Chinese Aid in the South Pacific: Linked to Resources?

Abstract

China’s emergence as a global development actor has implications for developing countries and “traditional” donor agencies. Its current provision of foreign aid and other forms of development assistance to developing countries throughout the world presents both opportunities and challenges for all actors. At the same time, China’s growing need for natural resources and its policy of securing access through state-led “resource diplomacy” are causing concern. While most scholars and commentators are focused on the “China in Africa” dimension, China’s engagement in the South Pacific region has also been growing rapidly over the past decade and offers some interesting and unique insights. This article examines the dynamics of China’s provision of foreign aid and its quest for natural resources in the South Pacific region, with comparative references to other regions. Drawing particularly upon interviews and site visits in Fiji and Papua New Guinea, it argues that although major commercial resource contracts do appear to be supported by Chinese Government assistance, resources deals are not explicitly part of Chinese foreign aid in the region.

Keywords:

• China
• foreign aid
• development
• resources
• SOE
• South Pacific
• Oceania

Introduction

The emergence of China as a significant provider of development assistance operating outside the dominant aid system has prompted heightened interest within academic, public and policymaking circles. This increased presence in many developing countries is changing the dynamics of “development” and foreign aid provision in ways that are really only beginning to be seen and understood. At the same time, there has been increased concern about the implications of China’s growing desire for natural resources and its efforts to secure access to these through state-led “resource diplomacy”. China’s provision of development assistance is often seen to be an important part of this strategy.

China’s quest for energy resources to fuel its ever-growing economic development has prompted it to expand and deepen its relationships with oil and energy producing nations around the globe. Beijing’s “go out” strategy ¹ that began in the mid-1990s is predicated on a strong collaboration between the state and Chinese companies, which have been encouraged through incentives and other forms of state support to invest in overseas markets. Although this strategy involves numerous sectors, international attention has focused primarily on the energy sector and the role of China’s national oil companies (NOCs), which are often perceived as presenting a threat to Western interests. As Mikkal Herberg (2011) argues, “although closer analysis suggests the Beijing-NOC collaboration is far less strategic than it often appears and many investments are much more normally market-driven than state-driven, the process appears from the outside as opaque and strategic in intent”. Since examples of the involvement of the Chinese state apparatus in securing energy deals are plentiful, ² it is often assumed that Chinese Government foreign aid is also primarily directed towards accessing natural resources.

Chinese aid expert Deborah Brautigam in her discussion of the “myths” surrounding Chinese aid explores this misconception, which seems to be perpetuated not only by journalists but also by policymakers and development organisations. A World Bank study, for example, states that “most Chinese government funded projects in Sub-Saharan Africa are ultimately aimed at securing a flow of Sub-Saharan Africa’s natural resources for export to China” (Foster et al., 2008, p. 64). Brautigam (2009, p. 278) argues that although it is easy to see how this belief has arisen, given China’s very active involvement in resource-rich areas, “the notion that aid is offered mainly as a quid pro quo exchange for resources ignores several facts”, including the fairly even distribution of grants and zero-interest loans across resource and non-resource rich countries.

Discussion of the nexus between foreign aid and natural resource acquisition in China’s engagement with other developing countries has in general drawn upon examples of oil and mining in Africa, mining and agribusiness in Latin America, and hydropower in the Mekong region. China’s involvement in the South Pacific region is logically much smaller than in other parts of the world, although its impact on Pacific Island nations is significant. Since the Pacific Island nations are traditionally regarded as being under the Western “sphere of influence”, China’s political and economic engagement over the last decade has caused concern amongst some policymakers and commentators, especially in Australia and New Zealand (see, for example, Commonwealth of Australia, 2009, pp. 44–46; Hanson, 2009). Although many of the countries are small-island states, some are well endowed with minerals, timber and exclusive economic zones for fishing, and in addition have the rights to as-yet unexploited seabed resources (Porter and Wesley-Smith, 2010).

This article examines the dynamics of China’s provision of foreign aid in the South Pacific and considers the connections with its quest for natural resources, drawing particularly upon interviews and site visits in Fiji and Papua New Guinea (PNG), undertaken in September–October 2009. It concludes that unlike examples in other regions, resource deals in the South Pacific are not explicitly part of Chinese aid. Chinese resource companies operating in the region are nevertheless state-owned enterprises (SOEs), and so the line between “commercial” activity and “state” involvement is often blurred, which can be seen on occasions when the Chinese Government comes to the aid of Chinese companies or utilises its development assistance to support SOEs’ activities. Examples of such occurrences can offer further insight into the operation and utilisation of Chinese aid towards broader strategic goals.

This article firstly provides an analysis of Chinese foreign aid in general, including its relationship to resource acquisition. It then examines the South Pacific context, and China’s engagement in the region, before presenting a more detailed discussion of the relationship between Chinese aid and investment and state and commercial endeavours. It concludes by arguing that Chinese aid in the South Pacific should not be viewed (and dismissed) as simply an element of Beijing’s strategy to secure access to natural resources.

Chinese Foreign Aid

The impact of Chinese foreign aid is undoubtedly being felt by both developing countries and OECD–DAC donors alike. Yet, until recently at least, knowledge of the mechanisms, practices, and even the principles and objectives remained sketchy. Misconceptions have been fed in part by China’s own lack of transparency and sensitivity in releasing details of its aid program, and in part by the desire of some Western commentators to use Chinese aid in support of their “China Threat” theses (for example, Windybank, 2005; Shie, 2007). This section provides a general overview of the core elements of Chinese foreign aid and the mechanisms that relate directly to resource acquisition.

Contrary to current rhetoric, China is not a “new” or “emerging” donor, since its history of aid giving goes back 60 years (Varrall, 2012, pp. 142–43). The Chinese Government refers to three stages of Chinese aid provision: 1950–78, 1978–mid 1990s, and 1990s onwards, with the changes reflecting shifts in China’s own development situation and strategies (Ministry of Commerce, 2007). China started to emerge as a more significant donor in the late 1990s, a development that was related to its own domestic development policy of “going out”, and to its greater involvement in multilateral and international organisations. 2004 saw the beginning of yet another “new stage” in China’s foreign aid program, marked by a massive and sustained increase in levels of aid: between 2004 and 2009 China’s foreign aid budget increased by an average of 29.4 per cent per year (People’s Republic of China, 2011) and in 2011 totalled approximately US$4.5 billion (Interview CN064, 6 May 2011).

The Chinese Government, in its first ever White Paper on Foreign Aid (referred to hereafter as the White Paper), released in April 2011, frames China’s provision of aid as operating within the context of China’s position as a developing country but also as part of the fulfilment of its international responsibilities. In what can perhaps be regarded as the stated overall objective, China says it is providing foreign aid to “help recipient countries to strengthen their self-development capacity, enrich and improve their peoples’ livelihood, and promote their economic growth and social progress” (People’s Republic of China, 2011). There is a clear declaration that Chinese aid is a “model with its own characteristics”, though no clear declaration of what this actually means (see Brant, 2011b for an overview of the White Paper).

One of the challenges in understanding Chinese aid is that there is no statement defining what China considers and calculates as “aid”. In addition, although the terminology and details in the White Paper seem to be comparable to the OECD–DAC definitions, there are some significant differences that make Chinese aid directly incomparable with DAC aid data (see Table 1).

Table 1. Comparisons of Aid Calculations

	China	DAC
Military aid
Scholarships
Debt relief
Loans for joint-venture projects
Concessional loans	% under market rate	Entire face value
Newly settled refugees		Some costs

Examining official Chinese statements and policy documents tells us about the way China wants its aid to be perceived. Interestingly, at an official exhibition held in Beijing in 2010 to commemorate the 60^th anniversary of Chinese foreign aid, China used the English term “aid”. Until this point, China had preferred to use broader terms such as “economic cooperation” and “development assistance” when referring to its engagement with other developing countries. The common narrative of Chinese aid is to take it back to the “Eight Principles for China’s Aid to Foreign Countries” announced by Premier Zhou Enlai in 1964, which have been rearticulated by successive Chinese leaders and officials (People’s Republic of China, 2003). China’s White Paper builds upon this and articulates five basic features underlying Chinese aid policy:

•	Unremittingly helping recipient countries build up their self-development capacity
•	Imposing no political conditions … respect recipient countries’ right to select their own path and model of development
•	Adhering to equality, mutual benefit and common development
•	Remaining realistic while striving for the best
•	Keeping pace with the times and paying attention to reform and innovation.

China frames the provision of aid as operating within the context of its position as a developing country and as “fall[ing] into the category of South–South Cooperation” (People’s Republic of China, 2011). Chinese officials frequently embrace the idea that China is also a developing country with a shared history of (negative) experience with imperial powers. It can be a politically powerful message vis-à-vis the history of traditional donors’ programs in many places. Carol Lancaster (2007, p. 5) argued in 2007 that

for political reasons they want to project their own distinctive image in Asia, Africa, and Latin America – one of South–South cooperation … one of having emerged rapidly (but not yet completely) from those problems, and one that will provide them with a separate and privileged relationship with the governments they are helping and cultivating.

Yet the reality is more complex. Strauss (2009, p. 792) writes that even though

official and semi-official speeches continue to be topped and tailed with the invocation of analogous pasts of underdevelopment, suffering at the hands of imperialism, and China’s presumptive superiority in being an all-weather friend … [this] is now looking more than a little threadbare in the light of China’s actual involvement … and its ever-increasing global presence.

In this sense, China is arguably no different from other donors in its disjuncture between its policy rhetoric and reality.

For both domestic and international reasons, and unlike “traditional donors”, Chinese foreign aid does not include a focus on democracy, good governance or human rights, which has led to much criticism and concern in the West (see, for example, Naím, 2007). It instead stresses the importance of stimulating economic growth and implementing a development model based on each country’s specific requirements and circumstances (Interview SP011, 17 September 2009). In this way China seeks to differentiate itself from traditional donors (Li, 2008).

Chinese foreign aid is provided in three forms: grants and interest-free loans (through state finances) and concessional loans administered through China Eximbank. According to the White Paper (2011), to the end of 2009 China had provided a total of 256.29 billion RMB (US$39.3 billion) in aid, made up of approximately 41 per cent in the form of grants, 30 per cent as interest-free loans and 29 per cent as concessional loans. A key problem in the literature on Chinese aid is the tendency to lump all of the different types of Chinese economic engagement together under the label “aid”. This ambiguity is partly the result of China’s lack of transparency in the types and terms and conditions of its assistance, but it is partly the result of lazy or confused analysis. The influential Congressional Research Service report ‘China’s Foreign Aid Activities in Africa, Latin America and Southeast Asia’ (Lum et al., 2009), for example, includes FDI in its calculations and relies on media reports for its data (Interview US057, 19 April 2010). Despite these flaws, the data continue to be used by high-profile publications and reports (such as The Economist, 13 August 2011).

In terms of the forms of aid, China classifies activities into eight categories: complete projects; goods and materials; technical cooperation; human resource development cooperation; medical teams sent abroad; emergency humanitarian aid; volunteer programs in foreign countries; and debt relief. At present, 40 per cent of China’s foreign aid expenditure is in the form of “complete projects”. ³

China’s approach to providing foreign aid is still very much focused at the government-to-government level, with the “state” still an integral component in its engagement. This political, state-led strategy is fraught with increasing challenges, including in the practical implementation of projects and (lack of) relationships with civil society and local communities. For example, officials of recipient governments find it frustrating that decisions (even seemingly insignificant ones) need to be referred to Beijing for approval, and that the Chinese insist on going through foreign affairs departments rather than working with the relevant executing division (Interview SP032, 8 October 2009). In addition, as one representative from an international civil society organisation in Suva stated: “Chinese assistance is government-to-government; there is no support for NGOs. [This] shows that their engagement is political” (Interview SP022, 29 September 2009). In addition, the plethora of Chinese actors – the Government, large state-owned enterprises, provincial-level companies, small-scale entrepreneurs, and migrants (legal and illegal) – makes controlling its state-driven agenda increasingly challenging for the Chinese Government. These issues have been discussed particularly in the African context (for example, Gill and Reilly, 2007; Dobler, 2009) and they generally apply to the South Pacific region as well. Alden and Hughes (2009, p. 564) are correct in arguing that “when analysing a relationship like that between China and Africa, the tendency to take the state as the main unit of analysis can rightly be criticised for neglecting that ‘China’ is anything but a unitary actor”. This is a particularly pertinent point to remember when analysing China’s (state and commercial) involvement in the resources sector.

Aid for Resources?

The Chinese Government (along with many developing country leaders) stresses the concepts of “win-win”, “equal partnership” and “mutual benefit” in the objectives and operation of Chinese aid. In reality, like most countries, China’s provision of foreign aid is utilised to further its foreign policy objectives. Chinese foreign policy expert Linda Jakobson (2011) explains that China’s “core interests” boil down to concerns about sovereignty, security and development. She cites high-ranking Chinese foreign policy official, Dai Bingguo, elaborating upon these as: China’s political stability (stability of the CCP leadership and socialist system); sovereign security; and China’s sustainable economic and social development. Chinese scholars such as Ding (2008, p. 195) concur, explaining that the official basic goals of China’s foreign policy are to “preserve China’s independence, sovereignty and territorial integrity”, and to “create a favourable international environment for China’s reform and opening up and modernisation construction”. In terms of more specific objectives of foreign aid, these can be broadly defined as serving economic growth and development (both in other developing countries and within China), geopolitical imperatives, and China’s desire to be seen as a responsible actor. ⁴

The program for each recipient country features different elements of these objectives according to variations in the local situation and what each country has to offer China in return. As Takaaki Kobayashi (2008, p. 36) explains in a report for JBIC (Japan Bank for International Cooperation), “Chinese aid follows the win-win principle and is given in ‘exchange’ for ‘something’ that contributes to its national interest. This ‘something’ may change in different times and with different countries”.

One of the most cited benefits of China’s engagement is that “aid” is just a small part of a broader economic relationship. Its aid program is primarily run through MOFCOM, the Ministry of Commerce, and the Government draws upon a range of financial mechanisms (“aid” and “non-aid”) when formulating economic and development agreements with other developing countries. As Brautigam (2010, p. 19) explains,

In 2006 the Chinese Eximbank announced that it had developed a “package financing mode” that can combine lines of export buyer’s credit (given to a borrowing country), export seller’s credit (short term credits given to a Chinese company) and concessional loans (foreign aid) which can be offered together, sometimes, but not always, for a specific project.

With this background in mind, it should not be surprising that foreign aid is sometimes used as leverage or an entry point for longer-term economic engagement – an avenue of enquiry that I explore later in this paper.

As highlighted in the introduction, there is widespread belief that much Chinese aid is linked to resource acquisition. In what seems to be an attempt to answer this accusation, the White Paper contains the following passage:

Of China’s concessional loans, 61% are used to help developing countries to construct transportation, communications and electricity infrastructure, and 8.9% are used to support the development of energy and resources such as oil and minerals (People’s Republic of China, 2011).

That said, the so-called “natural resource-backed loans and lines of credit” are of particular interest to us here as this seems to be the form of development assistance utilised directly for access to resources. Brautigam explains:

A country uses its natural resources to attract and guarantee an infrastructure loan from China on better commercial terms than it is likely to get from commercial banks. The loan is used to build infrastructure… In some cases … existing natural resource exports are used as security to guarantee repayment. In other cases, the loan will be contingent on a Chinese company gaining preferential access to a block of natural resources that will be developed, and the proceeds used to repay the loan (Brautigam, 2010, p. 21, emphasis in original).

Known as the “Angola Mode” for its early use by China in Angola, this type of financing arrangement has caused much consternation amongst other donors and governments (see, for example, Jansson, 2011) despite having been used by donors giving aid to China in the 1980s. Although they cannot be considered “foreign aid” by DAC standards, these resource-secured loans can potentially be a useful instrument for development, but this appears to be contingent on the strength of local agency (Vines, 2011). Further discussion and assessment of this form of development assistance is beyond the scope of this paper, but awareness of this “mode” is important when examining Chinese engagement in the South Pacific.

Chinese Aid in the South Pacific

In discussions of Chinese foreign aid and engagement with developing countries around the world there is frequently very little (or no) mention of the South Pacific region or individual Pacific Island states. Yet China’s role as a donor in the South Pacific region has been growing rapidly over the past decade and offers some interesting and unique insights into the links between aid, resources and investment. The role of Taiwan in the region also adds further complexities to China’s involvement and the broader regional dynamics. After situating China’s engagement in the broader South Pacific context, this section examines the debates about China’s objectives, perceptions of its aid, and the main focus, types and modes of Chinese aid in the region.

The past decade has seen an increased Chinese presence in the South Pacific. Trade and investment have grown as China seeks new markets and access to resources such as timber, copper and palm oil. China’s trade volume with Pacific countries reached a new high of US$3.66 billion in 2010, which is 50 per cent higher than the figure in the previous year (Han, 2011).

The China–Taiwan dynamic is significant in the South Pacific. Of the 14 countries in the region (excluding Australia and New Zealand), eight have diplomatic relations with China and six recognise Taiwan. The region has been the site of very active “chequebook diplomacy” in the past decade – including cases of both sides interfering in domestic politics (Crocombe, 2007, pp. 255–67). Pacific Island leaders, too, have been involved in playing China and Taiwan off against one another. There has recently been a tacit “agreement” between China and Taiwan not to actively compete for each other’s allies ⁵ and it seems to be holding sway in the region, although according to those closely involved, the dynamics are still very interesting in regional forums (Interview SP004, 10 September 2009).

There is a lot of debate about why China is giving aid to the region. The less-than-transparent nature of China’s foreign policy decisions and, in particular, its foreign aid programs, has resulted in the tendency to jump to negative conclusions about China’s involvement and the “threat” it may pose to the region. Whilst concerns about Chinese practices are in many ways legitimate, this form of analysis has the tendency to ignore the role of Pacific Island countries themselves in determining their partners as well as the appeal of China vis-à-vis existing practices in the region.

Until recently, the dominant Western discourse has presented China’s increased engagement in the South Pacific region as a “threat” to Western (in this case primarily Australia and New Zealand) strategic and development objectives, and has tended to characterise China as the “bully” or “dragon” of which South Pacific nations should be wary. Australia and New Zealand have traditionally seen the South Pacific as “their” backyard and over the past decade have focused particularly on promoting “good governance” and economic liberalisation through their aid programs. Australia has also played a significant role as a provider of security in response to political instability – the Regional Assistance Mission to the Solomon Islands is a prime example. The failed states discourse has been utilised to explain and in fact justify an increasingly interventionist approach to providing development assistance. In addition, Australia and New Zealand are currently trying to negotiate a regional free trade agreement known as PACER Plus, but many Pacific governments and NGOs are concerned about how the agreement will affect their economies and livelihoods (Maclellan, 2011; Morgan, 2012).

Following this strategic logic, Cold War-esque “China Threat” Western analyses, such as that offered by Susan Windybank (2005) or Tamara Shie (2007), cast suspicion on China’s involvement, suggesting that China has devised a comprehensive strategy to take advantage of waning US interest in the region, and that it is attempting to penetrate the region through emigration, all of which has a negative impact on the “arc of instability” in the Pacific. Even though the academic debate has become more nuanced, this discourse remains influential in policymaking and think-tank circles (see, for example, Radio Australia, 2011b), and China’s growing presence certainly appears to have sparked a renewed interest in the Pacific from traditional donors, including Japan, the EU and the US. For example, a representative from the Japanese Embassy in Fiji admitted that “Japan at the PALM 5 meeting increased its regional aid budget because of China. It saw what China last pledged and wanted to have a little more, so changed the budget” (Interview SP021, 28 September 2009).

The limited volume of analysis from Chinese scholars is generally at pains to point out that there is no evidence to suggest that China is trying to usurp Western predominance in the region. Jian Yang (2009), for example, concludes that the South Pacific is not essential to China’s security strategy and that China has neither the hard power nor the soft power to become a hegemon in the region in the foreseeable future. He does note in his 2011 monograph, The Pacific Islands in China’s Grand Strategy, that “China is playing an important role in the evolution of the regional order” (Yang, 2011, p. 145), but says its influence is not “deep rooted”, and that it has relatively poor connections in non-economic areas. Yang and others such as Zhang (2007) acknowledge that China has a demand for the natural resources found in the region, but emphasise that China’s engagement offers valuable development opportunities for the Pacific Island countries.

Chinese officials in the region employ familiar language when explaining China’s engagement. Chinese Minister of Commerce Chen Deming stated at the China–PIC Forum in 2008:

Politically, we believe every country, regardless of its size, strength and wealth is an equal member of the international community. We respect the individual choice of PICs for their way of development and their efforts in safeguarding sovereignty and regional stability (Chen, 2008).

Chinese Embassy officials also utilise these concepts when explaining China’s approach to foreign aid. A Chinese Counsellor in Fiji stated: “China doesn’t try to change recipient countries’ systems. [It is] always based on equality and mutual respect” (Interview SP011, 17 September 2009).

There is no denying that Chinese aid in the region contains “national interest” objectives, as it does throughout the rest of the “developing world”, but what the dominant analysis in reality objects to is not that China has a “strategic interest” in the region per se, but rather that it is potentially affecting Western “strategic interests”. NGOs and aid practitioners from bilateral and multilateral agencies actually working in country are more willing to accept and articulate the hypocrisy of Western concerns about China’s “strategic objectives” in the region, at least in private: “All donors have agendas – they differ in the extent they are hidden” (Interview SP013, 18 September 2009); “China is no different to other countries regarding wanting something from the region” (Interview SP017, 24 September 2009). As one donor representative admitted, “Western donors are just jealous and worried about increased competition” (Interview SP017, 24 September 2009). It seems that the more these concerns about China are articulated by Western officials and commentators the more they are dismissed by recipient communities as merely Western donors seeking to maintain “their” influence over their “special patch”. Such hypocrisy is rarely lost on anyone, including the Chinese.

In terms of access to natural resources more specifically, the most comprehensive book to date on China’s involvement in the region, China in Oceania, concludes that although China does have a significant interest in the resources in the region, “this is not sufficient to explain all aspects of its regional engagement” (Wesley-Smith and Porter, 2010, p. 22). As will be explored further below, Chinese aid is focused much more on other sectors. Despite this, the role of resources seems to be featuring more prominently in comments made by senior Western officials. New Zealand Foreign Minister McCully (2011), for example, recently stated:

China is simply doing in our neighbourhood what it is doing in every neighbourhood around the globe: undertaking a level of engagement designed to secure access to resources on a scale that will meet its future needs, and establishing a presence through which it can make its other interests clear… Minerals, timber and fish are all commodities that the Pacific is able to trade, and that China wants to buy.

A more notable (and provocative) example is comments made by US Secretary of State Hillary Clinton to the Senate Foreign Relations Committee in March 2011:

Let’s just talk, you know, straight realpolitik. We are in a competition with China. Take Papua New Guinea: huge energy find ... ExxonMobil is producing it. China is in there every day in every way, trying to figure out how it’s going to come in behind us, come under us (Quinn, 2011).

Regardless of the reality, then, the perception remains of “China Energy Inc.” at work and of China’s use of the provision of development assistance in support of this.

Reliable figures on Chinese foreign aid to the region are difficult to confirm. Currently, the ‘Economic and Technical Cooperation Framework’ ⁶ outlined by Chinese Premier Wen Jiabao in 2006 still constitutes the guiding framework for the China–Pacific Islands relationship. ⁷ China’s total aid (including concessional loans, grants and technical cooperation) approximates that of other important donors (Japan, NZ, European Commission), but is significantly less than Australia’s. The most recent Lowy Institute report – ‘China in the Pacific: The new banker in town’ (Hanson and Fifita, 2011) – claims that Chinese aid to PNG accounted for 58 per cent of China’s total aid to the region in 2009. This is unsurprising given PNG’s growing economy, increased investment opportunities and natural resources vis-à-vis most of the other island states.

There is a general perception that Chinese foreign aid to the region has been increasing significantly during the past few years, with many donors and commentators particularly concerned about China’s support for the Fijian Interim Government (Radio Australia, 2011b; Hanson and Hayward-Jones, 2009). The 2006 military coup in Fiji resulted in New Zealand, Australia and the EU (among others) suspending much of their development assistance to the Fijian Government. Although assistance to social sectors and poor communities continued – and is forecast to increase again, arguably in response to China’s ongoing engagement – key donors such as Australia still do not provide any aid to or through Fijian Government authorities. At the same time, China has continued to strengthen its relationship with Fijian Government representatives, including Commodore Bainimarama.

China’s foreign aid presence is certainly growing. However, despite reports suggesting more concessional loans, the April 2006 US$375 million Soft Loan Facility – a regional funding facility negotiated and disbursed bilaterally – currently constitutes the total pool of Chinese concessional loan funding to the region. Part of the confusion about annual Chinese aid figures, perhaps, stems from the fact that these funds have only recently begun to be accessed and disbursed. To compound this, political leaders and the media often tend to (re)announce the same funds numerous times – in part to trumpet China’s support.

Some analysts and commentators present Chinese aid as appealing to recipients because of “negative” factors – lack of transparency, less-stringent environmental requirements, policy of “non-interference” and so forth (for the most prominent example, see Naím, 2007). Indeed, many aid practitioners and representatives from traditional donor agencies in Fiji and PNG presented Chinese aid in this way in interviews: “Many countries appreciate China because they give them what they want” (Interview SP010, 17 September 2009); “The total lack of conditionality of their aid is certainly appealing to any developing country” (Interview SP049, 20 October 2009). Whilst many of these concerns are undoubtedly legitimate, the attempt to paint China as “bad” vis-à-vis traditional donors and the suggestion that recipient governments only like China because of these characteristics entrenches the patronising approach to “developing” countries, which was a factor that led them to seek out China in the first place. It also ignores what may be real benefits of Chinese aid, and denies recipient governments and communities the ability not only to determine their own development partners, but to be able to assess for themselves the benefits and drawbacks of Chinese funding. As Wesley-Smith and Porter (2010, p. 2) note, “…while there is concern about such an enormous and relatively unfamiliar power acquiring a significant stake in Pacific futures, there is also clear appreciation for China’s recent efforts in the region”.

It is clear that China’s aid programs are directed towards supporting China’s national interests in some fashion, but in the Pacific at least, this does not take the form of being focused primarily on the natural resources sector. While the Chinese Government may not have clearly articulated “country strategies” for the region, Chinese officials in the Pacific have said that they want to diversify their development assistance and have identified four main areas of focus: infrastructure and public services; production and technical services; human resources and capacity enhancement; and regional funding (Interview SP011, 17 September 2009). As Ron Crocombe (2007, p. 218) correctly identified,

China’s aid moved to a new level in 2006 and China widened the range to a pattern more typical of the other major established donors. It provides for major increases in assistance to agriculture, education, forestry, fishing, tourism, manufacturing, telecommunications, aviation, shipping and health.

The following representative list of examples seeks to highlight the range of sectors towards which Chinese aid in the form of grants was directed over 2009–11.

•	50 training workshops in Fiji in 2010
•	Provision of rice-growing experts, PNG
•	US$800,000 for the Pacific Islands Forum regional development plan, 2009
•	US$2.3 million to build the Navuso Bridge, Fiji
•	On-going provision of medical supplies and doctors, Port Moresby General Hospital
•	US$50,000 to Fiji Red Cross for Cyclone Tomas relief
•	US$1 million for Kosrae coastal erosion, Federated States of Micronesia
•	US$923,000 worth of military equipment to Tonga
•	US$2.2 million worth of construction machines and equipment provided to Fiji
•	A donation of US$50,000 to the PNG Red Cross to assist with the 2010 cholera outbreak.

In terms of concessional loans, a number of Chinese development assistance projects funded through the 2006 Soft Loan Facility have now (finally) been identified. The PNG Government identified two priority projects to be funded under the Chinese pledge: US$69.62 million for the Pacific Marine Industrial Zone Project (PMIZ) in Madang Province ⁸ and US$43.76 million for the University of Goroka Student Residence Building Project. In Fiji the Interim Government identified infrastructure, water supply and low-cost housing as projects to be funded under the scheme, including a request for the funds to be used for three roads to be built in 2011–12 (Tukuwasa, 2011). Tonga signed a US$45.28 million agreement with the Chinese, somewhat ironically, to fund the reconstruction after the (anti-Asian) riots that occurred in the capital in 2006, as well as US$42 million for roads. These examples suggest that the majority of Chinese concessional loan funding is still directed towards infrastructure-related projects. This is not surprising given it is an area that both China and Pacific Island Governments have identified as one where China can contribute, and the large size of the funding lends itself to larger infrastructural projects as well.

Chinese soft loans to the region are substantial vis-à-vis the relatively small national budgets and thus can have significant implications for Pacific Island countries and other donors. The benefit or success of Chinese loan assistance in many ways depends on the Pacific Island Governments’ ability and willingness to select projects that will benefit their communities and to enforce their own requirements when negotiating terms and conditions.

Like other donors, China has issued extensive debt relief throughout the world and there is a pervasive perception amongst leaders in the region that Chinese loans will ultimately be forgiven. The loans provided by China to PNG in the 1980s and 1990s, for example, have yet to be repaid. A confidential Chinese Government document from 2008 that has been sighted by the author spells this out unambiguously:

Despite the loan agreement stating that the Government of PNG should repay the loans, to date no principal payment has been made due to non-receipt of the billing advice, account details and other relevant information from Bank of China. We have made numerous requests to them to [provide] the payment advice albeit unsuccessfully. ⁹

A PNG official confirmed this in an interview: “One of the difficulties is when we ask for information about when to pay, they don’t provide it, so we say jokingly that it is actually a grant” (Interview SP027, 5 October 2009).

The issue of debt sustainability in the smaller island states has become a concern. In Tonga, for example, traditional lenders are concerned that the country has already reached a level of debt that is a problem, but it is negotiating further loans with China (with the expectation they will be forgiven down the track). Because of this concern, it is wary of providing any more loans due to repayment risks and is concerned that high levels of borrowing are undermining its own focus on improving financial management (Interview SP017, 24 September 2009). The Fijian Government recently asked China to write off some of the early loans, but the Chinese side refused for the time being (although it did not dismiss the option completely) (Interview SP017, 24 September 2009). One of the critiques of the concept of debt forgiveness is that recipient countries are often blamed for “irresponsible” borrowing, but the onus should also be on donors to ensure “responsible” lending. If China chooses to transform loans into grants, that is not a problem per se; however, what needs to be further examined is whether the perception that loans will ultimately be forgiven is prompting recipient governments to seek funding for projects that are not sustainable or are inappropriate. The US$13 million aquatic centre complex in Samoa is a pertinent example that has caused concern from traditional donors and the local community – about on-going maintenance costs and appropriateness of a “world class” facility in a city of fewer than 40,000 people (Lesa, 2009).

Significantly, the finance minister in the Cook Islands decided to put a Chinese loan “on hold” due to concerns about taking on more debt. The loan was for US$37 million (around 17 per cent of GDP!) for road and water projects. They also turned down a suggestion from CCECC (China Civil Engineering Construction Corporation) to ask the Chinese Embassy for funds to rebuild 200 homes destroyed by Cyclone Pat, in part because they want to engage as many locals as possible in the recovery work (Greig, 2010). This seems to indicate that the processes around Chinese aid are not static and in many respects depend upon the desires and strategies of recipient government leaders in negotiating good development outcomes for their communities.

Interviews did reveal that some recipient officials express frustration with Chinese aid, in part because “nothing is in writing”. In discussions with the Chinese about terms and conditions of loans, including repayment periods and transformation into grants, “the Chinese always say, we can sort it out if and when it comes to that” (Interview SP026, 5 October 2009). Details of contracts and procurement are often scarce and recipient communities have legitimate issues about ensuring that the costs are accurate and they are getting best value for money. One provincial government official in PNG explained their concern:

Say they have something worth 3 million Kina. With Australia you would know what it was all for. The Chinese always negotiate, try to bargain. And, even though it might be worth 3 million Kina, they have their own workers, materials, so what do we get out of it? (Interview SP044, 15 October 2009).

Another government official complained: “[We have] no way of verifying purchases and costs. They would say they had bought ‘x’ amount of concrete at ‘x’ cost, but [we] would never see any actual details” (Interview SP016, 24 September 2009).

This leads us to the issue of non-conditional aid. Alongside their insistence on respecting state sovereignty through non-interference, Chinese officials promote their norm of not attaching conditions to aid. Premier Wen at the inaugural China–PIC Forum in 2006 stated: “China stands ready to provide assistance without any political strings attached” (Wen, 2006, emphasis added). More recently, after the Pacific Islands Forum in 2009, Wang Yongqiu, head of Pacific relations in the Chinese Foreign Ministry said, “our aid comes with no political strings attached. It is not a means to exert political pressure or to seek political privileges…” (Callick, 2009). Significant is the emphasis on the lack of political conditions rather than conditionality per se. What is now well known is that Chinese foreign aid does have conditions attached, even if they are not political or policy-related. In the case of concessional loans in particular, the contractor must be a Chinese company and at least 50 per cent of the materials must be procured from China. Because of this feature, Chinese aid is heavily criticised by other donors (and recipient communities) for being “tied”, against the OECD–DAC trend of “untying” aid. Interestingly, recipient government officials did not see this as a problem with Chinese aid per se. “In reality, most aid is still tied – to consultants and experts – so in this aspect China is no different” (Interview SP026, 5 October 2009). “Most Chinese aid is tied, like AusAID, to be frank” (Interview SP030, 7 October 2009).

The condition of using a Chinese contractor to implement an aid project has created numerous problems and highlights challenges within the Chinese aid mechanisms in the Pacific and elsewhere. For example, the Chinese Government, in outlining the process, explained that the recipient finds the contractor (Interview SP011, 17 September 2009). Technically, this may be true, but those involved in negotiating the housing loan deal in Fiji, for example, stressed that one of the biggest challenges was finding a Chinese company that was approved by the Chinese Government; a process fraught with issues and complicated by language barriers. The contract was advertised through the Fijian Embassy in Beijing and applicants applied directly to the relevant Fijian Government authorities. As someone closely involved in the negotiations explained: “[We] received a number of applications for the contract, would select one, only to find out they weren’t approved… Even the Chinese Embassy here couldn’t tell us if China Railway Group were approved” (Interview SP020, 28 September 2009).

A related issue throughout the region, which is especially explosive in PNG, is the influx of Chinese migrants who are brought in to work on Chinese aid (and investment) project sites. Interviews revealed that in the eyes of local communities there is no distinction between Chinese migrants who come “independently” and are involved in small-scale investments and those workers specifically brought in for Chinese projects. Whilst the issue is complex and problems are widespread there is a question increasingly being asked as to why the PNG Government, for example, “is bending the [immigration] rules for the Chinese” (Interview SP052, 21 October 2009). PNG has quite strong legal requirements regarding language skills and work permits, which are often being disregarded on both sides in order to facilitate Chinese funding (Smith, 2012).

This exploration of Chinese aid in the South Pacific has sought to highlight the dynamics of China’s engagement, particularly the complexities relating to its objectives, priorities and financing modes. The following section will examine more specifically the nexus between Chinese aid and investment in natural resources in the region, offering some examples for comparison with other parts of the “developing world”.

Chinese Aid: State and Commercial Interests

Western donors have been working for years to ensure a distinction between their commercial and aid endeavours in a country. “In the early years of official development assistance, donor countries commonly competed with each other in part by drawing on their ODA to subsidise attractive financing packages for their exports” (Brautigam, 2010, p. 7); however, a voluntary norm has been in place since 1978 to restrict this practice and since then financing modes such as export credits have not been able to be counted as foreign aid under OECD–DAC regulations (OECD, 1978).

As highlighted earlier, the Chinese Government utilises a range of financing mechanisms in its engagement with other developing countries. In addition, there is often a strong link between “aid” and “investment” projects, making accurate classification of a project difficult. The commercial aspect of Chinese aid is criticised as being self-interested; however, concepts such as the WTO’s “aid for trade” and the EU’s “policy coherence for development agenda” seek to address the links between aid, development and trade, as well as to encourage a coherent approach to international and bilateral relationships, and China’s policies may be aligned in this regard. The possible appeal of China’s approach of treating its relationship with a country more holistically needs to be explored further. Such an approach no doubt leads to concerns about corruption and lack of transparency in aid/investment deals, but arguably should not be disregarded too rapidly. As one PNG Government representative commented: “China’s ‘business approach’ is appealing to governments – they know that China is also benefiting. It is more upfront” (Interview SP032, 8 October 2009).

The following examples from the resources sector in Fiji and PNG provide interesting insights into the relationship between Chinese investment and aid, revealing that whilst access to resources is an important part of China’s engagement in the region, it is not a specific part of its aid policy and agreements. The Chinese-funded Nadarivatu hydrodam in Fiji was initially believed to be part of the Soft Loan Facility and reported as such by the 2009 Lowy Institute Report (Hanson, 2009), but my investigations reveal that this is not the case. The Fijian Government still maintains it is a concessional loan, but the Chinese Embassy in Suva, Sinohydro (the contracted Chinese company), and Fiji Electricity Authority (FEA), who took out the loan, all insist it is commercial. The fact that the loan is taken out with the China Development Bank (CDB) provides further evidence that this is the case, as CDB does not provide concessional aid funding. The construction of the dam is reported to cost a total of US$155 million, and while this is not an aid project, the Chinese company received support from the Chinese Embassy in Fiji for its application for the contract, for the establishment of crucial links with the Fijian Prime Minister’s Office, and in forms such as donations of equipment to the local community. Sinohydro representatives acknowledge these advantages of being a SOE but suggest that “this is okay because China needs to support its companies because it is hard to compete with Western companies in the international arena” (Interview SP019, 27 September 2009).

There is also a new desire on the part of Fiji to capitalise on China’s willingness to invest in the mining sector, with the chairman of Fiji’s Mining and Quarrying Council predicting that mining will be the country’s number one export earner within five years. A recent Radio Australia (2011a) program reported that the first set of native title lands has been leased to a Chinese company, Xinfa Aurum, which has begun mining the land and exporting bauxite to China to be used in Chinese aluminium products. This is a recent development that should be followed closely, particularly to see whether any Chinese foreign aid is used in support of the commercial activities.

Papua New Guinea is said to be on the edge of a major resources boom, with numerous mining projects and the mammoth LNG project likely to double the size of PNG’s economy over the next decade (Morris, 2011). The largest Chinese investment is the US$1.4 billion Ramu nickel and cobalt mine project in Madang Province. Here, too, we see the Chinese aid and investment relationship at play. This is a commercial contract signed at the very top political level, undertaken by a Chinese state-owned enterprise, and supported – to a certain extent – by the Chinese Embassy in Port Moresby; it includes a key road in the mine area being funded through a Chinese Government aid grant ¹⁰ and reports of villagers from “mine affected communities” receiving scholarships and training opportunities under Chinese Government aid grants (Interview SP041, 13 October 2009). The project itself has been fraught with challenges (Smith, 2011), which complicates not only the relationship between the Chinese and PNG Governments, but also between the Chinese state and the commercial investor, one of its state-owned enterprises.

These brief examples indicate where a significant difference exists between Chinese foreign aid and Western aid – in the willingness for the Chinese Government to use its aid program to support Chinese commercial projects, either to help facilitate the agreement in the first place, or to assist when the company faces local community backlash, or more generally to support the investment itself. Importantly, this is not the same as the “aid and investment packages” or “resource-for-aid” deals that have featured in some other developing country regions. The types of support seen in the South Pacific are less formalised. Whilst there are still many instances of Western aid being “tied” or boomeranging back to the country’s own contractors and Chinese aid mechanisms (at least the concessional loans) in fact require a certain amount of “tying” (it has to be win-win after all), the utilisation of an aid program to directly support a commercial investment is not (or should not be) part of DAC aid, and thus is a noteworthy distinction.

The benefits of this “aid and investment” link to China and (potentially) developing countries have already been outlined, but this dynamic can also present challenges for the Chinese aid program and its overall engagement in a country. Chinese companies contracted for aid (and investment) projects focus on getting them completed “on time and on budget”. They do not see themselves as accountable for any “side effects” associated with their approach or tactics. This reflects the challenges of China’s current system of overseas aid and investment projects. We are seeing an increasing disjuncture between a SOE’s imperative on individual projects and the Chinese Government’s broader strategic relationship with and goals in a country. In other words, the actions of Chinese companies are frequently negatively affecting the way China is perceived. In the eyes of local communities there is no distinction between Chinese Government “aid” projects and commercial investments; they are seen as the same thing because companies are “government supported” (Interview SP046, 16 October 2009). In the long run the approach and use of Chinese companies may be detrimental and may prompt China to develop different mechanisms for undertaking large aid projects.

Conclusion

This article has provided an analysis of China’s foreign aid program and practices, particularly examining the objectives and mechanisms and the ways in which they are related to commercial interests and resource acquisition. In focusing on these dynamics in the South Pacific region, this paper highlights interesting aspects that serve to complement existing analyses of China’s involvement in other parts of the world. Unlike in other regions, in the South Pacific there are (as yet) no examples of resource deals being explicitly part of Chinese aid. Current policies suggest that the resources sector is not an overriding focus or objective of Chinese aid in the region. A notable feature of Chinese aid in the region, however, is the way that the foreign aid program is being utilised to support commercial activities, including in the resources sector, particularly when problems have arisen. The nexus between aid and investment and commercial and state interests that features quite prominently in Chinese development assistance presents an interesting challenge for traditional donors who (in theory at least) separate “aid” from other forms of engagement with developing countries. It also, however, presents increasing difficulties for the Chinese state in managing the often-conflicting objectives, desires and practices of its state-owned enterprises and diplomatic apparatus.

LIST OF INTERVIEWS CITED

Table

Code Number	Date	Location	Type of Stakeholder
SP004	11 September 2009	Suva, Fiji	Regional organisation
SP010	17 September 2009	Suva, Fiji	Traditional donor (bilateral)
SP011	17 September 2009	Suva, Fiji	Chinese official
SP013	18 September 2009	Suva, Fiji	Government body
SP016	24 September 2009	Suva, Fiji	Government official
SP017	24 September 2009	Suva, Fiji	Traditional donor (multilateral)
SP019	27 September 2009	Lautoka, Fiji	Chinese company
SP020	28 September 2009	Suva, Fiji	Government body
SP021	28 September 2009	Suva, Fiji	Embassy official
SP022	29 September 2009	Suva, Fiji	Civil society
SP026	5 October 2009	Port Moresby, PNG	Government official
SP027	6 October 2009	Port Moresby, PNG	Government official
SP030	7 October 2009	Port Moresby, PNG	Government official
SP032	8 October 2009	Port Moresby, PNG	Government official
SP041	13 October 2009	Port Moresby, PNG	Academic, UPNG
SP044	15 October 2009	Madang, PNG	Provincial government official
SP046	16 October 2009	Madang, PNG	Civil society
SP049	20 October 2009	Port Moresby, PNG	Traditional donor (multilateral)
SP052	22 October 2009	Port Moresby, PNG	Traditional donor (multilateral)
US057	19 April 2010	Washington, DC, USA	Government research officer
CN064	6 May 2011	Beijing, China	Traditional donor (bilateral)

Acknowledgments

This article was first prepared as a paper for the ‘International Politics of Resources: China, Japan and Korea’s Demand for Energy, Minerals and Food’ workshop at the China Research Centre, UTS, 28–29 July 2011, and benefited from feedback from workshop participants, particularly Kate Barclay and Graeme Smith.

Notes

1. The strategy and its related initiatives include the promulgation of guidelines on outward FDI by countries and sectors, information regarding foreign countries’ investment environment and opportunities, delegation of authority by the central government to certain provinces and municipalities and further relaxation of foreign exchange controls on outward investment (Rutherford et al., 2008, p. 1).

2. For example, the strong involvement of the China Development Bank (CDB) in financing US$50 billion worth of large, long-term oil supply agreements with Russia, Kazakhstan, Brazil, Venezuela and Ecuador.

3. According to the White Paper, “complete projects” refer to productive or civil projects constructed in recipient countries with the help of financial resources provided by China as grants or interest-free loans. The Chinese side is responsible for the whole or part of the process, from study, survey, to design and construction, provides all or part of the equipment and building materials, and sends engineers and technical personnel to organise and guide the construction, installation and trial production of these projects. After a project is completed, China hands it over to the recipient country.

4. In contrast to the situation of many “traditional donors”, there are no real domestic civil society pressures on the Chinese Government to give aid to other countries. The Chinese Government has, however, started to educate the Chinese public about its overseas aid program. Given the significant social and economic challenges still facing much of the population, this is partly to respond to negative public reactions to its aid program (see Brant, 2011a for more details).

5. Since the election of President Ma Ying-Jeou in Taiwan in 2008 there has been an informal agreement to not actively contest for each other’s diplomatic allies.

6. Summary available from www.gov.cn/english/2006-04-06/content_246674.htm

7. A new agreement will reportedly be negotiated in late 2012.

8. As at November 2011 this loan had yet to be disbursed as the Chinese contractor was still awaiting release of PNG Government counterpart funds.

9. Confidential documents sighted by the author. These loan terms have now been extended by 10–15 years.

10. Papua New Guinea Annual Budget Report 2011, Volume 3, Section A, National Departments, Public Investment Project Number 2794: Usino Junction-Yamagi (Ramu), pp. 471–72.