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In this two-year period, the conflicts between government and religious authorities continue. The new governor Dasmariñas faces opposition from the religious sector, and he asks for their cooperation. He does his best but cannot achieve effective results because of unfriendly priests, business restrictions, lack of funds, and the greed of officials and influential residents. The governor wants the bishop not to meddle in state affairs, and the bishop distrusts the government.
A decree of Pope Gregory XIV ordered to free the native slaves and pay back damages done to them by the colonists, but this was not enforced properly. Regarding trade, natives complained that Chinese industry badly affect local production. An ordinance was enforced prohibiting the natives from wearing Chinese-made clothing. Statistics show that there are about 3,000 Chinese and 200 shops owned by them. Documents give information on the encomiendas (provinces), the capital city of Manila, and the friars. The Spanish residents asked for permission (with the recommendation of the governor) from the home government to trade with Macao, the Portuguese colony in China.
A revolt of natives in Zambales was stopped, and the surviving rebels were dispersed or enslaved. The governor reports to the king about the general good condition of the colony. Trade is flourishing; the religious orders are at peace, with some seminaries and cathedrals established. There are new forts and ships. Though, there are still problems with alleged corrupt auditors who gain from foreign trade.
Another letter from Dasmariñas recounts his first experiences and difficulties on his first year of governing in the Philippines. According to him, the religious authorities and soldiers are corrupt. He is turned off by the arrogance and temper of Bishop Salazar. Before, the ships, supplies, and storehouses weren’t enough. The royal treasury had no funds, only a lot of debt from the expensive maintenance of the Royal Audiencia.
There is an impending threat from Japan – translated letters from the emperor Hideyoshi demands tribute and allegiance from the Spaniards. The governor replies cautiously, hoping that it will not result to a war. He also suggested some possible measures to be taken if ever the hostility continues.
A letter from King Felipe II to Governor Dasmariñas approves some decisions of the governor. The governor was to manage the hospitals, and the Bishop's assumed authority must be restrained. The religious sector is warned not to meddle in civil affairs. Since Salazar resigned from his post as 'protector of natives', the governor was to appoint a new one. The taxes of the natives increased.
There are new explorations in Luzon, and the conquest of Mindanao is starting.