Why China is challenging Australia for influence over the Pacific Islands

(CNN)With beaches fringed with palm trees and pristine waters full of tropical fish, many Pacific Islands are the kinds of remote places you would expect to see on Instagram.

But for China and Australia, these tiny islands have become the center of an emerging power struggle.
Foreign involvement is nothing new for these islands, which collectively control an area of ocean bigger than Russia. Colonial governments ruled some of the 14 Pacific Island nations over different periods of time. They all now govern themselves but, due to poor economic growth, this is one of the world’s most aid-dependent regions.
    For decades, Australia has been the biggest donor of that aid. In many ways, that makes sense — Australia is the richest nation in Oceania and nearly 206,700 people claimed Pacific Island ancestry in its 2016 census. As the country’s Prime Minister Scott Morrison puts it: “This is our patch.”
    But in recent years, China has emerged as a major player in the region, too.

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    The Pacific Islands are home to fewer than 10 million people — slightly less than the population of Sweden — are thousands of miles from Beijing and have a combined GDP of about $33.77 billion, less than 1% of China’s total GDP.
    But that hasn’t stopped the money flooding in, building bridges, roads and an airport.
    In Australia, some analysts fear their country’s influence is under threat.
    “Australia is certainly very worried about the level of investment (from China),” said Michael O’Keefe, an expert on Pacific foreign relations at Melbourne’s La Trobe University.
    Prime Minister Morrison has made the Pacific Islands more of a priority than his predecessors since he came to power last year. As he announced a 2 billion Australian dollar ($1.5 billion) infrastructure fund for the region in November, he said: “Australia cannot take its influence in the Southwest Pacific for granted.
    “And sadly, I think too often we have.”
    So why is China investing so much in this part of the world?

    First thing’s first: What’s China doing in the South Pacific?

    In many ways, China is doing things differently.
    In the past, Australia has taken what some see as a paternalistic approach in the Pacific Islands, investing in health, education and governance — the things it thinks the nations need.
    But the approach hasn’t necessarily had the desired impact. Although Australia — and other countries — have been investing aid in the region for years, economic growth is slow. That’s partly due to the geographic isolation of the islands and their small populations, but has been worsened by their vulnerability to climate change and natural disasters.
    In most Pacific Island countries, more than 20% of the population is unable to afford all their basic needs, according to the World Bank.
    That has prompted questions about the effectiveness of aid.
    In papers in 2003 and 2010, Australian economist Helen Hughes said that “aid has failed in the Pacific,” because it undercut the private sector, impacting employment and economic growth. But Australian economist Matthew Dornan and Jonathan Pryke, director of the Pacific Islands Program at the Lowy Institute, argued in 2017 that aid has raised “living standards beyond what they would be without aid.” The Lowy Institute is a non-profit Australian think tank set up in 2003, which receives half of its funding from donations.

    China, by contrast, is asking Pacific Island countries where they most need investment. That has tended to result in Beijing funding large-scale infrastructure projects.
    Data from the Lowy Institute on the eight countries where both Australia and China are investing shows that in all but one of the nations, China’s biggest spend was on an infrastructure project, while all but one of Australia’s top projects were non-infrastructure.
    In Papua New Guinea, for instance, China completed a $85 million road upgrade in 2017. Meanwhile, Australia has so far spent $219 million on an initiative to deliver essential drugs such as vaccines, and increase health education, especially around the spread of HIV.
    In 2018, Australia’s Minister for International Development and the South Pacific, Concetta Fierravanti-Wells, blasted China for funding “useless buildings” that islands couldn’t pay back, butdidn’t refer to any projects specifically. China lodged a formal diplomatic protest against the minister, calling her remarks “full of prejudice and bias.”

    There’s another difference between the two players: how the money is delivered.
    While Australia gives its aid through grants with no obligation for repayment, most of China’s spending is in the form of loans, according to the Lowy Institute.
    Many of the Chinese loans were taken between 2006 and 2010, said the Lowy Institute’s Jonathan Pryke. This was during a “gold rush” period when China was increasingly lending to countries around the world, including in Africa. The loans usually have a grace period of five to 10 years, according to Pryke. So far, there’s no record of any Pacific Island countries paying China back, Lowy Institute research found.
    Earlier this year, the US Ambassador to Australia, Arthur B. Culvahouse Jr., described China’s spending in the Pacific as “payday loan” diplomacy — intentionally getting countries to take on unsustainable debts in order to buy political leverage. US Vice President Mike Pence has echoed his sentiment.
    But the data doesn’t back up these claims.
    Of the 14 Pacific Island nations, six are rated as being at a high risk of debt distress by the International Monetary Fund (IMF), meaning they are likely to default on their loans, and three are at a moderate risk.

    But last year, Australian researchers Rohan Fox and Matthew Dornan found that while China is the biggest bilateral lender in the region, Tonga was the only country where Chinese lending dominated. In several other countries, multilateral lending was the main source of debt.
    Furthermore, a recent paper by independent, US-based research provider Rhodium Group found that when China renegotiated its debt with over-leveraged countries, it was usually to the advantage of the borrower. But the authors cautioned that might not be true in the future: “Beijing could still use loan renegotiations to advance foreign and domestic policy objectives.”
    Many countries have welcomed China’s investment. Vanuatu, which received an $80 million loan to build a wharf, thanked the Chinese government for funding projects that no other donor would help with.
    On Monday, PNG’s Prime Minister James Marape said his country was open to investors from all countries.
    “Whether they are from (China), or Australia, or right across the world, is inconsequential and irrelevant to us,” he told reporters.

    So why is China investing in the Pacific Islands?

    That’s the billion-dollar question: Why does China want to pour money into isolated countries, with small economies that might not be able to pay back their debts?
    If you ask China, it says its spending is benign.
    “China, based on equal, mutually beneficial, open and sustainable principles, keeps providing genuine assistance to Pacific Island countries without any political attachment,” a Chinese Ministry of Foreign Affairs spokesperson told CNN in a faxed comment, adding that China had improved the livelihood of Pacific Island people and “won wide acclaim.”
    “Is China’s assistance good or bad? Is it a ‘debt trap’ or a ‘pie in the sky’? The island countries and the people have the final say,” the spokesperson said.
    There are also sound economic reasons for China to be in the South Pacific, including sourcing raw materials.
    Many of the South Pacific islands are rich with resources such as timber, minerals and fish. Since 2011, Beijing has invested more in Papua New Guinea (PNG) — which is home to gold, nickel mines, liquified natural gas and timber forests — than any other Pacific Island.
    It might also want to help support ethnically Chinese people who live in those countries, said James Batley, an Asia-Pacific expert at Australian National University.
    Statistics on the number of Chinese living in the South Pacific are scarce, but in 2006, the South Pacific islands were already home to an estimated 80,000 Chinese.
    Some were descended from Chinese traders who settled in the region in the 1800s, while others migrated more recently to work on Chinese construction projects. In the 2000s, anti-Chinese sentiment resulted in riots in the Solomon Islands, PNG and Tonga, where a fatal unrest prompted Beijing to send a charter plane to expatriate around 200 Chinese nationals. The issues behind the riots have differed. In PNG, which suffers from high unemployment, for instance, the hostility was towards Chinese business owners.
    Beijing has tried to improve local relations, changing tactics from bringing over its own construction workers to hiring more local staff, said University of the South Pacific’s Gounder.
    Then, of course, there are the diplomatic reasons China might want to be in the Pacific.

    OK, so what are the diplomatic reasons?

    First, there’s the issue of Taiwan, which Beijing claims sovereignty over.
    Only 16 nations and the Holy See officially recognize Taiwan as an independent state, and six of them are in the South Pacific. For years, China has been attempting to win over Taiwan’s few remaining allies and encourage them to accept its “One China” principle.

    Of the six, three have strong ties to the US, which has what it describes as a “robust unofficial relationship” to Taiwan, an island of 23.5 million people.
    Taiwan also invests in the South Pacific — it has spent $215.87 million between 2011 and 2017, compared with China’s $1.21 billion, according to Lowy Institute data.
    Papua New Guinea, where both Taiwan and China invest, downgraded its diplomatic relations with Taiwan last year, which Taipei said was due to pressure from Beijing.
    The Solomon Islands, which recognizes Taiwan, is expected to decide whether it will cut ties with Taiwan in the next few months. The country’s former Prime Minister Gordon Darcy Lilo said changing course could boost investment to the country. Taiwan has invested there, China is its top trading partner, according to a 2018 report from the US-China Economic and Security Review Commission.
    There are other reasons why China would want a Pacific Island nation on its side. Even though the entire population of the 14 Pacific Island nations is around the same size as a Chinese city, China still has the same voting power as a Pacific Island at the United Nations General Assembly.
    Pacific Island nations can be powerful friends despite their small size.

    What else is at stake?

    The islands could serve as destinations for future military bases.
    In April 2018, the Sydney Morning Herald reported that officials from China and Vanuatu were in talks about setting up a permanent military presence on the island. Both Beijing and Vanuatu denied the reports.
    A Chinese military base would be seen as a problem in the United States, which has had a presence in the South Pacific since World War II.
    The US still has military outposts on islands in this region, such as on Guam and the Marshall Islands.

    The islands running from Japan to Taiwan and the Philippines, and from Japan to Guam and Palau form lines known as the first and second island chain. Academics and military theorists see them as a way for the US to contain China from gaining a strategic position in the region.
    A 2018 US-China Economic and Security Review Commission report found that a Chinese military base or facility in the South Pacific could prevent US military access to the region — and affect key partners, New Zealand and Australia.
    “Such a development could expand China’s monitoring and surveillance capabilities in the region, helping Beijing mitigate US military presence in the region,” the report authors wrote.
    Chinese bases in the South Pacific would also raise security concerns for Australia.
    Three of Australia’s five main maritime trade routes pass through the Pacific. Even if China didn’t threaten these routes, its presence could expose them to the possibility of future issues, which in turn could have serious implications for Australia’s economy.
    As Pryke puts it, a Chinese base in the South Pacific would likely “profoundly change” the way Australia looked at national defense and national security. In a Lowy Institute poll this year, 55% of those surveyed said if China opened a military base in a Pacific Island country, that would be a critical threat to the nation’s vital interests.
    Australia and the US have military plans of their own. Last year, the US, Australia and Papua New Guinea announced they would partner to redevelop a naval base on PNG’s Manus Island, best known for a controversial and now shuttered migrant detention center. During World War II, the island was home to a Japanese base that was captured and taken over by the Allies.
    Pacific Islands Private Sector Organization board chair Stephen Lyon, who lives in the Cook Islands, believes most Pacific Islands don’t want to be further militarized.
    But Fiji-based poverty and growth researcher Gounder said if there was a mutually beneficial deal, he didn’t think South Pacific islands would say no to a Chinese base — or an Australian one, for that matter.
    “I totally don’t rule out a military base in any Pacific Island country,” he said.

    What is Australia worried about?

    To China, its investment in the Pacific Islands is small compared with the scale of its flagship multibillion Belt and Road Initiative.
    Beijing invested over $1.2 billion in the 14 South Pacific nations between 2011 and 2017, but last year alone, it pledged $60 billion in aid, investment and loans to Africa.
    In contrast, in the same period, Australia spent $6.3 billion in aid in the South Pacific, making the region one of the main beneficiaries of Australian aid.
    Australia has good reason to make that investment. Since the 1950s, it has been part of an agreement with the US and New Zealand, making it responsible for the security of the Pacific Islands. If a Pacific Island country was to encounter a crisis, there is an expectation that Australia — as a good neighbor — would assist.

    And that means Australia has a lot more to lose.
    Any conflict or crisis could increase refugee flows to Australia or a need for troops to be deployed. After a period of ethnic violence in the Solomon Islands, Australia spent an estimated 2.8 billion Australian dollars ($1.96 billion) on a 14-year mission to stabilize the nation.
    “We are essentially the superpower in the Pacific and it’s very important that we play our role,” then-Australian Justice Minister Michael Keenan said in 2017, when the mission ended.
    Pacific Islands Private Sector Organization’s Lyon said that while it was true that neither country was entirely altruistic, Australia had long term partnerships in the region. “China has a very specific geostrategic focus in the region,” he said.
    When asked whether Australia needed to be concerned about China’s increased role, and why Australia was stepping up efforts in the region, an Australian Department of Foreign Affairs and Trade spokesperson said it was in the country’s national interests to promote stability, security and prosperity in the Pacific.
    “The Pacific has significant investment needs, and Australia welcomes all investment that supports sustainable development in line with the priorities and ambitions of Pacific countries, is delivered transparently, and does not impose heavy debt burdens,” the spokesperson said.

    What does the Pacific think about all this?

    While Taiwan-aligned Nauru has publicly pushed back on China’s involvement, many Pacific Island countries have embraced the additional investment. “We are indeed very grateful,” Fijian politician Ratu Epeli Nailatikau said earlier this year.
    Australia’s aid spend in the Pacific Islands dropped off in 2013, according to Lowy Institute data. But China’s involvement has been a catalyst for traditional Pacific Island partners, such as Australia and New Zealand, to increase their involvementin the region.
    Morrison’s $1.5 billion “step up” infrastructure investment program for the Pacific Islands was a “direct response” to push out Chinese influence and maintain Australia’s position as the primary partner in the region, said La Trobe University’s O’Keefe.
      Cook Islands-based Lyon said that, ultimately, the Pacific Islands are autonomous states that direct their own foreign policy — the idea that outside powers might be able to influence them, as they had during their colonial pasts, was “old-fashioned.”
      “The Pacific Islands are open to money wherever it comes from,” he said. “At the moment, I think the Pacific feels like it’s getting something that benefits us.”

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