China in the Pacific Islands: a reality check: Jenny Hayward-Jones discusses China's presence in the South Pacific and argues that long-established aid powers should co-operate with it.

• Author: Hayward-Jones, Jenny
• Position: Report

China's growing engagement in the Pacific Islands has fuelled talk of great power competition in the region. But viewing China's activities in the region in geo-strategic terms is inappropriate and potentially counter-productive. China's interests in the Pacific Islands are driven primarily by commercial interests, which are also linked to Chinese aid. China is a long way from challenging Australian dominance in aid, trade, investment and defence links with Pacific Islands. Co-operation with China in aid and investment activities will be more beneficial for Pacific Islands than building new security arrangements designed to compete with or manage China.

Chinas profile in the Pacific Islands region has grown significantly over the last decade, spurring a resurgence of American interest in the region, and inspiring speculation about whether a new great power competition is playing out in the Pacific Islands. This analysis argues that viewing Chinas growing role in the Pacific Islands from the perspective of geo-strategic competition is not only inappropriate but also counter-productive. An evidence-based evaluation of Chinas trade and investment, aid, and diplomatic and military ties with the region reveals, at best, a weak case for the argument that China has some grand geo-strategic design. With little strong evidence that China is doing much more than supporting its commercial interests and pursuing South-South co-operation in the region, placing Chinas activities into a geo-strategic paradigm risks obscuring the bigger and potentially more transformative impacts--both positive and negative--of its commercial and aid activities in the region. The region's established powers need to pursue a more sophisticated understanding of the real drivers of Chinas recent activism in the Pacific Islands in order to avoid counter-productive policy and assist Pacific Islands countries in maximising the potential economic and development gains to be had from Chinas interest.

Trade/investment profile

Chinas growing trade and investment profile in the Pacific Islands is routinely held up as evidence of its geo-strategic ambitions in the region. But in the last ten years, Chinas trade with the Pacific Islands only increased sevenfold, to US$2.1 billion in 2011. While impressive, this increase was much smaller than growth in Chinas trade with other parts of the world over the same period. Chinas trade with Africa, for instance, increased by a factor of fifteen over that decade, to US$160 billion in 2011. (1)

By 2011 China had become the Pacific Islands' second largest bilateral two-way trading partner, but its trade with the region remained dwarfed by Australia's. With exports to and imports from the region totalling US$897 million and US$1.17 billion respectively in 2011, Chinas trade with the Pacific Islands was only roughly a third of Australia's exports to and imports from the Pacific in that year, which totalled US$2.6 billion and US$4.14 billion respectively. (2)

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Growing Chinese investment in the Pacific is equally often seen as evidence of rising geo-strategic influence, but this line of argument is weaker when viewed in the context of the activities of other foreign investors. While it is difficult to collect reliable data on foreign direct investment in the Pacific Islands (in part due to weaknesses in Pacific Islands government collecting agencies and a lack of transparency from some investors), it is clear that there is growing diversity in an investment scene once dominated by Australia and New Zealand.

There are a number of new external players in the resource, aviation and communication fields. The Irish telecommunications company, Digicel, has invested in the mobile phone markets of most Pacific Islands countries and has driven a revolution in communications in the region) Energy companies from France have investments in Fiji and Papua New Guinea as well as the French Pacific. In Papua New Guinea, the United States oil and gas giant Exxon Mobil has a $19 billion investment in an integrated liquefied natural gas development in the Southern Highlands and Western Provinces that dwarfs any other private sector investment in the region.

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Competitive environment

Papua New Guinea hosts a range of non-Chinese Asian investments, including a South Korean cassava ethanol project and a Japanese cement company. Malaysian companies dominate the logging sector in Papua New Guinea, and also have substantial interests in the palm oil industry, property, retail and media. The tuna processing industry has attracted investment from companies in the Philippines, South Korea, Malaysia, Thailand and China. Japanese company Yazaki is the largest private sector employer in Samoa. The Malaysian company MBf Holdings has investments across a range of industries in Fiji, Solomon Islands, Vanuatu and Tonga as well as Papua New Guinea. The participation of Chinese businesses in this competitive economic environment is not evidence of a threat to the established geo-strategic order.

The rise of Chinas investment in the region has been most visible in Papua New Guinea, where it has been driven in large part by a desire to secure access to that country's vast natural resources. Chinese companies and investors in Pacific Islands, mostly from provincial centres in China, have expanded beyond their traditional small retail business focus to the domain of public infrastructure and mining. Chinese construction companies are growing in number and influence in the region, with a particularly strong presence in Papua New Guinea and also Fiji. Contrary to common perception, these companies often work in...