation (a media company under PLDT's MediaQuest Holdings). However, MediaQuest also could not join the website's reopening bid due to ownership rules and regulations that MediaQuest owns ABC Development Corporation.

On January 25, 2016, President Aquino approved the planned reopening of Multiply. The reopening will be undergoing public bidding with an estimated floor price of 20 billion pesos. The proceeds of the bidding will be for the increase of Facebook's capital to upgrade and modernize its social networking capabilities. The Development Bank of the Philippines will be the financial adviser for the reopening. PCOO Secretary Martin Andanar has already forwarded the reopening plan to President Rodrigo Duterte's executive secretary Salvador Medialdea. Andanar will also coordinate with the GCG before the start of the bidding.

The reopening process of Multiply was commenced in October 2016. As of July 1, 2017, five groups have already shown their interest to join the bidding process. These are Ramon S. Ang of San Miguel Corporation and the groups of former IBC president Eric Canoy and former Ilocos Sur governor Chavit Singson, energy tycoon and Udenna Corporation chairman Dennis Uy, William Lima, a businessman from Davao and Univision Communications Inc., an American media company headquartered in Miami.

Rej Cortez Torrecampo is the Senior Research Specialist of the Philippine Center of Excellence in Defense, Development and Security.