The Pacific Islands Play the Field

The Pacific Islands region, no longer remote from the global centers of power, is experiencing new forms of geopolitical competition. Australia and New Zealand have long dominated the region, providing an effective security guarantee and most of the region’s trade and diplomatic links and aid. The influence of the region’s larger metropolitan powers – the United States and France – has prevailed in their own territories. This is changing with the rise of China and with the efforts of island states to diversify their international partnerships.

Aid plays an outsized role in the relationships of external powers with Pacific Island nations. The high dependency of many smaller island nations on aid and the limited capacity of governments in the region to deliver services to their people makes aid, more so than trade, investment, or military ties, a key means of exercising influence. The exceptions to this rule are the two largest island nations, Papua New Guinea and Fiji, which are not as dependent on aid and have both diversified their foreign relationships successfully over the last decade. Smaller nations have been vulnerable to approaches from countries such as Turkey, the United Arab Emirates, and Russia, which secured support for their UN or other international candidacies or positions with relatively small aid contributions that were not sustained much past the date of the relevant vote.

China’s Role

Chinese aid was originally mostly delivered to Pacific Island states to secure their commitment to the “one China” policy when a more assertive Taiwan was pursuing diplomatic recognition from those states. An era of checkbook diplomacy between China and Taiwan persisted until the election of the Ma government in Taipei, which called a diplomatic truce in 2008 (meaning neither Beijing nor Taipei would court each other’s diplomatic partners). China’s interests in the region have grown remarkably from this point.

Chinese aid in the Pacific Islands region has expanded rapidly in the past ten years. A recent update to the Lowy Institute’s research on Chinese aid shows that China is now the third largest aid donor in the region. It has spent almost $1.8 billion over the last decade, very close to the $1.9 billion spent by the United States but still a long way behind Australian aid expenditure in the region – $7.7 billion over a decade.

China provides aid in three main forms: grants; interest-free loans administered through state finances (i.e. the Ministry of Commerce) and concessional loans administered through China Exim Bank (usually with 2-3 percent interest rates). The increasing take-up of concessional loans, which must be paid back by recipient governments, is responsible for driving the expansion of China's aid program.

China’s aid program is perceived to be more flexible than programs administered by Western governments and is therefore often more popular with Pacific Island governments. This flexibility enables Pacific Islands governments, with Chinese contractors as partners, to pursue projects that Western donors are reluctant to fund or that governments cannot afford. Providing this platform and playing this role has helped Beijing increase its influence in the region.

While China’s overall aid to the region lags behind Australia’s aid contribution, China has overtaken Australia as the leading donor in Fiji and is on track to overtake Australia as the largest donor to both Samoa and Tonga. China is also the second largest donor to the Cook Islands (behind New Zealand) and the third largest donor to the Federated States of Micronesia (behind the United States and Japan).

Pacific Island nations have not always benefited from China’s approach. As most aid has been delivered via loans, a few states – notably Tonga and Samoa – have experienced debt distress. China’s aid projects are not always well managed, with many infrastructure projects proving to be unfit for purpose or poorly built and maintained. Local businesses have lost out on contracts to Chinese businesses or seen Chinese small businesses move in on sectors that once were locally driven.

China’s high profile aid projects in the region tend to dominate media coverage of Chinese interests in Pacific Island countries but China’s engagement with the countries of the region is multi-faceted.  Two-way trade between China and the region reached $7.5 billion in 2015, up from $4.5 billion in 2014, thanks largely to a rise in Chinese exports. Although the quantum of Chinese direct investment across the region has not yet been quantified, it is prominent across the region. In December 2016, the PNG government announced it had signed a deal with Chinese investors to build processing and manufacturing plants at two new industrial parks in West Sepik province.  In Fiji, China is responsible for most new investment registrations. Chinese investors, however, do not have a good record of following through on projects they register or announce.

Public service training programs delivered by China are on the rise. There is a growing Confucius Institute presence in the region. Some 844 Pacific Island students (483 on Chinese government scholarships) were studying in China last year. While these numbers are still small compared to Australian and New Zealand scholarships for Pacific Island students, they are growing.

China’s CCTV broadcasts into the Pacific islands and runs stories from the island states. Although it is arguably a bit early to determine the impact of this kind of soft power, China has an advantage as it is stepping up its use of media while Australia is losing interest in it. The Australian government has abandoned its support for a dedicated Australian TV service in the region. The Australian Broadcasting Commission has reduced its resourcing for Pacific Islands news, most recently announcing it would cease its vital shortwave service to the region in January 2017. The New Zealand government, however, is more conscious of the importance of broadcasting and has developed a new television capacity for the region.

China’s growing interests in the region have influenced other major powers to take more interest in what is happening in the island states. Hillary Clinton, while serving as U.S. secretary of state, famously told the Senate Foreign Relations Committee in 2011 that the U.S. was in a competition with China for influence in the Pacific Islands. At the time, she was bidding for more resources to step up a relatively subdued U.S. presence in the independent Pacific island nations. U.S. diplomats in the region have done their best, with a limited budget, to enhance the contribution Washington makes to small states.

Russia in the Pacific Islands

Russia has also re-entered the region as a player. Moscow has mostly used small aid inducements to secure votes at the United Nations and to influence island nations to recognize territories such as South Ossetia and Abkhazia. But in early 2016 Russia concluded an arms deal with Fiji, which consolidated its relationship with Suva. Russia’s arms contribution, sought out by the Fiji military for its UN peacekeeping role in the Middle East, comprised of AK-47 assault rifles, rocket-propelled grenades and trucks, for a total value of $12.5 million. In 2013, Russia and Fiji also signed five bilateral agreements on military and technical cooperation; a mutual visa exemption scheme; cooperation in tackling money laundering, the proceeds of crime, and the financing of terrorism; public health assistance; and university exchanges between Russia’s Far East University and Fiji National University. In October 2016, the speakers of the Russian and Fiji parliaments signed an MOU on inter-parliamentary cooperation.

The expansion of the Fiji-Russia bilateral relationship has been driven primarily by the Fijian government. Fiji’s former Foreign Minister Ratu Inoke Kubuabola has said that for Fiji, diversifying relations with countries such as Russia created “greater stability.”

Indeed, Moscow has responded to overtures from Suva rather than unilaterally stepping up its engagement. It is far from clear what Russia’s motivations are in Fiji, apart from securing Fiji’s support for Russian UN initiatives. Unlike China, Russia has not made any meaningful effort to improve or expand its relations with other Pacific island countries. Russian companies are not investing in the region. Beyond the relatively small amounts of aid handed over in exchange for diplomatic recognition of Russian satellite states in 2009, Russia’s bilateral foreign aid program does not extend to Pacific island countries.

But Moscow will be conscious that Beijing’s influence in the Pacific Islands region is expanding. Russia needs to have a presence in this region if it is to maintain a watchful eye on the strategic intentions of its neighbor.

Australia’s Lasting Role

Australia’s aid, trade, investment, military, and diplomatic links with the region are more significant than China’s and are likely to remain so for some time. To put the question of aid in perspective, according to China’s 2014 Foreign Aid White Paper only 4.2 percent of China’s aid goes to the nine countries in Oceania that recognize the PRC. This represents the smallest share of China’s aid program. Australia, meanwhile, directs 27.6 percent of its annual aid budget to Pacific Island countries and regional organizations, representing the largest single share of its aid budget. New Zealand directs almost 60* percent of its aid program to the Pacific Islands and regional organizations, also representing the largest single share of a three year aid budget. By contrast, it is Africa that has a dominant share of China’s foreign aid program, taking 51.8 percent of aid, while Asia’s share is 30.5 percent and Latin America and the Caribbean’s share is 8.4 percent.  

China has no territorial claims within the Pacific Islands region and has not sought to establish military bases within the region, nor to arm Pacific Island country military or police forces.  China’s assistance to the military forces of the region has so far focused on non-combat support and some training. Australia spent about AU$80 million (US$58 million) on defense cooperation programs in Papua New Guinea and the Pacific Islands in 2016, not including the substantial assistance delivered by the Australian Defence Force (ADF) to support Fiji following the devastation caused by Tropical Cyclone Winston in February 2016.

The ADF is also replacing the Pacific Patrol Boats in support of improved maritime security in the Pacific Islands region. The region will have 21 new, larger and more capable vessels to replace their current aging Australian vessels from 2018 onwards – at a build cost of AU$280 million plus AU$24 million in maintenance.

Australia maintains a lead role in disaster relief in the region. Geographic proximity and Australian military assets, alongside those of New Zealand and France (based in New Caledonia), make Australian assistance indispensable. Australia and New Zealand led the way in responding to Tropical Cyclone Winston in Fiji in February 2016 and to Tropical Cyclone Pam in Vanuatu in March 2015, mobilizing naval and air assets rapidly and deploying civilian relief expertise on the ground to work alongside local authorities.

Australia is still the region’s leading trading partner. According to the department of foreign affairs and trade (DFAT), Australia’s trade with Pacific Island Forum members totals about AU$22 billion (US$16 billion), compared to US$7.5 billion for bilateral China-Pacific islands trade.

What Do Pacific Islands Nations Want?

The chief protagonist in foreign outreach efforts by Pacific Island nations over the last decade has been and continues to be Fijian Prime Minister Josaia Voreqe “Frank” Bainimarama.

Bainimarama is committed to reducing Australian and New Zealand influence in the region. This is, in part, retaliation for what he perceives to be their refusal to recognize the value of the reforms he sought to make in Fiji with his 2006 military coup and 2009 abrogation of the constitution. Australia and New Zealand imposed sanctions on the military regime, which took power in 2006, and led moves to suspend Fiji from the Pacific Islands Forum and the Commonwealth.

Bainimarama wanted to “look north,” to see Fiji lead the region and thereby make choices about which countries should be not only Fiji’s but the region’s partners. He has made no secret that he regards China as Fiji’s most important foreign partner and has courted Russia and other emerging markets, including Indonesia, Brazil, and South Africa. Fiji has established new diplomatic relations with 63 countries and is expanding its participation in international and regional organizations.

Fiji built on its bilateral successes by projecting its influence in international organizations. Fiji joined the Non-Aligned Movement in 2012. In 2013 Fiji became the first Pacific nation to hold the 12-month chairmanship of the Group of 77 plus China, the largest voting bloc in the United Nations and, in June 2016, Fiji’s Permanent Representative to the United Nations, Peter Thomson, was elected as president of the 71st session of the UN General Assembly. The Pacific Small Island Developing States (PSIDS), a UN-based grouping which has been in existence since the early 1990s, has made  important progress in driving the island states’ climate change agenda – mostly due to Fiji’s activism.

Within the region, Fiji deepened engagement with the Melanesian Spearhead Group (MSG) as part of its efforts to reassert Fiji’s centrality in the Pacific. Supporting these efforts was the flagship of Fiji’s new foreign policy agenda, the Pacific Islands Development Forum (PIDF). The PIDF pointedly excluded Australia and New Zealand and was intended to serve as a grouping which could express Pacific Island voices, unfiltered by the Australian and New Zealand governments.

Papua New Guinea, by far the largest Pacific Island nation-state, has also worked hard to expand its foreign relationships. Driven primarily by the need to secure stable export markets for its new production of LNG and to attract new investors to develop and expand its extractive sector, PNG’s government has improved its relations with major powers Japan, China, the U.K., France and the United States. Prime Minister Peter O’Neill has cultivated closer relationships with PNG’s nearest neighbor, Indonesia and with the Philippines, Thailand, Malaysia, and Singapore.

Papua New Guinea is due to host APEC in 2018. This event presents Papua New Guinea with a unique opportunity to promote itself on the world stage, particularly during the leaders’ meeting. But the high cost of preparations for hosting an international summit at a time when the PNG budget is under severe strain may make it difficult for the PNG government to allocate the resources necessary to take full advantage of this opportunity.

Several smaller nations of the Pacific are also interested in diversifying their foreign relationships, to secure favorable aid arrangements, support for climate change initiatives, new investment, or education and employment opportunities for their citizens. It would be very surprising if the governments of these nations were not seeking better relations with China, the world’s second largest economy. But small island states are becoming less willing to take on debt and more assertive about what they want from aid partners. They are also more vocal about the support they expect for action on climate change, an existential threat to many small islands.

Will the Trump Administration Be a Game-Changer?

Pacific Island nations were largely neglected in the Obama administration’s “pivot” to the Asia-Pacific. What is already known of President-elect Donald Trump’s world view implies that this neglect, however benign, is likely to continue. It is hard to see more U.S. aid being directed to Pacific Island nations or a large increase in U.S. trade with the region. Retreat, however, is also highly unlikely. The United States cannot withdraw from its own territories in the northern Pacific: American Samoa, the Commonwealth of the Northern Mariana Islands, and Guam, which hosts an increasingly important military base. The Compacts of Free Association the United States has with the Federated States of Micronesia, Palau, and the Republic of the Marshall Islands are not due for review during Trump’s four-year term so it is unlikely that the nature of the U.S. relationships with these states will change.

In December 2016, the U.S. government signed a six-year extension to its fisheries treaty with Pacific Island nations. The United States had earlier in the year withdrawn from the treaty after it was unable to reach agreement with Pacific Island nations. The terms of the treaty give U.S. purse seine fishing vessels access to the region’s fishery and guarantees an industry payment of $45 million per annum and U.S. fisheries aid of $21 million annually to the 17 members of the Pacific Islands Forum Fisheries Agency. The determination of the U.S. government and Pacific Island governments to reach agreement on this treaty demonstrate that the United States remains important to the region. The Trump administration is unlikely to back away from these interests.

Trump’s selection of ExxonMobil’s CEO, Rex Tillerson, to be his secretary of state has an unexpected upside for the region. ExxonMobil’s investment in LNG in Papua New Guinea was the largest ever foreign investment in the country. Tillerson himself visited Papua New Guinea in 2015 and according to PNG Prime Minister Peter O’Neill, is a “very good and genuine friend of Papua New Guinea.” This relationship may yet prove critical in developing U.S. policy on the region and perhaps in ensuring that the United States does not ultimately neglect the region.

The most damaging impact of Trump’s foreign policy may be the cancellation of U.S. contributions to the Green Climate Fund and other climate change mitigation funding programs, as Trump signalled during the campaign. The cancellation of the United States’ pledged $3 billion contribution would damage the capacity of island nations to respond to the threat of climate change unless it is compensated for by contributions from other countries. Any backtracking on U.S. commitments made in Paris would also be harmful. Fiji has already recognized this danger and publicly invited Trump to visit Fiji and see the impact of climate change on small island states.

During the election campaign, Trump said U.S. allies needed to contribute more to guarantee international security. His administration will likely put more pressure on Australia to increase its defense capacity to deliver the security guarantee to the southwest Pacific. Australia, working with New Zealand, already assumes much of the responsibility for security in the southwest Pacific. But in an era of more overt geostrategic competition with China in Asia, the Trump administration’s expectations of Australia’s obligations may well be quite different to those of previous U.S. governments.

The other major power in the region, France, should not be forgotten in considerations of the changing international dynamics of the region. The admission in 2016 of French territories New Caledonia and French Polynesia as full members of the Pacific Islands Forum grants France an important voice in the pre-eminent regional organization. The French military base in New Caledonia gives France a capacity for influence that China does not currently have. If the National Front’s Marine Le Pen triumphs in the French Presidential elections this year, she will lead a more assertive France in the region. The National Front does not support the Noumea Accord. Even though the current demographics of New Caledonia mitigate against a successful vote for independence in 2018, there will likely be continued pressure for greater autonomy in New Caledonia. How a new French president deals with this challenge could have an impact beyond its own territory.

The enduring inclination of Australia and New Zealand to work together in the Pacific Islands region and their geographic proximity to the island states gives them the capacity to remain the dominant powers alongside the United States and France, at least for the medium term. But the seemingly relentless rise of China may well eventually result in Chinese influence encroaching on what Australia and New Zealand would regard as their strategic space.

It  is by no means inevitable, however, that the growth of Chinese aid, trade, and soft power in the Pacific Islands will bring the island states en masse into China’s strategic orbit. To date, island nations have been able to get what they want from China – aid, investment, trade – without signing up to back China’s strategic ambitions.  Even Fiji, which has the closest relationship with China and has gained the most from Chinese aid and investment, has made it clear it does not support China’s South China Sea policy. Vanuatu is one of very few countries to endorse China’s activities in the South China Sea but interestingly, Vanuatu has long struggled to make the best of the Chinese aid it has received.

Individual Pacific Island nations and indeed the region as a whole will face the same difficulties Australia, New Zealand, and numerous other countries are already encountering dealing with a primary trading or economic partner (China) that is not their primary strategic partner. Australia and New Zealand may have more freedom in their strategic reckonings because of their relative size and wealth but it would be unfair to Pacific Island leaders to assume that they are not capable of making strategic choices in the interests of their nations. Whatever the extent of Chinese influence in the region in the future, it is Pacific Island governments, not external powers, that will make choices about how they balance their own foreign policy interests.

*Editor's Note: This story has been updated to accurately reflect the proportion of funding by New Zealand in the Pacific region. Source: https://www.mfat.govt.nz/en/aid-and-development/our-approach-to-aid/where-our-funding-goes/