Why the Pacific island countries have strategic importance to China?

China’s Foreign Minister Wang Yi has described the relations between China and the Pacific Island countries having diplomatic relations with China as a “strategic partnership.” Indeed, China and Papua New Guinea, one of the Pacific Islands countries, established a strategic partnership in 2014, and upgraded the relations in 2018. Meanwhile, China also continues to enhance economic cooperation and diplomatic communication with other regional countries that have diplomatic relations with China. The wording Chinese government uses to describe the relations show how close the relations are. Most of the relationships that China has with other states that are simply friendly are described as “partnership” relations. Normally, the word “strategic” suggests that the states have importance to China for political or security reasons or as a supplier of strategic resources. Why do the Pacific Island countries have strategic importance to China?

One reason is diplomatic interest. China has unequivocally upheld the one-China principle and opposed attempts to create "two Chinas" or "one China, one Taiwan." There are 18 states that recognize Taiwan as the Republic of China and maintain diplomatic relations with it, and six of them are in the Pacific: the Marshall Islands, Tuvalu, Solomon Islands, Palau, Nauru, and Kiribati. One of China’s diplomatic goals is to make these countries abandon their relations with Taiwan. In addition, with the end of the diplomatic truce between Beijing and Taipei in 2016, cross-Strait diplomatic competition in the Pacific Islands has increased in the past two years. President Tsai Ing-wen of the Republic of China concluded official visits to the Marshall Islands, Solomon Islands and Tuvalu in October 2017, and Taiwan agreed to provide $US500,000 in funding to the Pacific Islands Forum (PIF) in April 2018.

China’s diplomatic efforts directed at the Pacific Island countries have usually been used to concentrate on its eight diplomatic partners. However, China has recently begun to offer growing economic incentives to Taiwan’s diplomatic partners in an attempt to push these countries to switch diplomatic recognition to Beijing, shrinking Taiwan’s international space. China is a significant trading partner of three of Taiwan’s diplomatic partners – the largest trading partner of the Solomon Islands ($657 million total trade volume) and the second-largest of both the Marshall Islands ($3 billion) and Tuvalu ($18 million). Notably, China’s total trade with Pacific Island countries that have diplomatic ties with Taiwan ($3.8 billion) exceeds that of the countries that recognize the People’s Republic of China ($3.5 billion).

Alongside trade, China is also using other forms of economic engagement to expand its presence in the region. China’s investment and development assistance in this region are significant and growing. Since President Xi’s 2014 visit to the region, China’s cumulative foreign direct investment (FDI) in Pacific Island countries has grown rapidly, reaching $2.8 billion in 2016, up 173 percent from 2014. Chinese firms have reached major deals with Pacific Island countries on a range of infrastructure and real estate projects. For example, the Solomon Islands Government signed a deal with Huawei to build an underwater internet connection in 2017. China’s continuing investment, reflected by the increasing quantity of China-funded projects, however, has drawn concern from other countries in the region over the security implications and more broadly over Chinese involvement in critical infrastructure in the Pacific Islands. The Solomon Islands’ deal with Huawei sparked concerns in Australia about growing Chinese influence in the region. The Australian firm Vocus Group eventually displaced Huawei in January 2018 when it signed on to construct the undersea cable as a contractor for the Australian government.

As for development assistance, when considering only projects that are being implemented or are completed, China provided $1.7 billion in cumulative aid to its Pacific Island diplomatic partners from 2006 to 2014, second behind Australia ($6.9 billion) and just ahead of the United States ($1.6 billion), even though China has less diplomatic partners in this region than the other two countries. Most of China’s development assistance aid to the Pacific Islands from 2000 to 2014 went to projects in the transport and storage sector (23.4 percent or $717 million) and projects promoting government efficiency (15.6 percent or $480 million).

However, the nature China’s development assistance has caused controversy. China’s officials are proud of China's commitment to “demand-driven aid,” where the proposals for development projects must come from the partner country. Deakin and Sydney University’s researchers conducted a study that focused on comparing perceptions of Australian and Chinese aid in the Pacific from the recipients’ point of view. In research interviews, PNG’s senior elites branded Australia’s $541 million-a-year PNG aid program as “paternalistic” and overly bureaucratic compared with what they say is “more flexible” and “more effective” support from China. In January 2018, Australia’s Minister for International Development and the Pacific, Concetta Fierravanti-Wells, criticized China for funding “useless buildings” in the Pacific, referring to how Chinese concessional loans to Pacific Island countries have largely focused on financing infrastructure projects and public facilities, including the assistance China provided for the Parliament House of Vanuatu. However, the government of Vanuatu released a statement later noting that Chinese projects were “based on requests provided by the Vanuatu Government because of its development needs which may not fall within the aid policies of other donor partners.”

The second controversy is the form of the assistance. More than 80 percent of Chinese aid has been in the form of concessional loans – which have long-term repayment periods and typically are used to fund infrastructure projects – while the rest are grants. Deakin and Sydney University’s research found there were concerns among PNG elite about how Chinese development money could leave the country deeply in debt and powerless to resist Chinese demands. According to the International Monetary Fund, Samoa and Tonga are at high risk of external debt distress – 52 percent of GDP and 42 percent of GDP, respectively – and both countries have significant debt to China. An important distinction must be drawn between Chinese projects and traditional ones. China typically engages in large infrastructure projects by providing concessional loans that eventually have to be repaid. China does not conform to the sophisticated reporting and accountability mechanisms that traditional Western donors have developed over decades of aid delivery. There is often no detail on the terms of these loans or repayment schedule. Australia and other traditional Western donors typically provide one-way grants that do not need to be paid back and engage in more complex forms of assistance across multiple sectors, from humanitarian assistance to governance support. Also, of course, this assistance comes with explicit governance conditions, such as meeting democracy, transparency, and human rights standards.

Ultimately, economic engagement in the Pacific is more of a tool to achieve China’s strategic goals than it is an interest in and of itself. Since President Xi took office in 2013, China’s engagement in the region has been comprehensive and has noticeably accelerated. In 2017, China’s total trade with Pacific Island countries reached $8.2 billion, increased 82 percent from 2013. Yet, compared with China’s total trade value, 27.79 trillion yuan (approximately $4.141 trillion),[4] the trade with the Pacific is insignificant.

Besides diplomatic interest, the other principle reason that China has defined its relationship with the Pacific Island countries as a strategic partnership lies in its security interests.

China has strong motivations to step into the Pacific. First, the U.S.’ island chain strategy is a long-standing issue for China. The Second and Third Island Chains cross through the Pacific Islands, and it has therefore always been a strategic location. China’s modernization of the People’s Liberation Army Navy (PLAN) and its strategy of building a real blue water navy for “offshore active defense” requires it to undermine the strength of the U.S.-led defensive network in the Second and Third Island Chain. Its maritime great power dream will not become reality if the island chains remain intact.

Second, China does not have direct and effective methods to audit regional maritime activities. China does not have any military bases in this region while the U.S. and its allies France and Australia all maintain naval and air bases. Thus, it is hard for China to plan potential strategic and military distribution.

Third, the Pacific Islands are also important as transferring and supply stations for Chinese scientific expeditions in the Antarctic as well as outer space. The Pacific islands can serve as a halfway station for goods.

Fourth, considering the increase in China’s economic activities in this region, including investment, transport, and fishing, China needs an effective way to protect its people and economic interests.

With the PLAN’s capability enhancing, China can now carry out operations at longer distances, which means there is potential for China to enlarge its military influence in the Pacific. In addition, China’s relations with the South Pacific are improving due to development assistance, which creates a positive environment for China to step-up military engagement. One of the most prominent People’s Liberation Army (PLA) assistance missions was the PLA hospital ship Peace Ark’s 2014 visit to Papua New Guinea, Fiji, Tonga, and Vanuatu.[3] The four-week visit provided free medical care to citizens of each respective country and was used to deepen relations. Following this tour, Chinese naval ships have conducted two port calls, one in Fiji in December 2016 and another in Vanuatu in June 2017, which involved a PLAN task-force consisting of two missile frigates and a supply ship. During its stay in Vanuatu, the PLA met with local officials and military officers and allowed local citizens to visit the ships. In April 2018, Australian media reported that China had been in discussions with the Vanuatu Government on using the new wharf at Luganville, funded with Chinese assistance, as a naval base. This triggered an outcry from the Australian government, though Vanuatu denied any plans to establish a military base.

Ultimately, diplomatic and military influence are the two main reasons why the Pacific is vital to China. China is using economic means to achieve its goals; however, it is still in dispute whether it can succeed. One trap that China needs to be careful of is what happened to the United States in the early 20th century. President William Howard Taft’s “dollar diplomacy” investment policies in Central America led to cycles of political instability and intervention to protect the U.S. investments, which generated further resentment and nationalist movements, creating decades of difficulties for the United States.

While it is unlikely that China will use military force in the same way as the U.S., the question remains, what will China do when countries cannot pay back their loans? Furthermore, can China face the potential economic concerns that might come with the indebtedness? Will China gain a favorable impression among those Pacific island countries? These are the questions that China needs to think about before continuing “debt diplomacy.”