Why China is splashing cash around in the Pacific

In downtown Nuku'alofa, a colossus is rising. From the water it dominates all. On the ground, it dwarfs the Tongan royal palace across the road and the central business district around it.

This three-storey Government building, named St George Palace, is being built by Chinese workers and funded by a NZ$20 million gift to Tonga from the People's Republic of China.

While it is grandly out of scale for the flat, low-level blocks around it, it retains a visual link to the town below through a bright red turret, similar to the 19th century royal palace of King Tupou V1.

The building will house the Ministry of Finance, the Prime Minister's office and the Ministry of Foreign Affairs.

It is the boldest reminder of the development funding pouring into Tonga, and its neighbours, from China as the Asian power seeks to win friends and influence people.

It is not the most expensive. Last month, China announced it would fund a NZ$35m stadium at Tonga High School to host the Pacific Games in 2019. China's Ambassador to Tonga He Huang Huaguang said it was the largest project so far between the two countries.

The Chinese Ministry of Commerce's International Economic Cooperation division will be responsible for co-ordinating the project.

At such ceremonies, the tone is reportedly mutually positive.  However tensions in the Tonga-China relationship are not far from the surface. The productivity of Chinese workers compared to their local counterparts led the Tongan PM Akilisi Pohiva to say last week that "the Chinese will take over the running of the country in a few years time, " news site Matangi Tonga reported.  He had previously had to attend a joint public meeting with the Chinese embassy to address instances of racial abuse towards Chinese in Tonga. 

New Zealand, Australia, France, the US, UK and Japan have funded government projects and development schemes in our Pacific neighbours for decades. But the big name and big money in the Pacific Islands is China.

The increasing Chinese presence in Pacific nations closest to New Zealand has been evident for years. For example, in Samoa, Apia's National Hospital is a sprawling modern edifice paid for with a NZ$42m concessional loan from Beijing. Late last year, China signed a further agreement of Economic and Technical Cooperation in Apia, worth NZ$23m, to build a new police academy among other institutions.

St George Palace is being built with a $20 million gift from China. Photo: Tim Murphy

The Numbers

Chinese intentions in the Pacific Islands go beyond generosity for new buildings. 

So deep are China's pockets and so active its diplomats and development funders, the trend is again the focus of a think tank report, this time from the Australian Strategic Policy Institute.

Crowded and Complex, the changing geopolitics of the South Pacific, made headlines a fortnight ago when it suggested the flow of no-strings-attached aid money from China could destabilise the neighbourhood.

The study quotes Lowy Institute research, which estimates China donated NZ$2.54 billion in aid to the region in the 10 years to 2016. The figure is substantial but way behind Australia, which puts enormous sums of aid into Papua New Guinea primarily.

The Australian Budget announcement last week that overseas development aid would be frozen for two years from 2018 has prompted further discussion there about the wisdom of doing less in real terms while China does more. Canberra will pump $1.17 billion in 2017/18 into the Pacific, with half of that to PNG.

China has funded 218 projects between 2006 and 2014 across the eight regional states that had diplomatic ties with Beijing, according to the Lowy survey. They cover agriculture, communications, education, energy, health, infrastructure, sanitation and humanitarian assistance.

The national totals included $190 million to Tonga, $255m to Samoa, $400m to Fiji, $55m to the Cook Islands and $270m to Vanuatu. Again the biggest recipient nation by far was Papua New Guinea with $700m.

Those are multi-year totals but as a comparison, New Zealand's 2015/16 aid budget had $22m for Tonga, $25m for Samoa, the Cooks and Vanuatu and $27m for PNG.

President Xi Jinping visited Fiji in 2014 as it reached out beyond the sanctions imposed by Australia and New Zealand, where he announced a 'strategic partnership' with South Pacific states.

A new Chinese interest

The ASPI analysis looks at a range of external players from Russia to Indonesia and India but its tone and focus is most influenced by China.

Its section on China says Chinese activity in the Pacific in the 1980s and 90s was driven by competition with Taiwan for diplomatic recognition, but this eased once a pro-unification government was elected in Taiwan in 2008.

Politically, China has had limited success influencing the Pacific Islands Forum, which includes New Zealand and Australia, the report notes. But it has focused on the Melanesian Spearhead Group and financed the group's secretariat and headquarters building in Vanuatu.

It lists examples of cultural diplomacy:

- Chinese TV programmes broadcast through the region

- Sponsoring Pasifika students into Mandarin lessons

- Granting 'approved destination status' to countries that recognise it, allowing Chinese tourists to travel to them

Major economic activities including fisheries, forestry, mining and oil exploration.

The report speculates China would want to keep access though the South Pacific waterways towards Antarctica, and it would welcome support from a bloc of small island states in international forums.

'China Threat Literature'

"China's strategic interests in the region have focused on signals intelligence monitoring," the report says. "It built a satellite tracking station in Kiribati in 1997 which is reportedly used to spy on the US's Ronald Reagan Ballistic Missile Defence Test Site.

"Chinese fishing fleets are also said to provide cover for signals intelligence monitoring.

"China has sought naval access to ports and maritime territories and there's speculation that it wants to establish a military presence in Fiji, fuelled by increasing military ties, including defence cooperation briefings."

Crowded and Complex says all of this activity has helped fuel a 'China threat' literature, which claims China could encourage Pacific states to shift allegiances from traditional external powers.  

If China, and Russia, Japan, Indonesia, and India were to win greater influence over Pacific governments, where would that leave Australia and New Zealand, long acting as strategic partners in the region?

The report says anxieties Australia had held about the Pacific during World War II and then during the Cold War 'are rightly resurfacing again'. "South Pacific states are increasingly engaging with external powers whose interests might be inimical to Australia's" .

It notes in the age of President Trump, the United States might expect its ally Australia to continue bearing the responsibility "for ensuring stability and Western dominance in the South Pacific".

While examining Chinese involvement in the Pacific, the report acknowledges China has broad development programmes across the world and the South Pacific. Which, at less than 5 percent of China's aid, is not particularly strategically important.  

China's assistance is largely through concessional loans that offer an interest-free period then low rates for up to 20 years, and are mainly aimed at market access for Chinese firms.

While the Lowy Institute and Australian Strategic Policy Institute might fret about Chinese cash buying influence, Pacific leaders defend development aid from all donor nations and welcome Beijing's readiness to help.

A New Zealand Perspective

In New Zealand, one China expert is more sanguine about the rise of Chinese aid. Dr Jason Young, of the Contemporary China Research Centre at Victoria University, said to suggest the Chinese aid could lead to instability in the region seemed "really strong".

"There are some issues of how aid is delivered and the quality and whether the Pacific Island country actually needs these developments or whether money would be better spent on education or developing democracy and so on. But to say it is destabilising is going too far. It is probably more a reflection of Australia's own position, for example in relation to [its influence in] Papua New Guinea."

However, freezes or cuts to aid in Australia or the US could "actually enhance the types of issues this paper is talking about".

Dr Young said if he were a Pacific government leader he would see the option of Chinese money as positive. "I would take it but I would not take too much. Aid from New Zealand and Australia is different. China delivers a focus on other things. It provides the Pacific countries with a range of options."

"Having another actor is potentially positive."

The system of concessional loans involved debts in countries like Tonga and Samoa that New Zealand, for one, had expressed concern about. "They do them as soft loans. Can they be paid back? The answer is generally 'no'."

Still Dr Young said it was a long bow to link loans and any later debt forgiveness with a country supporting a donor like China in votes or on issues at international forums. "It is a really hard one to draw that link but the logical conclusion is that the more engagement and stronger the economic relationship, then there would be more of a tendency to listen to, if not support, certain political positions."

Samoa's Prime Minister Tuilaepa Sailele Malielegaoi is a strong backer of Chinese finance. At last year's signing of the new assistance agreement he recalled Samoa was one of the first Pacific countries to establish diplomatic ties with China, in 1975, and said economic partnership between the two continued to strengthen.

Leaders believe they can work with both China and the previous major funders. 

And it is so, on the ground. Not far from the big St James Palace in Nuku'alofa, a major port extension and terminal is rising along Vuna Rd. It is to help cater for cruise ships, and is being funded by a cool NZ$35m in aid from ... Japan.

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