The Dragon Looks South: Chinese Aid & Investment in PNG

“[China] wants to be the major influence in the Pacific, there’s no doubt about that; it’s aiming to be that in a fairly short time.

It has [been] carefully planned, [there’s been] very strategically placed aid. You’ll notice Chinese aid is quite different…China is heading straight for the jugular” – Ron Crocombe (A report to the Australian Senate by the Foreign Affairs, Defence, and Trade References Committee: China’s Emergence: Implications for Australia, 2006).

With an economic growth rate averaging 10% a year for the past decade, the People’s Republic of China has become the fourth-largest economy and the second-largest energy consumer on earth. The Chinese economy is largely driven by domestic demand, with a population of more than a billion people, and is expected to continue to expand well into the 21st century.

I recently read the paper The Dragon Looks South, published by The Lowy Institute for International Policy and which I most definitely recommend to anyone who has an interest in not only Papua New Guinea, but also China’s influence in the South Pacific.

The paper focuses primarily on China’s booming aid program to the South Pacific and investigates why China is so engaged within the region by providing an in-depth analysis of its increased aid pledges from the period 2005 – 2007 toward the eight developing Pacific states that officially recognise China: the Cook Islands, the Federated States of Micronesia, Fiji, Niue, Papua New Guinea, Samoa, Tonga and Vanuatu.

The paper identifies a number of reasons as to why China is so interested in the South Pacific: 1) To access the region’s resources, 2) To establish intelligence facilities and island missile bases to block a US naval approach from Pearl Harbour, 3) To starve Taiwan of diplomatic recognition or try to win cheap votes in international organisations (E.g. China’s opposition to Japanese efforts to obtain a permanent seat on the UN Security Council).

PNG is China’s main resource interest in the region because of its mineral wealth, valuable timber resources, and extensive fish stocks. China has shown a keen interest in these resources which is aptly reflected in its $US 651 million investment in the Ramu nickel/cobalt mine investment in 2006.

Interestingly, the paper points out that of the 14 Pacific member states that make up the Pacific Islands Forum, PNG receives the smallest allocation of Chinese aid on a per capita basis (a population of 6 million doesn’t help). However, significant Chinese investment (on top of aid) boosts the importance of China to PNG – as in the case of the Ramu mine where talks have begun on a concessional loan to fund a hydropower project to meet the mine’s energy requirements, costing up to $US 248 million.

The paper also questions the Chinese approach to Pacific aid. It quotes the Australian Department of Foreign Affairs and Trade that “Their [China and Taiwan] aid programs tend to focus on prestige projects in a ‘chequebook diplomacy’ competition, applying less rigorous standards of transparency, accountability and governance than other donors”.

A $US 3.2 million grant from China in 2005 was used to construct the Papa-Lealea road in PNG.

China delivers its aid in the Pacific via concessional loans, grant aid and technical assistance (and some debt relief where there lacks appropriate information). The vast majority of China’s aid during the period reviewed (2005–07) was directed at infrastructure projects such as sports facilities, government offices, roads and fish processing plants. These are almost always built by Chinese contractors using labour brought in from China, mirroring a pattern repeated in other regions.

The paper also criticised China’s aid program because some of its major aid projects (stadiums, swimming pools and unnecessary office complexes) not only do not appear to meet priority infrastructure and development needs but also have high maintenance costs. The provision of large loans from China also increases debt burdens.

One of the most interesting points of the paper was its in-depth analysis of China’s increased aid pledges from the period 2005 – 2007 toward the eight developing Pacific states that officially recognise China.

Here is the analysis on PNG:

Chinese Aid in the Pacific 2005–2007: Papua New Guinea

For PNG, government budget figures for Chinese grants have been used instead of pledged figures in calculating China’s aid to PNG. Pledged aid projects are detailed below as a guide to the projects China is funding, and are followed by budget figures.

2005

• $US 10.3 million for three building projects (2005–07): student dormitories and teachers’ houses at Vudal University, a computer building at Lae UNITECH and the renovation of Government House.
• $US 0.4 million for Taurama Military Hospital donated by the People’s Liberation Army.
• $US 3.2 million grant for the Papa-Lealea road.
• $US 0.18 million for wind-driven generators for the Duke of York Islands, East New Britain.
• $US 4.5 million in economic and technical assistance for wheat cultivation, dry-rice, mushroom growing equipment, medical equipment and anti-AIDS medicines.
• Nine Chinese doctors placed in Port Moresby General Hospital (since 2002).
• Funding for the Kandep wheat technical cooperation project in Enga Province (since 1995)

[Total Chinese aid grants in 2005 were reported with UN grants in the PNG budget and together were $US 6.1 million]

2006

• $US 65.4 million concessional loan to develop and implement the National Agriculture Development Plan. To be drawn down in 2007 and repaid over a 15–20 year period.
• $US 1.35 million grant for development projects.
• $US 0.1 million to purchase anti-malarial drugs.
• $US 3.6 million funding for a cold storage and fish processing facility in Morobe Province.
• $US 0.06 for the Wewak sports stadium feasibility study.
• PNG sought a concessional loan to fund the 240MW Ramu 2 hydro power plant to supply the Ramu Nickel Project and other centres (costing up to $US 248.6 million). The PNG Independent Public Business Corporation is still in discussions with China on the scale of this project and financing options.

[The PNG budget estimated Chinese aid grants in 2006 were $US 14.1 million].

2007

• $US 0.5 million for renovation of the Taurama Barracks.
• $US 0.4 million for projects to be determined.
• $US 2.5 million for development projects.
• $US 0.15 million for an international conference centre.
• 24 scholarships.
• 80 government personnel trained.
• Funding for a tour of China by media workers.

[The PNG budget projected Chinese aid grants in 2007 would be $US 10.7 million].

Total Chinese Aid in the Pacific 2005–2007

NOTE:

The Dragon Looks South is written by Fergus Hanson, Research Associate at The Lowy Institute for International Policy, and was published on 11 June 2008. You can download the paper here.

~ by Tavurvur on August 25, 2008.