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Should Pacific Island Nations Be Wary of Chinese Influence?

A ChinaFile Conversation

British Prime Minister Theresa May’s three-day visit to China, from January 31 to February 2, has amplified ongoing debates in Europe about the costs and benefits of engagement with China and of Chinese investment. Attention to China’s role in fortunes of less developed economies has tended to focus on Africa. But as Beijing expands its One Belt, One Road investment and infrastructure campaign to encompass greater swaths of the globe, the often-overlooked small nations of the Pacific Islands are becoming a key testing ground for reactions to China’s growing economic and political clout. Chinese outreach to countries such as Tonga and Vanuatu in the form of foreign aid, cooperation on environmental and military affairs, and infrastructure investment has sparked competition for influence in the South Pacific with longstanding patrons of the region, including Australia and the United States. Canberra recently moved to fund the development of undersea Internet cables to the Solomon Islands after concerns its small island nation neighbor might work with China’s Huawei, whose deal to work on Internet infrastructure near Australia was viewed as a security threat. What’s at stake for China in these far-flung regions? Are regional and local concerns about Chinese investment justified? And how do they relate to similar debates elsewhere in the world? —The Editors

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The growth of China’s interests and influence in the Pacific Islands is the biggest story of the decade in the Pacific Islands region. China has become the region’s second-largest trading partner and a significant investor. Although China delivers aid differently from the region’s traditional donors and mostly through concessional loans rather than grants, Lowy Institute research shows that China could now be the region’s third most significant aid partner, albeit still a long way behind Australia’s annual AUD1 billion expenditure. It is a remarkable advance from the situation only a decade ago, when China’s interests in Pacific Island states were largely motivated by its competition with Taiwan for diplomatic recognition and its aid contributions characterized as “checkbook diplomacy.”

Remarkable but controversial, particularly in Australia, which is going through another round of panic about growing Chinese influence in the Pacific (and in Australia itself) and perceptions of its own regional leadership inadequacies. Minister for International Development Concetta Fierravanti-Wells prompted the latest chapter in the debate on China’s rise and Australia’s apparent decline in the region with her recent criticism of Chinese aid.

China’s rise presents incredible opportunities for Pacific Island countries. They stand to benefit from greater investment in vital infrastructure (including via China’s One Belt, One Road initiative), increased trade in goods, tourism, education opportunities, and technological advances—driven by or enabled by China.

Chinese largesse in the region is not cost-free for Pacific Island nations. Concessional loans have led to increases in external debt and debt distress. Increased Chinese migration to Pacific Island countries has led to some displacement of local small-business owners.

China also expects support for Chinese positions at the United Nations and in other international forums. China’s Ambassador to Vanuatu, Liu Quan, told the Vanuatu Daily Post Editor Dan McGarry exactly this. “There is no free lunch,” Liu said—in case there was any doubt. But there is nothing unusual or sinister about this expectation.

No country can claim to be purely altruistic in their motives for delivering aid. For Pacific Island nations, committing a vote in support of nations bidding for leadership positions in international organizations or membership of U.N. committees costs them little and potentially earns them assistance in achieving national development priorities. Even expressing support for controversial positions, such as China’s defense of its actions in the South China Sea, as a means of managing good relations, carries little cost apart from raising a few eyebrows in Western capitals.

This relatively benign situation could change if Beijing’s expectations of Pacific Island governments extend further into the domestic arena. The management of relations with China becomes more challenging if Chinese companies make demands on land ownership or fishing rights that threaten the livelihoods of local communities. Pacific Island communities may not be bothered about which countries sit on the U.N. Human Rights Committee, but giving up rights to use land or fish in their own waters to Chinese interests is unlikely to be acceptable as a price to pay for Chinese investment in national infrastructure.

Pacific Island governments have proved themselves capable of determining their own national interests, managing a suite of diplomatic suitors, and projecting their own voice. They should be trusted to manage their own relationships with China.

Bill Bishop made an excellent point when, in his Sinocism newsletter, he urged avoiding the phrase “Chinese influence,” when really we mean “Chinese Communist Party influence operations.” If that’s our definition, there’s not much to worry about in the Pacific. The Chinese Communist Party has little purchase among the small Chinese diasporas, and many mainland Chinese migrants to the region—particularly entrepreneurs from Fujian and Guangdong—are viewed by the Chinese state as a problem to control, rather than as a resource to harness. The diaspora businesspeople are thought to harm China’s image abroad and their take-no-prisoners approach to doing business—particularly in retail—will continue to cause resentment among Pacific islanders and be a destabilizing factor in the region.

The struggle is afoot for control over organizations claiming to represent Pacific Chinese communities across the region. But demographics means this battle will soon be settled: the “old Chinese communities” have been leaving for Australia and New Zealand since the 1970s. There are some influential businesspeople close to the Papua New Guinea leadership, but they largely act in their own commercial interest, which often intersects with P.R.C. interests, of course.

Militarily, some analysis gives the impression that the farce in the White House means that the U.S. has left the Pacific, and that without America the region would be wise to choose China. The United States Pacific Command is huge, and going nowhere. If anything, the debacle in Washington presents another opportunity for the professionals in the U.S. military to strengthen their position relative to the civilian administration. That said, the Chinese government has approached at least two Pacific governments to build facilities that would cause heartburn in Canberra and Wellington. They were rebuffed, but a nation under fiscal pressure—such as Tonga or Vanuatu—might be inclined to pay debts to China in kind. At the moment, this is limited to support for China’s position on the South China Sea and, in some cases, support for Beijing’s One China Policy.

With the rise of the Democratic Progressive Party in Taiwan, the battle for diplomatic recognition is back on, too. Fiji closed its Trade and Tourism Representative Office in Taipei last May after 20 years, just after Prime Minister Josaia Voreqe Bainimarama left the Belt and Road Forum in Beijing. With one-third of the states that recognize Taiwan found in the Pacific, Fiji’s move could lead others to shift their loyalties. Apart from a few lucky middlemen doing business with Beijing, ordinary Pacific islanders would be unlikely to benefit.

In terms of aid, larger Chinese contractors, both state-owned and private, exert pressure on individual politicians to endorse projects whose scope is beyond the needs of their country. The windfalls that they promise can distract politicians and bureaucrats from longer-term planning, particularly on roads, electricity generation, and other crucial infrastructure. The worst example of a Chinese company in the Pacific involves no ‘useless buildings’ or ‘roads to nowhere.’ The Chinese supplier of medical kits for Papua New Guinea’s health system was caught providing fake and overpriced drugs, resulting in a humanitarian disaster in a country ravaged by malaria and drug-resistant tuberculosis, most aid posts in PNG have no medicine at all.

That said, Chinese actors have the potential to be part of the solution in an arena of great concern in the Pacific: climate change. Beijing is keen to cooperate on solutions to this existential threat to many Pacific nations, yet Washington and Canberra don’t take it seriously, damaging their standing in the region. But one of many examples of Western negligence is seen in Exxon Mobil’s U.S.$19 billion gas venture in Papua New Guinea, now in danger of spiraling out of control.

Let’s first assess how much the Pacific Islands really matter to China. The region is not a priority for the Belt and Road Initiative, and two-way trade between China and nations of the Pacific Island Forum only amounted to $US 7.5 billion in 2016. Even generous estimates of aid show only a small percentage of China’s entire outlay being delivered to the region. The Pacific Island nations care much more about bilateral outcomes than China does.

While Beijing’s foreign policy towards the Pacific Islands is certainly more nuanced than in the past, that does not mean the Pacific Islands hold the equivalent strategic or economic value of say, members of the African Union, or of ASEAN. Yet it’s likely that China will have a larger sphere of influence in the Pacific, due to reasons that are geopolitical as much as geographical—Australia, heretofore the region’s largest benefactor, has proposed its lowest-ever level of aid relative to GDP to a region in dire need of capital.

But the more pressing question remains—is Chinese capital necessarily detrimental to the prosperity and development of Pacific Island nations?

Many Pacific nations have, for the first time, a choice between two countries offering aid at such a large scale. That choice plays into the wider debate over autonomy in decision-making from their ‘big brothers,’ Australia and New Zealand. As Dame Meg Taylor, Secretary General of the Pacific Islands Forum, has noted, aid from China and other development partners comes with far fewer strings attached and faster approvals.

But Chinese aid also lacks transparency, and has been criticized for its role in misallocation of resources and embezzlement of Pacific government funds. Furthermore, there is a concern that a reliance on Chinese aid could impact the integrity of regional institutions and adversely affect government stability. The potential for lucrative funding can impact policy and votes in institutions like the Pacific Islands Forum, where China is a dialogue partner, and the Melanesian Spearhead Group, to which China is a key donor.

There is also the attendant risk of what happens when Pacific Island nations default on their concessional loans, the main form of Chinese aid to the region—a concern recently raised by the Deputy Managing Director of the IMF. Assuming Beijing does not forgive the debt, could the alternative payment then be votes for China in international organizations, military commitments, or the leasing of strategic ports as in Sri Lanka? Or perhaps domestic governments would raise taxes to pay down their debts, leading to political unrest or even violence?

While no aid partner is perfect, it’s ultimately difficult to weigh the overall efficacy of Chinese aid to the Pacific Islands without more disclosures and more transparency about Chinese projects in the region. Indeed, there are many policy areas where Chinese influence would be welcome. Working with Pacific governments on climate change and improving regional health outcomes could help allay fears about insidious investment in the region and genuinely improve China’s claim to be a responsible global actor.