23 October 2019
For the past two years, Australia has been urgently trying to improve ties with its Pacific neighbours to prevent China from gaining a military foothold in the region. But as China’s pockets grow deeper, this task is proving increasingly difficult – as highlighted by the recent revelation that an entire Pacific island could soon come under Chinese control.
Earlier this month, it emerged that the state-owned China Sam Enterprise Group is set to lease the small island of Tulagi, in the Solomon Islands, as part of a deal to develop airports and other facilities there, which could be used for military or civilian purposes. The agreement was signed on 22 September, days after the Solomon Islands announced it was switching its diplomatic loyalty from Taiwan to China. Michael Salini, a Tulagi resident, told The New York Times last week: “Everyone is really scared about the possibility of China turning the island into a military base.”
There are doubts about whether the plan will go ahead, especially since the provincial government that negotiated it cannot override the rights that local landowners and federal authorities have over the island’s fisheries, minerals or forests. But the Chinese firm could yet gain some control, and similar deals could potentially be established in the Pacific in future, particularly as part of China’s globe-spanning Belt and Road Initiative. The Solomon Islands joined the Initiative in October, and six other Pacific countries, including Papua New Guinea, signed up last year.
These mostly small island nations are hoping to attract investment and loans from Beijing. China has a growing thirst for resources and food, as well as for projects to absorb its massive workforce, so is inevitably looking for partners and markets overseas. Such projects in the Pacific will increase China’s influence there, especially in countries with weak governance that could relinquish vital assets or become heavily indebted to Beijing.
This is the challenge that threatens Scott Morrison’s “Pacific step-up”. Morrison has sought to improve relations by evoking Australia’s cultural and historical links with Pacific communities. But appeals to “our Pacific family” will not be enough to counter China’s great advantage in the battle for regional primacy – its growing wealth and commercial reach.
Australia should confront this imbalance, not by blocking Chinese trade and investment but by working with Pacific nations to ensure that foreign ventures do not threaten their security or stability. A report released by the Lowy Institute on Monday noted that Pacific countries are particularly susceptible to incurring unsustainable debt because they are remote, economically weak and vulnerable to natural disasters and climate change. Although the report found that China has not been engaging in “debt-trap diplomacy” in the Pacific – that is, deliberately leaving these nations indebted so that it can gain leverage or control key assets – it did warn that Pacific countries are at risk due to the “scale of Chinese lending and the lack of strong institutional mechanisms”.
Australia’s main response to China’s increasing economic influence has been to propose its own $2 billion financing facility for the Pacific. But this will not help these countries handle their debts. And Australia may still struggle to compete with China’s growing sources of funding, which are less likely to be subject to controls and regulation. As a Pacific bureaucrat quoted in the Lowy report said, “We like China because they bring the red flags, not the red tape.”
Instead, Australia should focus on assisting Pacific countries to screen loans and deals to ensure they do not jeopardise their security or present economic risks. In recent years, Australia has introduced some of the world’s most extensive and detailed measures to avoid such risks in cases where foreign entities invest in assets such as telecommunications networks and strategically located ports. Weighing security against commerce is not easy, and Australia has not always succeeded in balancing the two. It should share its knowledge – its successes and failures – with its neighbours. The problem is not the leasing of entire islands. Queensland, for instance, would no doubt welcome Chinese involvement in some of its dilapidated island resorts. But it is imperative that such deals do not pose risks and that owners do not sign away more than they should. Rather than combating Chinese influence in the Pacific by offering competing bids, or appealing to sentiment, Australia’s best hope might be to ensure that small, economically vulnerable countries there have ready access to an army of accountants, auditors and lawyers.