Trading with the Dragon: Chinese trade, investment and development assistance in the Pacific Islands

Abstract

Chinese development assistance, raw material exploitation, investment and trade increases in their region are causing Pacific Islanders to ask: ‘Why are the Chinese interested in Pacific Island states?’ and ‘Why has there been an upsurge of the Chinese influence in the Pacific?’. This article seeks to add to the debate on that issue by examining the nature and the evolving purpose of Chinese engagement with the small island states of the Pacific. Only a small proportion of China's outbound investment goes to the Pacific Islands, but it has a considerable effect on the region's economically dependent states. Pacific Island nations have a pressing need for overseas investment and are highly dependent on development assistance. They are, therefore, particularly vulnerable to external players.

Notes

^1. China's ‘going global’ policy was discussed in the 1990s, but did not assume its present form until 2006. In April 2006 the China–Pacific Island Countries Economic Development Forum was convened. The forum in the Pacific paralleled a number of other forums and cooperative arrangements including the China–Caribbean Economic and Trade Cooperation Forum and the Forum on China–Africa Cooperation [China Daily, (13 August 2010)]. Some commentators on China's ‘going global’ policy date the policy's widespread adoption from 2002. See Yin-Wong Cheung and Jakob de Haan, eds, The Evolving Role of China in the Global Economy (Cambridge, MA: MIT Press, 2013), p. 420. We argue that the 2006 date is a more relevant date to use when discussing China's ‘going global’ policy in relation to Pacific Island nations.

^2. The Pacific Islands region encompasses eight small territories and five freely associated states, with 90% of the region's total population of just over ten million living in the nine independent countries, Papua New Guinea, Solomon Islands, Vanuatu, Fiji, Samoa, Tonga, Tuvalu, Kiribati and Nauru. Mostly small in land area, all Pacific Island states have large maritime exclusive economic zones under the Law of the Sea Convention, and some have considerable mineral resources.

^3. ‘Infrastructure bank promotes win–win co-op in Asia’, China Daily, (25 October 2014); and Friedrich Wu and Koh De Wei, ‘From financial assets to financial statecraft: the case of China and emerging economies of Africa and Latin America’, Journal of Contemporary China 23(89), (2014), pp. 781–803.

^4. The recent establishment of both the BRICS Development Bank (headquartered in Shanghai) and the Asia Infrastructure Investment Bank—AIIB (with headquarters in Beijing and with an initial capital holding of US$50 billion)—will further advance and promote global infrastructural development and the routinisation of the ‘new growth momentum for China's overseas project contracting business’. See ‘Abundant overseas opportunities’, China Daily, (9 May 2014); and ‘Infrastructure bank promotes win–win co-op in Asia’, China Daily.

^5. Christopher M. Dent, ed., China and Africa Development Relations (London: Routledge, 2011). See Terence Wesley-Smith and Edgar A. Porter, eds, China in Oceania (New York and Oxford: Berghahn Books, 2010), p. 49; Jian Yang, The Pacific Islands in China's Grand Strategy: Small States, Big Games (New York: Palgrave Macmillan, 2011); Jian Yang, ‘China in the South Pacific: hegemon on the horizon?’, The Pacific Review 22(2), (2009), pp. 139–158; and Anne-Marie Brady, ed., Looking North, Looking South: China, Taiwan and the South Pacific (New Jersey: World Scientific Publishing Company, 2010).

^6. For the strategic dimension, see Terence Wesley-Smith, ‘China's rise in Oceania: issues and perspectives’, Pacific Affairs 86(2), (2013), pp. 351–372.

^7. It is worth stressing that China's assertive behaviour in the Pacific is no different from its approach to other regions in the global South.

^8. Dent, China and Africa Development Relations, p. 143.

^9. ‘China to encourage investment in Pacific Islands’, Xinhua, (8 November 2013).

^10. ‘China assists Pacific Island countries with clean energy projects’, Xinhua, (6 September 2013).

^11. ‘Yan Zhiyong meeting with Fiji minister’, China Daily, (15 August 2013).

^12. ‘China assists Pacific Island countries with clean energy projects’, Xinhua.

^13. ‘China cooperates with international organizations in foreign aid’, Xinhua, (10 July 2014).

^14. ‘China–NZ–Cook Islands water project boost for development: New Zealand FM’, Xinhua, (20 February 2014).

^15. Kate Chapman, ‘US to follow NZ lead in China aid’, stuff.co.nz, (1 September 2012), available at: http://www.stuff.co.nz/national/politics/7593279/US-to-follow-NZ-lead-in-China-aid (accessed 13 November 2014).

^16.List of US–China Cooperative Projects (US State Department, 22 January 2014), available at: http://www.state.gov/r/pa/prs/ps/2014/01/220530.htm (accessed 13 November 2014).

^17.Australia and China Enter New Development Cooperation Partnership, Media Release (Department of Foreign Affairs and Trade, 10 April 2013), available at: http://foreignminister.gov.au/releases/2013/bc_mr_130410.html (accessed 13 November 2014). In Tonga alone some 4,000 patients were seen by the ship's staff. See ‘Peace Ark delegation visits Fijian government agencies’, Xinhua, (25 August 2014).

^18. Suisheng Zhao, ‘A neo-colonialist predator or development partner? China's engagement and rebalance in Africa’, Journal of Contemporary China 23(90), (2014), pp. 1033–1052.

^19. ‘Ramu NiCo loads first shipment’, The National, (6 December 2012).

^20. ‘Resource-rich republic nets major FDI’, China Daily, (11 June 2014).

^21. ‘PNG LNG project begins loading first export tanker’, Australia Network News, (14 May 2014).

^22. Vatukoula Gold Mines, available at: http://www.vgmplc.com/about/directors/ (accessed 13 November 2014).

^23. ‘Thumbs up for bauxite’, Fiji Times, (20 August 2013).

^24. ‘Amex Resources snares China offtake agreement for first iron ore mine in Fiji’, proactiveinvestors.com, (9 August 2012), available at: http://www.proactiveinvestors.com.au/companies/news/32199/amex-resources-snares-china-offtake-agreement-for-first-iron-ore-mine-in-fiji-32199.html (accessed 13 November 2104).

^25. Papua New Guinea Mine Watch, available at: nhttp://ramumine.wordpress.com/2014/01/09/amex-resources-books-construction-start-date-for-mba-delta-iron-sands-project-fiji (accessed 13 November 2014).

^26. Tina Hunter and Madeline Taylor, Deep Sea Bed Mining in the South Pacific: A Background Paper (Centre for International Minerals and Energy Law, University of Queensland, 2013), p. 3.

^27. ‘18 Prospecting licenses approved by Fiji. Exploration could lead to ways to mine safely: official’, Fiji Times, (12 December 2013).

^28.The Prospect: News from the Pacific Deep Sea Minerals Project no. 2, (September 2013).

^29. Ruizhong Hu, Jiangming Liu and Mingguo Zhai, eds, Mineral Resources Science in China: A Roadmap to 2050 (Beijing: Science Press; Berlin and Heidelberg: Springer-Verlag, 2010), p. 76.

^30. ‘China enters race with foreign rivals to mine the seabed for valuable minerals’, South China Morning Post, (14 February 2014).

^31. See Ian Taylor, China's New Role in Africa (Boulder, CO and London: Lynne Rienner, 2010), p. 16; Dent, China and Africa Development Relations, p. 79; and Joshua Eisenman, Eric Heginbotham and Derek Mitchell, eds, China and the Developing World (New York and London: M. E. Sharpe, 2007), p. xiii.

^32. ‘Xi Jinping to visit Fiji for meetings with 8 Pacific Island state leaders’, Xinhua, (14 November 2014).

^33. ‘White Paper: China's foreign aid’, reproduced in China Daily, (22 April 2011). See also ‘Full text: China's foreign aid’, reproduced in Xinhua, (21 April 2014).

^34. Elizabeth C. Economy and Michael Levi, By All Means Necessary: How China's Resource Quest is Changing the World (Oxford: Oxford University Press, 2014), p. 10.

^35. Dent, China and Africa Development Relations, pp. 4, 42.

^36. Sigfrido Burgos and Sophal Ear, ‘China's oil hunger in Angola: history and perspective’, Journal of Contemporary China 21(74), (2012), pp. 351–367; and Zhao, ‘A neo-colonialist predator or development partner?’, pp. 1033 and 1045.

^37. Lowell Dittmer and George T. Yu, eds, China, the Developing World, and the New Global Dynamic (Boulder, CO and London: Lynne Rienner, 2010), pp. 42–44.

^38. Zhao, ‘A neo-colonialist predator or development partner?’, p. 1036.

^39. See Taylor, China's New Role in Africa, p. 47; Dittmer and Yu, China, the Developing World, and the New Global Dynamic, pp. 40–50; and ‘Going green urged in overseas investment’, China Daily, (7 November 2013).

^40. Zhao, ‘A neo-colonialist predator or development partner?’, pp. 1043–1044.

^41. Matthew Dornan, ‘Nadarivatu hydro scheme—a Chinese–Fijian partnership with pros and cons’, East Asia Forum, (22 May 2012).

^42. ‘Emerging sectors to see more investment’, China Daily Africa, (18 October 2013). See also ‘ODI set to become more diverse’, China Daily, (16 October 2013).

^43. ‘Expert calls for careful planning as more enterprises expand abroad’, China Daily, (28 February 2014).

^44. See Julia C. Strauss and Martha Saavedra, eds, ‘China and Africa: Emerging Patterns in Globalization and Development’, China Quarterly Special Issues 9, (October 2009), p. 83.

^45. ‘Chinese, PNG workers fight at nickel mine: Chinese manager blames local workers for violence’, The National [PNG], (11 May 2009).

^46. ‘PNG's Ramu nickel mine closed after attack: 5 employees injured, millions of dollars of equipment damaged’, The National [PNG], (6 August 2014).

^47. Economy and Levi, By All Means Necessary, pp. 84–85.

^48. ‘Ramu mine: Kurumbukari landowners angered’, Papua New Guinea Mine Watch, (11 February 2014).

^49. ‘Concerns raised in Vanuatu over influx of Chinese retailers: more than 87 new Chinese shops in Port Vila’, Vanuatu Daily Post, (4 January 2012).

^50. Though it was not a factor in the corruption charges made against Chinese interests at the time of the social unrest in the Solomon Islands, there is the potential for corrupt behaviour when it comes to Chinese companies bidding for infrastructure projects. ‘Using bribery to secure government contracts is common in Chinese business practice and China is accused of exporting unconcealed corruption to Africa’ (Zhao, ‘A neo-colonialist predator or development partner?’, p. 1041). In many instances Pacific Islands' experience of Chinese interests has followed the experience of African countries.

^51. Matthew Allen, ‘The politics of disorder: the social unrest in Honiara’, in Sinclair Dinnen and Stewart Firth, eds, Politics and State-Building in Solomon Islands (Canberra: Asia Pacific Press and ANU E Press, 2008), p. 44.

^52. Graeme Smith, ‘Chinese reactions to anti-Asian riots in the Pacific’, Journal of Pacific History 47(1), (2012), p. 97; see also Graeme Smith, ‘Beijing's orphans? New Chinese investors in Papua New Guinea’, Pacific Affairs 86(2), (2013), pp. 327–349.

^53. ‘China–Africa ties set to expand’, China Daily, (6 May 2014).

^54. ‘China–Africa trade cooperation has broad prospects: Chinese minister’, Xinhua, (6 May 2014).

^55. ‘China–Africa ties set to expand’, China Daily; ‘China CNR makes tracks in quest for overseas expansion’, China Daily, (12 January 2013); and ‘Chinese, Nigerian leaders vow to expand cooperation, upgrade ties’, Xinhua, (7 May 2014).

^56. ‘Li delivers high-speed rail vow to Africa’, China Daily, (9 May 2014).

^57. Philippa Brant, ‘Chinese aid in the South Pacific: linked to resources?’, Asian Studies Review 37(2), (2013), p. 169.

^58. ‘China offers to rebuild PNG's Highlands Highway’, Radio Australia, (14 June 2012).

^59. ‘Papua New Guinea to tap China loan’, Wall Street Journal, (3 December 2012).

^60. ‘The dragon's in the detail with Chinese kina’, The Garamut, (16 October 2012).

^61. Henry Sanderson and Michael Forsythe, China's Superbank: Debt, Oil and Influence—How China Development Bank is Rewriting the Rules of Finance (Singapore: Bloomberg Press/Wiley, 2013), p. xvii.

^62.Ibid., p. xiii.

^63. ‘Fiji commissions 40-MW Nadarivatu hydroelectric plant’, HydroWorld.com, (18 September 2012), available at: http://www.hydroworld.com/articles/2012/09/fiji-commissions-40-mw-nadrivatu-hydroelectric-plant.html (accessed 13 November 2014).

^64. ‘Chinese engineers to assess projects in French Polynesia: team to look at possible infrastructure projects in January’, Radio New Zealand International, (31 December 2013); ‘The major plans of President Gaston Flosse move into a concrete phase’, Tahitinews, (7 February 2014), available at: http://tahitinews.co/english/the-major-plans-of-president-gaston-flosse-move-into-a-concrete-phase/ (accessed 13 November 2014).

^65. ‘Work starts on first phase of PNG's Lae highway: Lae to Nadzab airport project, first of several, driven by economic boom’, The National [PNG], (4 June 2014).

^66. ‘China to build two major roads in Port Moresby: construction of $111 million projects to be done by Chinese firms’, The National [PNG], (8 May 2014).

^67. ‘O'Neill reaffirms China Railway Company’, PNG Post-Courier, (13 February 2014).

^68. Mary Fifita and Fergus Hanson, China in the Pacific: The New Banker in Town (Sydney: Lowy Institute, 2011), p. 5. Chinese development assistance has leapt forward in the Pacific since China's 2006 ‘going global’ policy began to be implemented in its present form. Chinese Premier Wen Jiabao visited Fiji in 2006 for the first China–Pacific Island Countries Economic Development and Cooperation Forum and promised soft loans worth US$376 million.

^69. Federated States of Micronesia President Emanuel Mori, Samoa Prime Minister Tuilaepa Lupesoliai Sailele Malielegaoi, Papua New Guinea Prime Minister Peter O'Neill, Vanuatu Prime Minister Moana Carcasses, the Cook Islands Prime Minister Henry Puna, Tongan Prime Minister Siale'ataonga Tu'ivakano, Niue Premier Toke Talagi and Fiji's Minister for Agriculture, Fisheries and Forests and Rural and Maritime Development Inia Seruiratu.

^70. Pacific Institute of Public Policy, ‘Unsure Refuge: Rash, Unsound Borrowing and Predatory Lending Practices are Leading Some Pacific Island Countries Towards Insolvency’, Discussion Starter 25, October 2013, p. 3. Part of the basis for thinking that debts would be forgiven by Beijing has been ‘a goodwill gesture’ that saw the Chinese government ‘unambiguously’ forgiving ‘US$10 billion in bilateral debts with many African countries’. See Burgos and Ear, ‘China's oil hunger in Angola’, p. 358.

^71. See ‘Wide-range of regional cooperation’, China Daily, (13 August 2010).

^72. ‘Tonga: islands warned about debts to China’, Cook Island News, (6 June 2014).

^73. Matthew Dornan, Denghua Zhang and Philippa Brant, ‘More Chinese loans to Pacific Islands but no debt forgiveness’, East Asia Forum, (20 November 2013), available at: http://www.eastasiaforum.org/2013/11/20/more-chinese-loans-to-pacific-islands-but-no-debt-forgiveness/ (accessed 13 November 2014).

^74. ‘Tonga's bid to write-off Chinese loan yet unsuccessful country borrowed $119 million for reconstruction of Nuku'alofa’, Matangi Tonga Magazine, (5 September 2014).

^75. Tongan government budget papers optimistically propose the establishment of a debt sinking fund to help with future debt repayments. See Tonga Budget Statement 2014–15, pp. 54–55.

^76. ‘Tonga receives 2nd donation of China aircraft’, China Daily, (7 August 2014).

^77. See ‘CRBC cements Sino–Kenya ties’, China Daily Africa, (9 May 2014); ‘China to dig tunnel for Asian rail system’, China Daily, (9 May 2014); and ‘Conferees like Asia investment bank idea’, China Daily, (9 May 2014).

^78. This is unsurprising when we consider that the legitimacy of the Chinese leadership depends on a developmental elite's ability to ensure continued economic growth and rising living standards for the majority of its citizens, particularly urban residents.

^79. ‘China's outbound investment grows in Jan–Sept’, China Daily, (18 October 2013).

^80. Graeme Smith and Paul D'Arcy, ‘Global perspectives on Chinese investment’, Pacific Affairs 86(2), (2013), p. 218.