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Chinese Influence and Investment in the Pacific Islands

The 2018 Asia-Pacific Economic Cooperation (APEC) meetings will be held in Papua New Guinea (PNG) from November 17-18. PNG’s Foreign Affairs Minister recently confirmed that leaders of Pacific Island nations will attend the summit, in addition to the 21 APEC members. Chinese President Xi Jinping is perhaps the most high-profile summit attendee after it was announced that American President Donald Trump would not attend, opting to send Vice President Mike Pence in his place.

The US-China Economic and Security Review Commission notes, in a June 2018 report, that “Since, President Xi took office in 2013, China’s engagement in the region has been comprehensive and has notably accelerated. It has been focused in the economic and diplomatic realms with a comparatively smaller security component.” In addition to increases in Chinese trade, development assistance and tourism, the direct investment arm of China’s regional expansion is noteworthy. Chinese foreign direct investment (FDI) in Pacific Island countries reached $2.8 billion in 2016, up 173 percent from 2014, according to Chinese Ministry of Commerce data compiled by The US-China Commission.

China has become inextricably linked to the economic affairs of various Pacific Island nations, with an emphasis on infrastructure and real estate investment. PNG, in June, became the second Pacific Island signatory on China’s massive Belt and Road Initiative program. This comes after PNG announced a series of infrastructure projects to be delivered by the Government of China and the China Railway company. The island nation of Vanuatu recently constructed a Beijing-funded $114 million wharf, the largest in the South Pacific. Although Vanuatuan officials denied all claims, Australian observers noted that such a port could be converted into a “Chinese naval installation” (Sydney Morning Herald, 2018).

APEC 2018 arrives as China seeks to grow its already considerable economic and diplomatic influence in the Pacific Islands. Despite a modest population, relatively small economies, and a lack of political stability, the South Pacific is geopolitically significant for both China and Western powers. The U.S. and Australia, two of the traditional external players in the region, recently held talks to address China’s rising influence and economic expansionism. Security officials signed a memorandum of understanding aimed at promoting security  in the region, which came “amid efforts by Australia to ramp up diplomacy in the Pacific to combat China’s rising influence” (Reuters, 2018).

Sino-Pacific Affairs will likely be a significant topic of discussion at APEC 2018, given China’s regional push. Some fear that Chinese investment and lending practises may create a debt trap for Pacific Nations, many of whom possess unfavorable credit ratings and highly concentrated Chinese debt burdens (Bloomberg, 2018). However, as is the case with other regions such as Africa, China’s influence is unlikely to dissipate any time soon.

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