Let’s take a step back before we step up

Measuring Australia’s response to China in the Pacific

Next Voices

In the current seesaw of Australia’s regional engagement, talk of countering Chinese influence in the South Pacific has hit fever pitch. When a report emerged that China might establish a naval base in Vanuatu, it seemed to vindicate the argument that China is plotting to stake a claim as an alternative security patron in the Pacific. As noted by Chengxin Pan, associate professor of international relations at Deakin University, such analysis often employs Cold War strategic tropes – like penetrating the Second Island Chain, a containment line of islands enclosing the communist bloc – to rationalise the alleged threat posed by Chinese adventurism in our so-called “special patch”. Some commentators have even suggested that Vanuatu could become a staging base for a Chinese attack against the Australian mainland.

Such interpretations of Chinese influence in the region are coloured by a fear that Beijing plans to contest Australia as a Western power. It’s no surprise, then, that our government – caught on the backfoot – has demanded that we “step up” to China’s apparent challenge. But do we risk unduly viewing Chinese engagement in the Pacific through a geostrategic lens? Perhaps we should take a step back before we step up. I’ll make the case that China’s influence in the Pacific does demand a concerted response, but not for the reason the more hawkish pundits would have you believe.

Military posturing

After all, there is scant evidence to justify the fear that China’s interest in the South Pacific is strategic in nature or purpose. Apart from the highly contested allegation of plans to build a base in Vanuatu, China’s direct military engagement in the region has been negligible. Some alarmists point to China’s piecemeal port visits to Pacific island nations, but this is a common diplomatic gesture used to gain prestige more than to strengthen strategic posturing. What’s more, China has no defence attachés in Papua New Guinea, the Pacific state in which it would logically have the greatest strategic interest, given its large diaspora and commercial endeavours there. The equipment it has supplied to regional militaries has been minimal and non-lethal in purpose (mainly uniforms and transport vehicles). And in 1997, China even removed its only military installation in the region, a satellite-monitoring station in Kiribati. All this has rightly led a more level-headed vein of commentary to conclude that China’s regional influence is hardly military in orientation.

The idea, then, that Australia should compete with China for military dominance seems premature. Much of our Pacific step-up – ostensibly in response to the fear of Chinese influence – has focused on bolstering our strategic posturing vis-à-vis China. Our plans to establish a naval base at Manus Island exemplify this, as did our feverishness to win the contract to build Fiji’s new military base. But a pre-emptive military response by Australia risks inviting a cycle of competition that hadn’t before existed. The kind of worst-case scenario thinking that seems to inform the military dimensions of the step-up could, some warn, provoke a “longer-term spiral into even greater mistrust, making conflict a self-fulfilling prophecy”. If Australia conspicuously militarises its presence in the Pacific, China would likely mirror our approach, escalating its engagement with the region to secure a foothold in a closing window of opportunity. In this way, the step-up risks instigating a series of escalating actions and reactions that would undermine our interest in an uncontested sphere of strategic influence.

China’s economic influence

Although China is not influencing our region in a military sense, and it would therefore be inappropriate for Australia to react in kind, China is nevertheless engaging our neighbours in ways that might warrant concern. Since 2000, Chinese aid to the region has grown meteorically. The Lowy Institute recently calculated that cumulative Chinese aid between 2006 and 2016 to Pacific island nations was nearly US$1.8 billion, much in the form of concessional loans from China’s Exim bank. Beyond traditional aid, China’s (mostly state-owned) commercial sector has funded hundreds of infrastructure projects. These include Papua New Guinea’s Ramu mine – the region’s biggest construction project – and a large-scale hydropower station in Fiji. The significant role that Chinese aid and investment now plays in funding development in the region challenges Australia’s position as the Pacific’s first line of credit.

Almost automatically, there have been calls in Australia to counter China’s increasing economic influence in the region. Such an argument presupposes that it conflicts with our security interests. In responding, however, we should be careful not to uncritically indulge the narrative that China poses an inherent threat. Such thinking – especially when applied to a region well beyond China’s main stomping ground – often reflects our fear of China’s rise more so than any actions by China that might justify such worry. 

Indeed, China’s economic activities in the region are hardly coordinated in such a way that would indicate a grand strategy to displace Australia’s leading role. Instead, China’s aid and investment seem ad hoc, commercially driven and ultimately reflective of its internal development strategy. Most aid projects appear to lack a clear political purpose; they generally follow a model whereby Chinese commercial entities find a viable business proposal, such as a mine, and then seek development financing from the Ministry of Commerce to subsidise the operation via China’s Exim bank. Exim usually requires such loans to be repaid in half the time of those from the World Bank, indicating that the main purpose of these projects, for both Beijing and the borrowing company, is to return a profit. Similarly, these enterprises mostly employ Chinese labour, despite the greater political capital Beijing would gain from hiring locals. The way China seems to prioritise economic benefits over political capital gives us good reason to doubt that it is trying through its aid program to dispossess Australia of its primacy as a regional player.

Future threats

Nevertheless, there are two ways in which China’s economic engagement with the Pacific might undermine Australia’s security interests and necessitate a coordinated response. Each reflects the competing frameworks through which Australia understands the Pacific’s place in its security thinking.

The first interpretation of the threat posed by China’s economic influence is rooted in a realist conception of Australia’s security. By that I mean a view of security in which the state is the main object needing protection, usually from other states. In this view, China’s concessional loans to Pacific states embroil them in debt, creating coercive economic leverage. China could conceivably exploit such leverage to extract concessions from those island states; for example, by pressuring them into accepting a Chinese military presence. 

Admittedly, it’s fraught to infer some insidious Chinese debt-trap strategy from such scattered data. But countries like Vanuatu, Papua New Guinea and Tonga have concerningly high ratios of Chinese debt to GDP, and their apparent incapacity to pay off such debts could make them beholden to Beijing’s will. Sri Lanka seems to have suffered such a fate: in 2017 the Sri Lankan government, in exchange for Beijing’s debt forgiveness, leased the deep-water port in Hambantota to a Chinese company, amid suspicions it would be converted for military use. If Beijing succeeded in applying such a strategy throughout the Pacific – perhaps by strongarming an indebted Vanuatu into hosting a Chinese naval base, as reported in April 2018 – it would fundamentally challenge Australia’s reliance on a demilitarised maritime buffer against potential aggressors. So, although it’s premature to claim that China is currently flexing its military muscles in the Pacific, it might in future translate its debt leverage into the kind of military presence Australia fears.

This geostrategic framing of Australia’s security contrasts with the casting of the Pacific as Australia’s Arc of Instability – that is, an archipelago of fragile states that could require our intervention. For subscribers to this second view, China’s economic influence poses a risk not because it could purchase Beijing a hostile foothold in the region, but because it could weaken governance and destabilise our neighbours. According to Shahar Hameiri, the Arc of Instability paradigm emerged in response to the 2002 Bali bombings and wider insurgency movements in the Middle East. These events underscored the non-traditional security (NTS) threats – terrorism, disease, refugee influxes – that flow from failed states. Australia subsequently saw its aid program less as a charitable endeavour and more as a way of improving the “state effectiveness” of neighbours vulnerable to NTS threats. By this reading, China’s economic influence is a concern because it could undermine the security-enhancing governance agenda that Australia has promoted. In contrast to our aid program, China’s development assistance comes with few conditions. It is accordingly feared that Pacific states will have fewer incentives to improve governance and could foment NTS threats as a result. These could spill over and affect Australia directly or else demand our intervention, as occurred in Solomon Islands in 2003.

The weakening of neighbouring states and the attendant potential for NTS threats could be amplified by corrupt Chinese business activity. Graeme Dobell, for instance, has documented the widespread perception in Papua New Guinea that Chinese businesspeople engage in corrupt conduct to secure licences or favourable tax arrangements. Stuart Harris, a professor at ANU, attested before the Senate Foreign Affairs Committee to the damaging impact of this kind of corruption: “You can disorient a government in the Pacific islands with a very limited amount of money, just a few bribes to the right people at the top and you have undermined the whole governing system.” Whether or not he is conscious of it, the Arc of Instability logic seems to underpin Harris’s thinking. In drawing the conclusion that bribery can lead to state failure, he raises the spectre of the NTS threats that would stem from our neighbours’ collapse. Thus, in addition to the strategic threats that might follow from China’s economic influence, some would argue that China’s regional involvement could generate internal instability among our neighbours.

Conflicting responses

Why does it matter which lens we adopt in understanding the potential risks of China’s economic influence in the Pacific? Well, our approach will differ depending on whether we think of the possible threat as military or non-traditional. My point is not to advocate one view over the other; rather, in setting up these two perspectives against each other, my aim is to warn of the contradictory policy approaches that each seems to demand. For instance, if we suspected that China was using its financial clout to gain a strategic presence in the region, we might try to reduce the economic leverage it would use to bully Pacific island states into accepting such an arrangement. Stewart Firth has proposed an obvious way to do this: relax the conditionality of our aid, which is the main reason these island states have turned towards China’s offers of no-questions-asked finance. By matching China’s offers of non-conditional aid, we would diminish its relative appeal as a source of funds, in turn reducing whatever strategic leverage it may have gained from further indebting the Pacific. But herein lies the dilemma: if we loosen the provisions on our aid that encourage strong governance, we could impair our neighbours’ stability and risk inviting the NTS fallout of fragile states. This would conflict with our other goal of insuring against an Arc of Instability, which was our main focus throughout the 2000s.

Invert the scenario and we face a similar contradiction. If an Arc of Instability remained the greater concern, and our priority was to prevent the weakening of Pacific governance, we would probably maintain the conditionality of our aid. Knowing that in the long run we couldn’t outcompete China’s aid disbursements, we might – as Paul D’Arcy suggests – try to engage Beijing in transparent, trilateral development projects through which we could shape its contribution in support of a governance agenda. This, however, might legitimise Chinese leadership in the region, to the extent that Pacific island states could begin to welcome China as an alternate security provider. Undoubtedly, a greater Chinese military presence would intensify the strategic rivalry that concerns current defence planners.

There are, therefore, complex trade-offs in responding to China’s economic influence in the Pacific, depending on whether we conceive of our security through a geostrategic lens or a non-traditional lens. Inevitably, Australia’s Pacific policy will sustain the contradiction of wanting to both maintain our strategic primacy and improve governance in the Pacific. This owes to the fragmented structure of our bureaucracy, in which siloed departments tend to understand the national interest differently. The Department of Defence, for example, will always think of the risks posed by China’s growing economic influence through a more strategic lens, while the Department of Foreign Affairs and Trade, by nature of its more humanitarian agenda, will probably seek to prevent China from weakening the governance that its aid supports. Securing these two interests may entail a contradictory approach, so a successful whole-of-government response must optimise the compromises involved in preserving Australia’s geostrategic primacy and reducing the risk of an Arc of Instability. It’s high time, then, that we took a broader view of what’s at stake in the Pacific. Our step-up will fall down if it rests on one leg.


Dom Dwyer is studying a Bachelor of Philosophy in Asia-Pacific security studies at the Australian National University. Read our interview with Dom here.