China-Australia rivalry surrounds Apec summit in Papua New Guinea

Next to the billboard reading “Welcome to Papua New Guinea” outside the arrivals hall of Jacksons International Airport in Port Moresby stood an advertisement for China Construction Bank.

The sign of the state-owned Chinese bank stood alongside those of other major funders of Beijing’s signature international infrastructure strategy, the “Belt and Road Initiative”: China Railway Group, China Railway Construction and China National Building Material.

The vivid presence of Chinese investment in the Pacific country – a former colony of Australia, its closest neighbour – has prompted an alarmed response in Canberra as its battle for influence with Beijing has gained steam in the past year.

“What we can do is offer alternative options for countries beyond belt and road – that is not the only source of infrastructure financing available,” Australia’s Foreign Minister Julie Bishop said in June, calling China’s US$900 billion initiative a vehicle for China to push its strategic interests.

Concern in the Australian capital was further amplified when Xi Jinping scheduled his maiden state visit to Papua New Guinea as Chinese president this Thursday and Friday to meet his counterpart Peter O’Neill.

Scheduled ahead of the weekend’s Asia-Pacific Economic Cooperation (Apec) summit in Port Moresby, the visit is expected to finalise and extend Chinese investment deals.

The annual regional economic summit in Papua New Guinea’s capital will gather heads of state in the poorest member country among Apec’s 21 nations. Both China and Australia accelerated aid to help the host country prepare after the location was selected in 2014.

“We have several hundred initiatives here [at Apec] and a number of those are Chinese,” said Alan Bollard, executive director of the Apec Secretariat, on Wednesday.

With US President Donald Trump absent, Australia has stepped up its efforts to provide for the summit to counter Beijing’s eagerness to fill the leadership vacuum.

Specifically for Apec, Australia has sent to Moresby military assets including its navy’s landing helicopter dock HMAS Adelaide, two patrol boats and about 1,500 personnel from the tri-service Australian Defence Force.

Earlier this month, Australian Prime Minister Scott Morrison met O’Neill in Sydney to complete a deal to build a joint naval base on Papua New Guinea’s Manus Island, reflecting Canberra’s long-term security interests there.

Meanwhile, China provided 62 military vehicles worth US$5 million last year, which PNG officials said would be used for Apec security operations.

Long-term investments, too, have been flooding in from both sides and look likely to escalate as Australia and China look to forge closer relations through the regional meeting.

COMPETING TO INVEST

Chinese investment in the region – mostly in infrastructure projects such as building roads and ports – grew to US$2.46 billion last year, a significant rise from 2016’s US$860 million, according to data compiled by China Global Investment Tracker.

Zhang Baohui, a professor of political science and director of the Centre for Asian Pacific Studies at Lingnan University in Hong Kong, said that although PNG is not a big player in China’s diplomatic sphere, it could act as a barometer of its belt and road ambitions.

“China does want to build infrastructure there to further its belt and road strategy,” Zhang said. “Some in Australia worry that China is trying to build a sphere of influence in Papua New Guinea.”

To counteract Beijing’s growing clout in the region, Australia – Papua New Guinea’s largest foreign donor – has vowed to up its aid to provide an estimated A$572 million (US$412 million) in official development assistance (ODA) to PNG in 2018-19, according to the Australian Department of Foreign Affairs and Trade. Canberra provided estimated ODA of A$541 million in 2017-18.

Australia has concerns about Papua New Guinea’s capacity to repay its debts to China, and the potential consequence of greater Chinese influence in its backyard that could limit its own strategic clout.

Canberra’s support has included the maintenance and reconstruction of 1,981km of roads across 10 provinces and the Autonomous Region of Bougainville.

“Australia is concerned about China’s growing influence and we may see a long-term Australian strategy to compete with China here,” Zhang said.

Graeme Smith, a fellow in the Pacific affairs department at Australian National University in Canberra, said Canberra had both security and bureaucratic concerns.

“[Security concerns include] the medium-term prospect of China looking to set up a military facility in PNG,” Smith said.

“For the foreign affairs bureaucracy, it would be the apparently negative impact of some Chinese companies on governance in PNG, particularly Huawei in the telecoms sector and various state-owned contractors in the construction sector.”

POWER PLAYS

Electricity, the infrastructure need most urgently requiring foreign support in PNG, has become the hottest battleground between China and Australia.

According to the latest World Bank data, only 22.9 per cent of PNG’s population had access to the national electricity grid in 2016, leaving millions of people without electricity.

China and Australia both stepped in to tackle the energy problem, with China investing in two hydropower plants in PNG: the Edevu and Ramu 2 projects.

Edevu is a US$190 million project in the mountain region in Central Province that is aimed at providing an additional 50 megawatts – enough to power about 37,500 homes – to Port Moresby by 2020. PNG Power Board, the company running the project, got a loan from China’s state-backed Exim Bank.

In the country’s Eastern Highlands, the US$2 billion Ramu 2 project – expected to be agreed during the Apec summit – aims to generate 180MW of energy when completed in 2024.

Australia was an early player in tackling Papua New Guinea’s electricity problem, through solar panels. The Canberra-aided Lighting Papua New Guinea project promises to provide solar recharging and light products for over 1.2 million people in the country by the end of this year.

Locals who spoke to the South China Morning Post generally welcomed investment from both countries.

“It does not matter where the money comes from – as long as it comes to this country and helps us to develop, it’s welcomed here,” said one of them, Dickson Dick, who has lived in Port Moresby for 15 years.

“I am not particularly concerned about China’s investment. Yes, it may bring some political implications, but it can’t change our political system. We are, and we will remain to be, a democratic country; China’s money won’t change that.”

WHO HAS THE BANDWIDTH?

China and Australia have also developed an apparent rivalry over telecommunications services in Papua New Guinea.

In August, Canberra had already blocked plans by Chinese telecoms giants Huawei and ZTE to provide 5G technologies in Australia over “security concerns”.

Then, in September, Canberra said it would build a 4,000km Coral Sea internet cable connecting PNG, the Solomons and ­Australia – an alternative to a deal that was agreed by Huawei in 2016. Australia’s allies the United States and Japan said they would join Australia in building the network.

The Chinese company had promised to build a 5,457km marine network to cover 55 per cent of the population and provide more than 70 per cent of PNG’s domestic bandwidth requirement. Its project would be paid for by a loan from Exim Bank.

Asked whether Beijing saw Australia’s moves as countering its influence in the Pacific, the Chinese Ministry of Foreign Affairs said Chinese aid and investments were “without any political conditions”.

The Solomons government had signed a contract with Huawei in 2017 for it to build the cable, but backed out to opt for an Australian-backed solution.

Although Australia refused to confirm this was to counter security concerns posed by the Chinese company, the US Charge d’Affaires to Australia, James Carouso, gave a blunt answer when asked in September about the network by the Australian Broadcasting Corporation.

“It’s up to the PNG government at the end of the day,” he said. “But the whole idea is to give alternatives. This is not to say ‘don’t do business with China’. Chinese offers are on the table. It’s up to us to be competitive.”

The existing China-Australia rivalry in Papua New Guinea could spill over into other industries, such as sea mining.

“The most likely outcome is long-term competition, and an emerging area of competition is likely to be deep-sea mining,” Smith said.

“There are many fault lines already present, particularly the lack of clarity around who owns the resources and unresolved boundaries between different nations.

“It is potentially extremely lucrative and it’s an area Chinese investors have been interested in for some time – encouraged by the Chinese state.”