Globalization is entering a new phase. The organizing principle of supply chains is shifting from pure cost efficiency toward a more complex balance between efficiency, resilience, and geopolitical security. What is emerging is not a retreat from globalization, but a reconfiguration of it. In this context, the Philippines is reaching a strategic inflection point. The announcement of a 4,000-acre Economic Security Zone in Luzon, referred to as “Pax Silica”, signals a deliberate effort to reposition the country as a core point in next-generation supply chains.
This initiative must be understood within the broader systemic transition from efficiency-maximizing globalization to security-constrained interdependence. For decades, supply chains were concentrated in a few regions, particularly China, due to cost advantages and economies of scale. However, disruptions such as the COVID-19 pandemic and rising geopolitical tensions have exposed the risks of overconcentration. As a result, firms and governments are pursuing diversification strategies like “friend-shoring” and “ally-shoring” to improve resilience and reduce dependency on single-country suppliers.
Within this emerging architecture, the Philippines is positioning itself not merely as an alternative manufacturing location, but as a member of a strategic partnership in supply chains. Unlike traditional export processing zones, designed to fragment production and exploit labor cost differentials, the Luzon Economic Security Zone is conceived as an integrated, security-oriented industrial platform. Instead of operating at the margins of global value chains, it aims to position itself within their most critical segments.
A key feature of this shift is the emphasis on both efficiency and security. Historically, these goals were often in tension, with firms prioritizing cost minimization. Today, security considerations are becoming central to industrial strategy. In doing so, the Philippines is aligning itself with partners that place equal importance on reliability and efficiency.
Comparative Advantage, Reimagined
The country’s potential in this role is supported by several concrete structural advantages. First, the Philippines is one of the most mineral‑rich economies in the world and already a major player in global nickel supply, holding an estimated 4.8 million metric tons of nickel reserves and ranking sixth globally by reserve size. It is also the world’s largest exporter of nickel ore and the second‑largest nickel producer, with output hitting about 387,000 metric tons in 2023, which accounts for a significant share of the global seaborne nickel market. As global demand for nickel, cobalt, and copper rises with the clean‑energy transition, driven by EVs, grid‑scale batteries, and wind and solar installations, control over stable, diversified supply chains for these minerals is becoming a core element of economic and technological security.
Second, the Philippines benefits from a large, young, and English‑proficient workforce that directly enhances its competitiveness in technology‑intensive industries. The country’s median age is in the mid‑20s, meaning a substantial share of the labor force is of prime working age and adaptable to digital and technical roles. English is widely used in education and business, which lowers communication barriers for foreign investors and firms seeking to integrate Filipino workers into global R&D, engineering, and IT‑enabled service networks. This service‑oriented experience, combined with a growing base of technical talent, provides a realistic foundation for the Philippines to move up the value chain from labor‑intensive assembly toward higher‑value design, testing, and specialized manufacturing roles.
Third, geography enhances the Philippines’ strategic position. Located in Southeast Asia along major maritime trade routes, it provides access to key markets such as China, Japan, and South Korea. As supply chains become more distributed, this positioning supports diversification and logistical flexibility.
Geopolitics Becomes Industrial Policy
Equally important is the Philippines’ political alignment with the United States and its network of allies. In an era where economic relationships are increasingly shaped by geopolitical considerations, this alignment strengthens its attractiveness as a supply chain partner. In an era where economic relationships are increasingly shaped by geopolitical risks, this alignment enhances the country’s credibility as a secure and predictable supply‑chain partner. U.S. firms and allies tend to favor “ally‑shoring” hubs, locations where countries share similar regulatory standards, rule‑of‑law traditions, security commitments, and strategic interests, because these factors reduce the risk of forced technology transfers, abrupt policy shifts, or military coercion.
However, advancing into the “supply chain core” requires more than strategic intent; it depends critically on execution capacity. The Philippines must address infrastructure gaps, improve regulatory efficiency, and sustain investment in education and innovation. Without these improvements, large-scale initiatives may struggle to deliver expected outcomes.
Figure 1. Digital Infrastructure Gap in Southeast Asia
This initiative must be understood within the broader systemic transition from efficiency-maximizing globalization to security-constrained interdependence. For decades, supply chains were concentrated in a few regions, particularly China, due to cost advantages and economies of scale. However, disruptions such as the COVID-19 pandemic and rising geopolitical tensions have exposed the risks of overconcentration. As a result, firms and governments are pursuing diversification strategies like “friend-shoring” and “ally-shoring” to improve resilience and reduce dependency on single-country suppliers.
Within this emerging architecture, the Philippines is positioning itself not merely as an alternative manufacturing location, but as a member of a strategic partnership in supply chains. Unlike traditional export processing zones, designed to fragment production and exploit labor cost differentials, the Luzon Economic Security Zone is conceived as an integrated, security-oriented industrial platform. Instead of operating at the margins of global value chains, it aims to position itself within their most critical segments.
A key feature of this shift is the emphasis on both efficiency and security. Historically, these goals were often in tension, with firms prioritizing cost minimization. Today, security considerations are becoming central to industrial strategy. In doing so, the Philippines is aligning itself with partners that place equal importance on reliability and efficiency.
Comparative Advantage, Reimagined
The country’s potential in this role is supported by several concrete structural advantages. First, the Philippines is one of the most mineral‑rich economies in the world and already a major player in global nickel supply, holding an estimated 4.8 million metric tons of nickel reserves and ranking sixth globally by reserve size. It is also the world’s largest exporter of nickel ore and the second‑largest nickel producer, with output hitting about 387,000 metric tons in 2023, which accounts for a significant share of the global seaborne nickel market. As global demand for nickel, cobalt, and copper rises with the clean‑energy transition, driven by EVs, grid‑scale batteries, and wind and solar installations, control over stable, diversified supply chains for these minerals is becoming a core element of economic and technological security.
Second, the Philippines benefits from a large, young, and English‑proficient workforce that directly enhances its competitiveness in technology‑intensive industries. The country’s median age is in the mid‑20s, meaning a substantial share of the labor force is of prime working age and adaptable to digital and technical roles. English is widely used in education and business, which lowers communication barriers for foreign investors and firms seeking to integrate Filipino workers into global R&D, engineering, and IT‑enabled service networks. This service‑oriented experience, combined with a growing base of technical talent, provides a realistic foundation for the Philippines to move up the value chain from labor‑intensive assembly toward higher‑value design, testing, and specialized manufacturing roles.
Third, geography enhances the Philippines’ strategic position. Located in Southeast Asia along major maritime trade routes, it provides access to key markets such as China, Japan, and South Korea. As supply chains become more distributed, this positioning supports diversification and logistical flexibility.
Geopolitics Becomes Industrial Policy
Equally important is the Philippines’ political alignment with the United States and its network of allies. In an era where economic relationships are increasingly shaped by geopolitical considerations, this alignment strengthens its attractiveness as a supply chain partner. In an era where economic relationships are increasingly shaped by geopolitical risks, this alignment enhances the country’s credibility as a secure and predictable supply‑chain partner. U.S. firms and allies tend to favor “ally‑shoring” hubs, locations where countries share similar regulatory standards, rule‑of‑law traditions, security commitments, and strategic interests, because these factors reduce the risk of forced technology transfers, abrupt policy shifts, or military coercion.
However, advancing into the “supply chain core” requires more than strategic intent; it depends critically on execution capacity. The Philippines must address infrastructure gaps, improve regulatory efficiency, and sustain investment in education and innovation. Without these improvements, large-scale initiatives may struggle to deliver expected outcomes.
Figure 1. Digital Infrastructure Gap in Southeast Asia
Source: World Bank
At the same time, regional competition is intensifying. Countries such as Vietnam and Indonesia are also strengthening their positions in global supply chains by attracting foreign investment and expanding industrial capacity. To compete effectively, the Philippines must differentiate itself through reliability, transparency, and strong institutional frameworks. Despite these challenges, the Luzon Economic Security Zone (ESZ) represents a clear signal of intent: a 1,619‑hectare (roughly 4,000‑acre) industrial platform within the Luzon Economic Corridor, designed in partnership with the United States to anchor allied manufacturing and critical‑input production such as advanced electronics and components for global supply chains.
With the right execution, its structural advantages could position it as a key ally-shoring hub in a more secure and resilient global supply chain system. However, strategic positioning alone does not determine outcomes. The transition depends on whether this geopolitical alignment can be translated into industrial depth and production capability. It is at this level that the Luzon Economic Security Zone must be evaluated.
The Luzon Economic Security Zone is claimed to be the first arrangement of its kind in the world, reflecting a shift from cost-optimized globalization toward geopolitically coordinated industrial policies. In the middle of that transition, the Philippines is being included as part of the Pax Silica, a trusted industrial network spanning semiconductors, electronics, and critical minerals. Despite this, translating this diplomatic preference into industrial capability at full speed remains difficult to assess
The selected sectors for the zone (semiconductors, electronics, critical minerals) would bring a vertically integrated system for industrial production. On the upstream, critical minerals are increasingly securitized due to their important role in semiconductors, batteries, and advanced manufacturing. The Philippines is described as holding roughly 5 percent of the global semiconductor and electronics packaging value chain. For electronics, more than half of the Philippines' total exports are electronic products, generating USD 45.89 billion in exports in 2025. For semiconductors, the Philippines also had a strong base for their production. The OECD ranks the country as the world’s ninth-largest chip exporter in the world. Semiconductors accounted for roughly USD 31 billion in the electronic products exports in 2021. This means that the zone would start from a real installed production foundation in assembly, testing, packaging, and manufacturing rather than from the ground up. Therefore, Pax Silica would be able to tap into the mineral endowment, back-end manufacturing, and strong demand all in one geography.
The Value Chain Problem: Stuck Between Upstream and Assembly
Despite having strong upstream resources and proven downstream assembly, the Philippines has remained weaker in the middle of the chain, where material processing and component manufacturing would determine how much value can be retained domestically. The Philippines, in practice, supplies strategic inputs and exports electronics at an international scale but still depends heavily on imported intermediate goods and external capital for advanced stages of production. In 2025, electronic products and raw materials also accounted for roughly half of the Philippines’ total imports. This clearly shows that the country lacks a stronger position in the middle segment of the value chain, where value capture and bargaining power are usually concentrated.
Figure 2. Philippine Trade Structure (2025)
At the same time, regional competition is intensifying. Countries such as Vietnam and Indonesia are also strengthening their positions in global supply chains by attracting foreign investment and expanding industrial capacity. To compete effectively, the Philippines must differentiate itself through reliability, transparency, and strong institutional frameworks. Despite these challenges, the Luzon Economic Security Zone (ESZ) represents a clear signal of intent: a 1,619‑hectare (roughly 4,000‑acre) industrial platform within the Luzon Economic Corridor, designed in partnership with the United States to anchor allied manufacturing and critical‑input production such as advanced electronics and components for global supply chains.
With the right execution, its structural advantages could position it as a key ally-shoring hub in a more secure and resilient global supply chain system. However, strategic positioning alone does not determine outcomes. The transition depends on whether this geopolitical alignment can be translated into industrial depth and production capability. It is at this level that the Luzon Economic Security Zone must be evaluated.
The Luzon Economic Security Zone is claimed to be the first arrangement of its kind in the world, reflecting a shift from cost-optimized globalization toward geopolitically coordinated industrial policies. In the middle of that transition, the Philippines is being included as part of the Pax Silica, a trusted industrial network spanning semiconductors, electronics, and critical minerals. Despite this, translating this diplomatic preference into industrial capability at full speed remains difficult to assess
The selected sectors for the zone (semiconductors, electronics, critical minerals) would bring a vertically integrated system for industrial production. On the upstream, critical minerals are increasingly securitized due to their important role in semiconductors, batteries, and advanced manufacturing. The Philippines is described as holding roughly 5 percent of the global semiconductor and electronics packaging value chain. For electronics, more than half of the Philippines' total exports are electronic products, generating USD 45.89 billion in exports in 2025. For semiconductors, the Philippines also had a strong base for their production. The OECD ranks the country as the world’s ninth-largest chip exporter in the world. Semiconductors accounted for roughly USD 31 billion in the electronic products exports in 2021. This means that the zone would start from a real installed production foundation in assembly, testing, packaging, and manufacturing rather than from the ground up. Therefore, Pax Silica would be able to tap into the mineral endowment, back-end manufacturing, and strong demand all in one geography.
The Value Chain Problem: Stuck Between Upstream and Assembly
Despite having strong upstream resources and proven downstream assembly, the Philippines has remained weaker in the middle of the chain, where material processing and component manufacturing would determine how much value can be retained domestically. The Philippines, in practice, supplies strategic inputs and exports electronics at an international scale but still depends heavily on imported intermediate goods and external capital for advanced stages of production. In 2025, electronic products and raw materials also accounted for roughly half of the Philippines’ total imports. This clearly shows that the country lacks a stronger position in the middle segment of the value chain, where value capture and bargaining power are usually concentrated.
Figure 2. Philippine Trade Structure (2025)
Source: Philippines Statistics Authority
Facing such problems, the question is whether the new zone can transition the position beyond a back-end manufacturing role toward a denser midstream base in processing and advanced manufacturing. The transition will depend heavily on execution conditions on the grounds. Three main conditions would determine the scale of the impact that the zone would have.
Firstly, it is infrastructure. The Luzon Economic Corridor plans to connect Subic Bay, Clark, Manila, and Batangas into a more cohesive investment geography. Despite that, an official U.S trade guidance identifies poor infrastructure, port congestion, traffic, and airport undercapacity as barriers for international companies to scale there. Only 28% of Filipino households had access to fixed broadband in 2023, much lower than regional peers such as Viet Nam at 79%, Thailand at 55%, and Malaysia at 54%. This would prove to be crucial, as development in advanced manufacturing would require reliable digital connectivity for production management and supply chain coordination.
Figure 3. Household access to fixed broadband
Facing such problems, the question is whether the new zone can transition the position beyond a back-end manufacturing role toward a denser midstream base in processing and advanced manufacturing. The transition will depend heavily on execution conditions on the grounds. Three main conditions would determine the scale of the impact that the zone would have.
Firstly, it is infrastructure. The Luzon Economic Corridor plans to connect Subic Bay, Clark, Manila, and Batangas into a more cohesive investment geography. Despite that, an official U.S trade guidance identifies poor infrastructure, port congestion, traffic, and airport undercapacity as barriers for international companies to scale there. Only 28% of Filipino households had access to fixed broadband in 2023, much lower than regional peers such as Viet Nam at 79%, Thailand at 55%, and Malaysia at 54%. This would prove to be crucial, as development in advanced manufacturing would require reliable digital connectivity for production management and supply chain coordination.
Figure 3. Household access to fixed broadband
Source: World Bank
The second condition would be energy. It is reported that the Philippines faces some of the highest electricity costs in Southeast Asia, and the central energy supply for Luzon’s power supply, the Malampaya gas field, has long been a supply concern as depletion is approaching. The OECD identifies that electricity in the Philippines can cost twice compared to Vietnam. Having higher-value production would require an immense power supply that is currently unavailable. To change this, the zone would need projects to supply new production infrastructure with reliable, scalable, and competitive energy over a long investment horizon.
The third condition would be regulatory clarity, along with the ability to attract anchor tenants. In this category, OECD puts great emphasis on a skilled English-speaking workforce and low labor costs. It is also reported that the special economic zones administered by PEZA have received positive feedback regarding the regulatory transparency and one-stop-shop services. Even so, there still exist regulatory inconsistencies, bureaucracy, and corruption that the Philippines has long been facing for decades, a driver of their deindustrialization compared to peer countries. In this environment, anchor tenants would prove to be much more important in providing legal or local guidance, along with creating a supplier demand, and training effects that elevate the zone.
For these reasons, the zone is industrially coherent but has gaps in execution capability, making it not yet industrially assured as a certain success. The main test is to assess whether foreign investment by US companies can help convert the zone into midstream capability with lower-friction infrastructure. The conversion would make the Luzon zone one of the country’s most serious attempts to industrialize. If not, the project could prove to be an asymmetrical extraction for critical minerals.
Financing Security: The Rise of Strategic Capital
The funding of the Philippines' 4,000-acre Economic Security Zone in Luzon through Pax Silica is an innovative capital stack that combines strategic policy capital with long-term private investments, prioritizing supply chain security over pure returns. This structure addresses the high upfront costs of infrastructure and midstream processing in semiconductors, electronics, and critical minerals, while mitigating execution risks through de-risking mechanisms.
Capital Stack Composition
US strategic and policy capital forms the foundation, exemplified by the $250 million Pax Silica Fund launched in March 2026, which initiated projects across 13 allied nations including the Philippines. This fund, led by the US State Department, aims to stimulate up to $1 trillion in total investments by attracting institutional partners like Japan's SoftBank and Singapore's Temasek.
Development Finance Institutions (DFIs) and multilaterals, such as the US International Development Finance Corporation (DFC) and World Bank, provide concessional debt and guarantees to bridge infrastructure gaps in energy and logistics. Sovereign players from Japan (e.g., JBIC) and Singapore (e.g., Temasek-linked vehicles) contribute structured equity, leveraging their outward capital deployment trends amid domestic constraints. Private capital targets infrastructure, mining, industrial real estate, and digital infrastructure, drawn by blended finance models that layer high-risk policy funds with commercial debt. Corporate investors in semiconductors, like Samsung's P50.7 billion expansion in Laguna, signal growing interest in EV and electronics scaling.
Figure 4: Projected Capital Stack for Luzon Economic Security Zone
The second condition would be energy. It is reported that the Philippines faces some of the highest electricity costs in Southeast Asia, and the central energy supply for Luzon’s power supply, the Malampaya gas field, has long been a supply concern as depletion is approaching. The OECD identifies that electricity in the Philippines can cost twice compared to Vietnam. Having higher-value production would require an immense power supply that is currently unavailable. To change this, the zone would need projects to supply new production infrastructure with reliable, scalable, and competitive energy over a long investment horizon.
The third condition would be regulatory clarity, along with the ability to attract anchor tenants. In this category, OECD puts great emphasis on a skilled English-speaking workforce and low labor costs. It is also reported that the special economic zones administered by PEZA have received positive feedback regarding the regulatory transparency and one-stop-shop services. Even so, there still exist regulatory inconsistencies, bureaucracy, and corruption that the Philippines has long been facing for decades, a driver of their deindustrialization compared to peer countries. In this environment, anchor tenants would prove to be much more important in providing legal or local guidance, along with creating a supplier demand, and training effects that elevate the zone.
For these reasons, the zone is industrially coherent but has gaps in execution capability, making it not yet industrially assured as a certain success. The main test is to assess whether foreign investment by US companies can help convert the zone into midstream capability with lower-friction infrastructure. The conversion would make the Luzon zone one of the country’s most serious attempts to industrialize. If not, the project could prove to be an asymmetrical extraction for critical minerals.
Financing Security: The Rise of Strategic Capital
The funding of the Philippines' 4,000-acre Economic Security Zone in Luzon through Pax Silica is an innovative capital stack that combines strategic policy capital with long-term private investments, prioritizing supply chain security over pure returns. This structure addresses the high upfront costs of infrastructure and midstream processing in semiconductors, electronics, and critical minerals, while mitigating execution risks through de-risking mechanisms.
Capital Stack Composition
US strategic and policy capital forms the foundation, exemplified by the $250 million Pax Silica Fund launched in March 2026, which initiated projects across 13 allied nations including the Philippines. This fund, led by the US State Department, aims to stimulate up to $1 trillion in total investments by attracting institutional partners like Japan's SoftBank and Singapore's Temasek.
Development Finance Institutions (DFIs) and multilaterals, such as the US International Development Finance Corporation (DFC) and World Bank, provide concessional debt and guarantees to bridge infrastructure gaps in energy and logistics. Sovereign players from Japan (e.g., JBIC) and Singapore (e.g., Temasek-linked vehicles) contribute structured equity, leveraging their outward capital deployment trends amid domestic constraints. Private capital targets infrastructure, mining, industrial real estate, and digital infrastructure, drawn by blended finance models that layer high-risk policy funds with commercial debt. Corporate investors in semiconductors, like Samsung's P50.7 billion expansion in Laguna, signal growing interest in EV and electronics scaling.
Figure 4: Projected Capital Stack for Luzon Economic Security Zone
Source: World Bank
Nature of Flows
Flows emphasize blended finance, combining grants and low-cost loans from US policy sources with patient private equity tolerant of 10–15-year horizons. Unlike return-maximizing venture capital, these are strategic, aligned with US-led ally-shoring to secure AI/semiconductor chains against China dependencies. Long-duration capital suits capital-intensive midstream upgrades, such as nickel processing and wafer fabrication, where the Philippines' current back-end strengths (USD 45.89B electronics exports in 2025) meet upstream resources. This de-risks investments via fast-track visas, PEZA incentives, and diplomatic immunities.
Sector Exposures
Investments concentrate on infrastructure (ports, energy grids), mining (nickel for batteries), industrial real estate (4,000-acre zones), and digital infra (broadband for AI-native hubs). Semiconductors continue to dominate, with the Philippines ranked ninth in the world for semiconductor exports (USD 31 billion in 2021), with a target of $110 billion by 2030.
Figure 5: Sector Allocation in Pax Silica-Aligned Projects
Nature of Flows
Flows emphasize blended finance, combining grants and low-cost loans from US policy sources with patient private equity tolerant of 10–15-year horizons. Unlike return-maximizing venture capital, these are strategic, aligned with US-led ally-shoring to secure AI/semiconductor chains against China dependencies. Long-duration capital suits capital-intensive midstream upgrades, such as nickel processing and wafer fabrication, where the Philippines' current back-end strengths (USD 45.89B electronics exports in 2025) meet upstream resources. This de-risks investments via fast-track visas, PEZA incentives, and diplomatic immunities.
Sector Exposures
Investments concentrate on infrastructure (ports, energy grids), mining (nickel for batteries), industrial real estate (4,000-acre zones), and digital infra (broadband for AI-native hubs). Semiconductors continue to dominate, with the Philippines ranked ninth in the world for semiconductor exports (USD 31 billion in 2021), with a target of $110 billion by 2030.
Figure 5: Sector Allocation in Pax Silica-Aligned Projects
Source: PIIE Report; PSA Data; Pax Silica Fund sector disclosures
The Investors’ Calculation: Re-Rating vs Risk
Investors see significant upside from re-rating. A good execution may increase the Philippines' semiconductor value capture, replicating Vietnam's growth. FDI inflows, which are currently on the rise (for example, Japanese polls put the Philippines eighth for 2025), might increase further with governance improvements. Risks come from policy swings (US elections), implementation (infrastructure lags), and geopolitics, which are mitigated by ally collaboration. Blended structures produce IRRs ranging from 8 to 12% for infrastructure and greater for mining due to mineral securitization. This strategy presents the Zone as a test case for security-based financing, with the potential to release USD 50-100 billion if anchor tenants such as US corporations materialize. This raises a key question: where will this capital originate? Part of the answer lies in structural changes taking place in economies like Japan.
After the war in the 1940s, the Japanese discovered that the old family-run conglomerates were not suitable for the new post-war environment, so they dissolved them, and their shares were distributed to the public. Japanese management feared takeovers by foreign or hostile investors. Therefore, it strengthened cross-shareholdings with business partners and banks. That means that companies and banks held each other’s shares to secure stable, long-term business partnerships and protect against hostile takeovers after the Allied occupation dismantled the zaibatsu conglomerates (family-run). Banks sat at the center of these groups, linking members together in ways that reduced corporate transparency and insulated management from outside pressure. This helped lock up large amounts of capital in inefficient structures for decades.
In 2015, the Tokyo Stock Exchange (TSE) introduced Japan’s Corporate Governance Code (revised in 2018 and then in 2021), which established the fundamental principles for effective corporate governance at listed companies in Japan, boosting long-term value, increasing board independence, improving accountability to shareholders, promoting diversity, and bringing companies’ attention to sustainability and ESG. The two main characteristics of the CG Code are the comply-or-explain principle and the principle-based approach. In the first, the main idea is that the CG Code is not a law, therefore it carries no legally binding force. But companies must either comply with the principles or explain their reasons for non-compliance in their Corporate Governance Report. The latter states that rather than adopting a detailed rule-based approach, the CG Code takes a principle-based approach, using abstract expressions to allow companies to implement effective corporate governance in line with their own circumstances and giving them broader room for interpretation.
In 2023, the TSE launched a new initiative encouraging listed companies to implement “management that is conscious of the cost of capital and stock price”, meaning that management should strengthen capital efficiency and pursue strategies that enhance mid- to long-term corporate value by improving profitability, raising valuation metrics, and earning investor confidence.
Both Japan’s Corporate Governance Code and the TSE’s 2023 pressure campaign have dramatically accelerated the unwinding of cross-shareholdings. This shift is further reinforced by the 2024 Action Program for Corporate Governance Reform, which stresses that sustainable growth and higher corporate value require substantive changes, not just formal compliance. Together, these reforms are helping release capital that had been tied up in defensive shareholding structures and redirecting it toward higher-return uses. As Japanese firms face pressure to improve ROE, justify capital allocation, and enhance shareholder value, a larger share of corporate capital is becoming more mobile and available for overseas deployment.
This shift is visible in the decline in cross-shareholdings. Compared to 2023, in 2024 the ratio of strategic cross-shareholdings in Japan declined to 30.8% from 31.5%. Today, cross-shareholdings account for around 25% of the Tokyo Stock Exchange’s market cap, but compared to 1990, when the value was 60%, the figure has decreased drastically. Major insurers like MS&AD, Sompo Japan, and Tokio Marine Holdings have committed to exiting all cross-shareholdings, a practice often criticized for weakening corporate governance, due to intensifying regulatory pressure, the price-fixing scandal of 2023, the need for improved corporate governance, and a strategic shift toward capital efficiency.
Figure 6. Decline of Cross-Shareholdings in Japan (1990-2024)
The Investors’ Calculation: Re-Rating vs Risk
Investors see significant upside from re-rating. A good execution may increase the Philippines' semiconductor value capture, replicating Vietnam's growth. FDI inflows, which are currently on the rise (for example, Japanese polls put the Philippines eighth for 2025), might increase further with governance improvements. Risks come from policy swings (US elections), implementation (infrastructure lags), and geopolitics, which are mitigated by ally collaboration. Blended structures produce IRRs ranging from 8 to 12% for infrastructure and greater for mining due to mineral securitization. This strategy presents the Zone as a test case for security-based financing, with the potential to release USD 50-100 billion if anchor tenants such as US corporations materialize. This raises a key question: where will this capital originate? Part of the answer lies in structural changes taking place in economies like Japan.
After the war in the 1940s, the Japanese discovered that the old family-run conglomerates were not suitable for the new post-war environment, so they dissolved them, and their shares were distributed to the public. Japanese management feared takeovers by foreign or hostile investors. Therefore, it strengthened cross-shareholdings with business partners and banks. That means that companies and banks held each other’s shares to secure stable, long-term business partnerships and protect against hostile takeovers after the Allied occupation dismantled the zaibatsu conglomerates (family-run). Banks sat at the center of these groups, linking members together in ways that reduced corporate transparency and insulated management from outside pressure. This helped lock up large amounts of capital in inefficient structures for decades.
In 2015, the Tokyo Stock Exchange (TSE) introduced Japan’s Corporate Governance Code (revised in 2018 and then in 2021), which established the fundamental principles for effective corporate governance at listed companies in Japan, boosting long-term value, increasing board independence, improving accountability to shareholders, promoting diversity, and bringing companies’ attention to sustainability and ESG. The two main characteristics of the CG Code are the comply-or-explain principle and the principle-based approach. In the first, the main idea is that the CG Code is not a law, therefore it carries no legally binding force. But companies must either comply with the principles or explain their reasons for non-compliance in their Corporate Governance Report. The latter states that rather than adopting a detailed rule-based approach, the CG Code takes a principle-based approach, using abstract expressions to allow companies to implement effective corporate governance in line with their own circumstances and giving them broader room for interpretation.
In 2023, the TSE launched a new initiative encouraging listed companies to implement “management that is conscious of the cost of capital and stock price”, meaning that management should strengthen capital efficiency and pursue strategies that enhance mid- to long-term corporate value by improving profitability, raising valuation metrics, and earning investor confidence.
Both Japan’s Corporate Governance Code and the TSE’s 2023 pressure campaign have dramatically accelerated the unwinding of cross-shareholdings. This shift is further reinforced by the 2024 Action Program for Corporate Governance Reform, which stresses that sustainable growth and higher corporate value require substantive changes, not just formal compliance. Together, these reforms are helping release capital that had been tied up in defensive shareholding structures and redirecting it toward higher-return uses. As Japanese firms face pressure to improve ROE, justify capital allocation, and enhance shareholder value, a larger share of corporate capital is becoming more mobile and available for overseas deployment.
This shift is visible in the decline in cross-shareholdings. Compared to 2023, in 2024 the ratio of strategic cross-shareholdings in Japan declined to 30.8% from 31.5%. Today, cross-shareholdings account for around 25% of the Tokyo Stock Exchange’s market cap, but compared to 1990, when the value was 60%, the figure has decreased drastically. Major insurers like MS&AD, Sompo Japan, and Tokio Marine Holdings have committed to exiting all cross-shareholdings, a practice often criticized for weakening corporate governance, due to intensifying regulatory pressure, the price-fixing scandal of 2023, the need for improved corporate governance, and a strategic shift toward capital efficiency.
Figure 6. Decline of Cross-Shareholdings in Japan (1990-2024)
Sources: McKinsey Global Institute, Nomura Research, MSCI Research, ACGA Open Letter, Japan Exchange Group (JPX)
But the most important question is where all of this capital is most likely to go. As corporate governance reforms push firms to deploy their capital more efficiently, Japan has extended its use of outward foreign direct investment (OFDI) since the 1990s. OFDI is a business strategy where a domestic company acquires assets or invests in a foreign country in order to establish a lasting interest and management influence. The Philippines improved its ranking to eighth place among the most promising countries for Japanese overseas investment in 2025. Around 7% of the surveyed Japanese companies identified it as their top medium-term destination (specifically in automotive, general machinery, and electronics) due to the country’s strong economic growth, the future growth potential of the local market, its relatively inexpensive source of labour, the current size of the domestic market, its role as a supply base for assemblers and a base for exports to third countries. But there are also some concerns, including underdeveloped infrastructure, difficulty in securing management-level staff, security and social instability issues, and underdeveloped local supporting industries. In that sense, the Philippines is not another investment destination but a possible outlet for Japanese capital, seeking more productive regional deployment.
Figure 7. Most Promising Overseas Investment Destinations for Japanese Firms (FY2025)
But the most important question is where all of this capital is most likely to go. As corporate governance reforms push firms to deploy their capital more efficiently, Japan has extended its use of outward foreign direct investment (OFDI) since the 1990s. OFDI is a business strategy where a domestic company acquires assets or invests in a foreign country in order to establish a lasting interest and management influence. The Philippines improved its ranking to eighth place among the most promising countries for Japanese overseas investment in 2025. Around 7% of the surveyed Japanese companies identified it as their top medium-term destination (specifically in automotive, general machinery, and electronics) due to the country’s strong economic growth, the future growth potential of the local market, its relatively inexpensive source of labour, the current size of the domestic market, its role as a supply base for assemblers and a base for exports to third countries. But there are also some concerns, including underdeveloped infrastructure, difficulty in securing management-level staff, security and social instability issues, and underdeveloped local supporting industries. In that sense, the Philippines is not another investment destination but a possible outlet for Japanese capital, seeking more productive regional deployment.
Figure 7. Most Promising Overseas Investment Destinations for Japanese Firms (FY2025)
Sources: Japan Bank for International Cooperation (JBIC)
Singapore: Capital Export Under Constraint
While in Japan the transformation is making capital more mobile, Singapore is pushing capital outward through binding domestic constraints. The main problem is its small geography, which leads to a lack of natural resources, land scarcity, water and energy dependence (mainly on natural gas), and forces the nation to build vertically and embrace high-density urban living. Not only that, but the economy is heavily dominated by multinational corporations and government-linked companies, with a relative lack of independent local enterprises with global reach. These restrictions limit its domestic options.
Historically, Singapore has been Asia’s leading regional data center hub. Its AI-driven demand is rapidly accelerating, alongside the rising data center demand, which is expected to grow by 25% annually, expanding its share of total electricity consumption. But this creates another challenge due to Singapore’s physical limits. This means that the $27 billion in AI infrastructure, which is slated for deployment by 2030, will place immense strain on energy, land, and the tech supply chain. The government ended the official ban on building new data center facilities, but in 2024 introduced the Green Data Center Roadmap, aiming to provide at least 300 MW of additional capacity in the near term through green energy deployments. Now, explosive growth is moving to the emerging Southeast Asian markets like Malaysia, Indonesia, Vietnam, Thailand, and the Philippines. In other words, this is Singapore expanding beyond its borders by exporting its hub function and its capital into the region and by using neighboring markets as extensions of its own economic architecture.
The Green Investments Partnership is an initiative under Singapore’s FAST-P. Its main goal is to support investments in renewable energy and storage, electric vehicle infrastructure, sustainable transport, water and waste management, among other areas. It uses public, philanthropic, and private capital to reduce risks and attract commercial foreign capital for regional deployment, positioning Singapore as a conduit, not just as a destination. This matters because Singapore’s outward approach is not driven by corporate cash alone but by strategic de-risking platforms and institutional infrastructure capital pools.
Currently, Singapore is operationalizing a cross-border energy import strategy to overcome domestic land constraints by diversifying its energy mix to reduce its reliance on imported natural gas. It is focusing on regional power grids to access energy sources beyond its borders, aiming to import up to 6 GW of low-carbon electricity by 2035. While it is importing energy, it is exporting capital and industry capacity, following the same logic of using the region as an extension of its own constraints.
Taking all of this into account, Japan’s and Singapore’s models represent two distinct but complementary capital flows. Japan is generating reform-driven capital that is newly mobile and seeking higher-ROE deployment, while Singapore is targeting structured institutional capital in response to domestic physical constraints. The Philippines offers what both models need: the space for industrial expansion, the growing workforce, the geopolitical alignment, and, with the Luzon Economic Security Zone, the policy framework to absorb both.
Conclusion: A Test of the Trust Economy
Globalization is not ending; rather, it is being reconstructed along new lines. Supply chains are becoming more selective, politicized, and built on trust. What matters now is not only the lowest cost of production, but also the highest level of security and alignment.
The Philippines is at the heart of this transformation. Pax Silica presents a potential to transition from a peripheral manufacturing base to a strategic node in next-generation supply chains. However, this possibility is subject to certain conditions. It all relies on whether the country can transform geopolitical alignment and capital inflows into tangible industrial depth.
The distinction is crucial. One approach leads to increased value creation, technological advancement, and greater control over manufacturing. The other risk is perpetuating a familiar pattern: participation without authority. Finally, the Luzon Economic Security Zone is more than a national initiative. It is a test of whether the new model of security-driven globalization can keep its promises.
By: Federico Di Trapani, Alexandria Chaliovski, and Sheldon Le
Sources
Singapore: Capital Export Under Constraint
While in Japan the transformation is making capital more mobile, Singapore is pushing capital outward through binding domestic constraints. The main problem is its small geography, which leads to a lack of natural resources, land scarcity, water and energy dependence (mainly on natural gas), and forces the nation to build vertically and embrace high-density urban living. Not only that, but the economy is heavily dominated by multinational corporations and government-linked companies, with a relative lack of independent local enterprises with global reach. These restrictions limit its domestic options.
Historically, Singapore has been Asia’s leading regional data center hub. Its AI-driven demand is rapidly accelerating, alongside the rising data center demand, which is expected to grow by 25% annually, expanding its share of total electricity consumption. But this creates another challenge due to Singapore’s physical limits. This means that the $27 billion in AI infrastructure, which is slated for deployment by 2030, will place immense strain on energy, land, and the tech supply chain. The government ended the official ban on building new data center facilities, but in 2024 introduced the Green Data Center Roadmap, aiming to provide at least 300 MW of additional capacity in the near term through green energy deployments. Now, explosive growth is moving to the emerging Southeast Asian markets like Malaysia, Indonesia, Vietnam, Thailand, and the Philippines. In other words, this is Singapore expanding beyond its borders by exporting its hub function and its capital into the region and by using neighboring markets as extensions of its own economic architecture.
The Green Investments Partnership is an initiative under Singapore’s FAST-P. Its main goal is to support investments in renewable energy and storage, electric vehicle infrastructure, sustainable transport, water and waste management, among other areas. It uses public, philanthropic, and private capital to reduce risks and attract commercial foreign capital for regional deployment, positioning Singapore as a conduit, not just as a destination. This matters because Singapore’s outward approach is not driven by corporate cash alone but by strategic de-risking platforms and institutional infrastructure capital pools.
Currently, Singapore is operationalizing a cross-border energy import strategy to overcome domestic land constraints by diversifying its energy mix to reduce its reliance on imported natural gas. It is focusing on regional power grids to access energy sources beyond its borders, aiming to import up to 6 GW of low-carbon electricity by 2035. While it is importing energy, it is exporting capital and industry capacity, following the same logic of using the region as an extension of its own constraints.
Taking all of this into account, Japan’s and Singapore’s models represent two distinct but complementary capital flows. Japan is generating reform-driven capital that is newly mobile and seeking higher-ROE deployment, while Singapore is targeting structured institutional capital in response to domestic physical constraints. The Philippines offers what both models need: the space for industrial expansion, the growing workforce, the geopolitical alignment, and, with the Luzon Economic Security Zone, the policy framework to absorb both.
Conclusion: A Test of the Trust Economy
Globalization is not ending; rather, it is being reconstructed along new lines. Supply chains are becoming more selective, politicized, and built on trust. What matters now is not only the lowest cost of production, but also the highest level of security and alignment.
The Philippines is at the heart of this transformation. Pax Silica presents a potential to transition from a peripheral manufacturing base to a strategic node in next-generation supply chains. However, this possibility is subject to certain conditions. It all relies on whether the country can transform geopolitical alignment and capital inflows into tangible industrial depth.
The distinction is crucial. One approach leads to increased value creation, technological advancement, and greater control over manufacturing. The other risk is perpetuating a familiar pattern: participation without authority. Finally, the Luzon Economic Security Zone is more than a national initiative. It is a test of whether the new model of security-driven globalization can keep its promises.
By: Federico Di Trapani, Alexandria Chaliovski, and Sheldon Le
Sources
- U.S. Department of State
- Philippine Statistics Authority
- International Trade Administration / U.S. Department of Commerce
- OECD
- World Bank
- International Monetary Fund
- Japan Exchange Group / Tokyo Stock Exchange
- Japan Financial Services Agency
- Nomura Research
- McKinsey Global Institute
- MSCI Research
- T. Rowe Price (troweprice.com)
- Asian Corporate Governance Association
- J.P. Morgan Asset Management
- Japan Bank for International Cooperation
- Lawfare Media
- Philippine Department of Finance
- Singapore Energy Market Authority
- Singapore Ministry of Trade and Industry / Economic Development Board
- Singapore Green Plan
- World Energy Council
- East Asia Forum
- Google / Bain & Company / Temasek (e-Conomy SEA report)
- U.S. Embassy in the Philippines
- Bloomberg