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20 July 2020

The Risks of China’s Ambitions in the South Pacific

Originally published by The Brookings Institution as part of its Global China series assessing China's growing role in the world. 

Jonathan Pryke
Jonathan Pryke

Over the last two decades China has been steadily building its influence in the South Pacific. Many perceive this expansion to be growing at a rate much faster than what could be considered a natural reflection of China’s growing economic and geopolitical clout. This has left many analysts in the West to ask, what is China’s ambition in the South Pacific, and what risks does this create? In the past three years, China’s footprint in the South Pacific has become so large, and its behavior in other parts of the world so much more assertive, that alarm bells have started to sound in capital cities of the South Pacific’s traditional partners.

THE STRATEGIC SIGNIFICANCE OF THE PACIFIC ISLANDS

The South Pacific is known for its pristine beaches, geographic and cultural diversity, and unique development challenges. With a cumulative population of under 13 million people, these 14 sovereign nations and seven territories span over 15% of the world’s surface. Pacific nations of the Melanesian sub-region skirt Australia’s east coast. Only 6 kilometers separate Australia and Papua New Guinea, while a mere 2,000 separate Australia and Vanuatu. Further north, atolls in eastern Kiribati come within 3,000 kilometers of Hawaii while Palau is 1,300 kilometers from Guam.

The dual tyrannies of small size and remoteness make conventional economic pathways in most of these countries very difficult, if not impossible. Some of the highest population growth rates in the world and overcrowding, particularly in the atoll states,[1] are compounding existing development challenges. South Pacific nations are also among the most exposed to natural disasters in the world,[2] a threat being further exacerbated by climate change. All of these factors combine to make the Pacific one of the most fragile regions in the world, and the most aid dependent.[3] While each Pacific nation has their own unique set of development challenges, they all value support from development partners based on respect and equivalence. While traditional development partners are often eager to see improvements in governance in these countries, Pacific nations are often much more eager for support for economic development, and to see tangible action on the existential threat of climate change.

It does not take much creativity to see the geostrategic significance of these islands scattered across the vast Pacific Ocean. In World War II, control over them was critical for both maintaining logistical supply lines and for military force projection. Since the war, the Pacific has largely enjoyed a benign status on the geopolitical stage. This has all changed with China’s growing presence in the region.

CHINA’S GROWING FOOTPRINT

China has always had a presence in the South Pacific. Ethnic Chinese have resided in the region for centuries, running some of the region’s oldest trading houses. The China-Taiwan rivalry for diplomatic allies in the region has resulted in some degree of jockeying through briefcase diplomacy between the two in the region for decades.

Since 2006, however, China’s trade, aid, diplomatic, and commercial activity in the Pacific region has been steadily and significantly scaling up. Excluding Papua New Guinea, two-way trade with China has overtaken that of Australia since 2013.[4] For the Solomon Islands, two-way trade with China now makes up 46% of all trade.[5]

China has also dramatically scaled up its aid activities. According to Lowy Institute research, between 2006 and 2017 China provided close to U.S. $1.5 billion in foreign aid to the Pacific Islands region through a mixture of grants and loans.[6] As of 2017, China was the third-largest donor to the Pacific, contributing 8% of all foreign aid to the region between 2011 and 2017.[7] While China is by no means the dominant donor in the Pacific, the way in which it delivers its aid — large infrastructure projects funded by concessional loans — makes these projects stand out. Chinese lending has also been used as a vehicle to get Chinese state-owned enterprises into the region. These companies are now competing in commercial activity across the board. According to China’s own investment statistics, Chinese construction activity in the region was $958 million in 2017, almost six times greater than its foreign aid activities.[8]

Much has been written about the Pacific’s, and indeed the world’s, growing dependence on China from debt to trade statistics. While the narrative of “debt trap diplomacy” has been downplayed by recent comprehensive analysis of debt statistics in the Pacific,[9] significant risks remain.

RISKS OF CHINA’S RISE

So why does all of this matter? You could argue that this is a good thing for the Pacific, a region facing significant development challenges. China gives them options, and in turn greater influence over, and attention from, traditional development partners who have often treated them with a degree of benign neglect. China insists that it has no specific strategic interests in the Pacific, and that this is just a natural extension of China’s growing engagement in all developing countries.[10]

Unfortunately, there is no depth of scholarly Chinese works on the Pacific Islands region, nor does it factor heavily in official statements, speeches, or strategic documents from Beijing. While this may be illustrative on where the Pacific sits in China’s strategic priorities, it creates a great deal of ambiguity around how China plans to wield its newfound influence in the Pacific region.

Whatever the ambition of China may be in the region, opinions have crystallized for analysts in Canberra and other like-minded countries that China’s growing footprint and influence in the Pacific present two serious risks to their national interest.

The first risk, which has a low probability of occurring but would have profound impact, is that China is trying to use its leverage through diplomacy, debt, trade, or elite capture to establish a military base somewhere in the South Pacific.

This is a high impact risk because such a development would completely change the way Australia looks at its national defense and security settings. Australia’s armed forces are built to complement and plug in to U.S.-led coalitions. A Chinese military base as little as 2,000 kilometers from Australia’s eastern coast would force a wedge between Australia and its traditional strategic anchor, the United States. While the strategic benefit and size of such a facility for China is questionable — the logistics of maintaining supply routes alone would be challenging — it would have a profound psychological impact on Australia. It would accelerate a military build-up, confirm all of the most extreme prejudice around China’s strategic intent in the region, and force Australia to “go it alone.” Some analysts argue that Australia should be doing this anyway.[11] A Chinese base or outpost of only moderate size would rapidly accelerate this discussion.

There is, however, a low probability this would occur. The main reason for this is that Pacific governments are not simply pawns sitting between Australia and China. They have agency, wield it liberally, and have no interest in a further militarized region. South Pacific nations are fiercely protective of their sovereignty. While they may be willing to align themselves with China in certain United Nations votes, it is a long stretch of the imagination that they would be so willing to hand over a military base or outpost that would so rapidly undermine the sovereignty that they so viscerally protect. The second reason that this is a low probability is that the West is now paying attention. Australia, in particular, is forcing China to be more than just opportunistic in their ambitions because of the scaling up of its own efforts — both in money and in attention — devoted to the South Pacific.

Despite these factors, because of the acute vulnerability and size of these nations, and the potentially large strategic benefits to China for relatively minimal potential investments, this is not a risk to be taking lightly. There have been a number of recent incidences that have fueled anxiety on the prospects of a Chinese military base. The prospects of a Chinese-financed major wharf on Vanuatu’s larger but less populated Santo Island being converted into a “dual use” facility were shot down by China and Vanuatu after plans were leaked to the press. Australia and the United States quickly partnered with Papua New Guinea to rehabilitate naval facilities on Manus Island to both enhance illegal fishing operations but keep China out. A mooted leasing of the entire island of Tulagi in the Solomon Islands — ridiculous to anyone with a basic understanding of landowner rights in the Solomon Islands — caught global attention. Examples like these are likely to arise at an increasing frequency in the years to come.

The second risk, which is of a lower impact but of a higher probability of occurring, is that China and Chinese businesses, through elite capture and corruption, are rapidly undermining institutions of governance which Western donors spend considerable money trying to support. This has become so acute in recent years that one of these nations may be pushed toward a scenario of state failure.

This is a lower impact risk for Australia. Australia has proclaimed a leadership role in the region, aspiring to be its “partner of choice” in all areas. The desire for both a stable and prosperous immediate region, combined with Australia’s responsibility as the regional leaders, would require Australia to be at the forefront of any intervention to restore stability. This would be a costly exercise, particularly in one of the larger Pacific nations, but it would not fundamentally shift Australia’s security settings. Australia has intervened in the region before, both in Timor-Leste in 1999 and again in the Solomon Islands in 2003, and will do so again if called upon.

This risk has a higher probability of occurring, particularly in light of the economic devastation facing the region as a result of COVID-19. While China did not introduce corruption into the Pacific, they are certainly contributing to entrenching systems of corruption and patronage in the Pacific, particularly in Melanesia.

For Australia and other traditional partners in the Pacific, the stakes of China’s potential ambitions in the South Pacific are significant. China has established itself as an important partner for Pacific Island governments. The opportunity, if it ever truly existed, to keep China out of the region has long passed. Greater and more consistent resolve from the West will be necessary to mitigate these risks.

China has, however, found it harder to maintain its momentum in the South Pacific as it becomes a more familiar development partner to Pacific governments, and as traditional partners have started stepping up their own engagement in response. Chinese debt in particular is being further scrutinized by Pacific leaders. According to Lowy Institute research, no Pacific nation except Vanuatu has taken on new debt from China since 2018.[12] This has been driven by a number of factors including a recognition of sub-par quality and inflated pricing, access to cheaper financing options, a desire for greater spill over benefits from infrastructure projects, limited debt space remaining in a number of Pacific countries, and a desire for budget-support not project earmarked lending.[13]

Australia has also worked hard in revitalizing its self-proclaimed leadership position in the Pacific. The Australian government is the biggest donor with the largest diplomatic footprint in the region. The Australian market is one of the largest investors and sources of tourism for the region. The government is leveraging these significant advantages with even more diplomats and aid, and, crucially for Pacific leaders that routinely feel ignored, more attention.

Finding it more difficult to build its influence in the countries in the Pacific it retains relations with, China instead focused its attention in 2019 on broadening the playing field. In the same week in September 2019 both the Solomon Islands, the third most populous Pacific nation, and Kiribati, an atoll nation with an exclusive economic zone the width of Australia, swapped their diplomatic recognition from Taipei to Beijing. China also hosted a high-level conference with the Pacific in Samoa in October but brought with it no new major funding announcements.[14]

THE POST-COVID LANDSCAPE

This year, COVID-19 introduces a completely new challenge for China already facing greater headwinds in the Pacific. While the Pacific has been largely successful in containing the spread of the virus, it is being decimated by the economic crisis traveling in its wake. Facing a potential 10% economic contraction this year, the needs of the Pacific will be far greater. While China has been opportunistic in supporting the Pacific in responding to COVID-19,[15] its support pales in comparison to that provided by traditional partners.[16] The pandemic has reminded the region of its economic reliance on Australia and New Zealand, in particular for tourism dependent economies. A mooted travel bubble between Australia, New Zealand, and the Pacific is expected to be operationalized in the next three to six months, providing even more of an opportunity to strengthen ties with the region at the expense of China.

China has rapidly built its profile and influence in the South Pacific. While the COVID-19 pandemic does provide China an opportunity to further grow its influence in the Pacific, the cost will be much higher. Greater resolve from the West, greater awareness within the Pacific, and growing financial demands at home and abroad may all make the price of China’s aspiring influence in the Pacific too high for the country to bear. While China has far greater resources to bring to bear, Australia and New Zealand have far deeper resolve. The year ahead will reveal just how much further China is willing to go and how much it is willing to spend to build its influence in the South Pacific.

FOOTNOTES

1 Julian Siddle, “Kiribati: Tiny island's struggle with overpopulation,” BBC, February 3, 2014, https://www.bbc.com/news/science-environment-26017336.

2 Dongyeol Lee, Huan Zhang, and Chau Nguyen, “The Economic Impact of Natural Disasters in Pacific Island Countries: Adaptation and Preparedness,” (Washington, DC: International Monetary Fund, May 10, 2018), https://www.imf.org/en/Publications/WP/Issues/2018/05/10/The-Economic-Impact-of-Natural-Disasters-in-Pacific-Island-Countries-Adaptation-and-45826.

3 Matthew Dornan and Jonathan Pryke, “Foreign Aid to the Pacific: Trends and Developments in the Twenty-First Century,” Asia and the Pacific Policy Studies 4, no. 3 (March 25, 2017): 386-404, https://apo.org.au/sites/default/files/resource-files/2017-05/apo-nid189541.pdf.

4 Matthew Dornan and Sachini Muller, “The China shift in Pacific trade,” Devpolicy Blog, November 15, 2018, https://devpolicy.org/china-in-the-pacific-australias-trade-challenge-20181115/.

5 “Direction of Trade Statistics,” International Monetary Fund, https://data.imf.org/?sk=9D6028D4-F14A-464C-A2F2-59B2CD424B85.

6 “Pacific Aid Map,” Lowy Institute, https://pacificaidmap.lowyinstitute.org/.

7 “Pacific Aid Map,” Lowy Institute.

8 “Statistic – Monthly FDI Absorption,” Ministry of Commerce, People’s Republic of China, http://english.mofcom.gov.cn/statistic/charts.shtml.

9 Roland Rajah, Alexandre Dayant, and Jonathan Pryke, “Ocean of Debt? Belt and Road and Debt Diplomacy in the Pacific,” Lowy Institute, October 21, 2019, https://www.lowyinstitute.org/publications/ocean-debt-belt-and-road-and-debt-diplomacy-pacific.

10 Denghua Zhang, “China’s Diplomacy in the Pacific: Interests, Means and Implications,” Security Challenges 13, no. 2 (2017): 32-53, https://www.jstor.org/stable/26457717.

11 Hugh White, “Our Sphere of Influence: Rivalry in the Pacific,” Australian Foreign Affairs, July 2019, https://www.australianforeignaffairs.com/essay/2019/07/our-sphere-of-influence.

12 “Pacific Aid Map,” Lowy Institute.

13 Roland Rajah, Alexandre Dayant, and Jonathan Pryke, “Ocean of Debt?”

14 Liam Fox and Michael Walsh, “China inks several new deals with Samoa ahead of Pacific Island economic forum in Apia,” ABC, October 21, 2019, https://www.abc.net.au/news/2019-10-21/china-and-samoa-ink-deals-ahead-of-pacific-island-economic-forum/11622096.

15 Denghua Zhang, “China’s COVID-19 Pacific diplomacy,” Devpolicy Blog, May 27, 2020, https://devpolicy.org/chinas-coronavirus-covid-19-diplomacy-in-the-pacific-20200527-1/.

16 Alexandre Dayant and Roland Rajah, “Aiding the Pacific during Covid – a stock-take and further steps,” Lowy Institute, June 4, 2020, https://www.lowyinstitute.org/the-interpreter/aiding-pacific-during-covid-stock-take-and-further-steps.