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Duterte's Japan visit: Tokyo and Beijing eye Mindanao's trillion-dollar resource industry

'Manila welcomes Japan's interest in Mindanao'

China and Japan are competing to invest in $1 trillion worth of mineral resources in the Philippines, shedding light on one of the economic incentives behind President Rodrigo Duterte's headline-grabbing Asia pivot.

Both Asian heavyweights are interested on building out the southern province of Mindanao, Carlos Dominguez, finance secretary of the Philippines told CNBC's "Squawk Box" on Thursday.

As the Philippine's second-largest island, Mindanao is home to half of the country's mineral wealth, including copper, gold, iron, aluminum in addition to significant natural gas and oil deposits. The region's untapped resource wealth could be worth as much as $1 trillion, according to a 2011 leaked cable from the U.S. embassy in Manila released by Wikileaks.

Mindanao is also a famed biodiversity hot spot, teeming of valuable vegetation such as forests and rainforest soil, and a leading producer of bananas, papayas, and mangosteens, earning the nickname 'Fruit Basket of the Philippines.'

From food to minerals, "the entire gamut of resources are open to development," Dominguez said.

The investment opportunity comes as Duterte, currently on tour in Japan following a visit to China, embarks on a radical shift of Philippine foreign policy as he seeks deepened integration with North and Southeast Asia while distancing Manila from Washington.

The mining settlement of Barangay on Mount Diwata (known as Diwalwal), in Compostela Valley, Mindanao. The mountain contains the largest gold deposit in the Philippines, and perhaps one of the largest in the world. The total area it covers is 8100 hectares, but the richest deposits lie in an area of just 729 hectares.
Andrea Pistolesi | Getty Images

Dominguez compared his country's alignment to Asia to other regional alliances such as the European Union bloc, NAFTA and Mercosur. "Of course, there are political implications, but they will merely foster more cooperation and friendlier ties," he continued.

Outspoken Duterte has vowed to snap foreign policy with the U.S. and on Wednesday, declared his wish to eject American troops from his country within two years. Speculation is high that he may end the bilateral Enhanced Defense Cooperation Agreement (EDCO) but according to Dominguez, the President would stand by existing commitments, suggesting that the treaty will stay in place.

When asked who was more keen on tapping Mindanao's resource abundance, Dominguez said "the Chinese have expressed interest but they don't have too much activity."

"Our previous administration barely spoke to the Chinese government while we have been in close cooperation with the Japanese for over 60 years," he continued.

Indeed, Japan certainly appears to have a head start. In March, state aid agency Japan International Cooperation Agency (JICA) injected $9.42 million into the island's infrastructure development while a group of Japanese food companies said they were pumping $500 million to process aquacultured products in certain Philippine regions, including Davao.

China's presence on the island includes a power plant as well as various mining companies, but a number of deals are expected following Duterte's newfound alliance with Beijing. Both China and Japan, in addition to South Korea and Philippine firms, are pitching to build a railway system that would connect the entire Mindanao island.

What explains the Philippines' economic realignment?

"So far, Japan has been the largest ODA [official development assistance] provider to The Philippines, with a total of $5.7 billion. The Chinese have offered ODA assistance of $6 billion but that's just starting up...We're happy to getting support from both neighbors," Dominguez noted.

Foreign investment is welcomed into the island as it fits with Manila's goal to promote peace and lower income disparities, Dominguez explained, adding that all parties will exercise care to limit environmental damage.

Duterte's administration is already reviewing the permits of mining firms in the area to ensure green practices. At least 10 miners have been suspended and 20 more may be next, according to local news.

Outside of the resource sector, Tokyo and Beijing are also expected to dish out aid for counter-terrorism in Mindanao.

The island is plagued by violence, serving as headquarters for Muslim extremists groups linked to the Islamic State and Al-Qaeda. A bombing in the capital city of Davao, Duterte's hometown where he served as mayor, last month killed 14 people and is believed to be the work of Abu Sayyaf, an organisation that's been accused of maritime piracy incidents and murders of Western hostages.

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