1) Thanks to its rise and affluence, China is implementing a geo-economic strategy of centrality in every quadrant of the Indo-Pacific. Beijing’s geo-economic toolkit is multi-vectorial, comprising trade, investment, finance, development aid and infrastructure alliances. Accordingly, over the past decade China has emerged as an increasingly consequential actor in the Pacific Islands Region (PIR) through robust aid programs, expanding trade and investments, and proactive political-diplomatic engagement. Signally, the region has been included in Beijing’s ambitious ‘One Belt, One Road’ (OBOR) initiative as a node of the ‘21st Century Maritime Silk Road’.
2) In the past, China’s engagement with the PIR has been driven primarily by Beijing’s diplomatic rivalry with Taiwan. Today, the PRC is investing in the Pacific Islands to demonstrate its status as a major global and Indo-Pacific power and, intendedly, leverage on its economic relationships to challenge the established regional order and/or obtain political support for Chinese policies in other regional subsets or globally. Also, Beijing views Oceania as an arena for testing the Indo-Pacific Western stakeholders’ resolve, capabilities, coordination and resilience.
3) China’s aid provision is not conceived as a separate policy, but as one element of China’s economic statecraft. Chinese geo-economic activism not only has dramatically expanded Beijing’s regional influence, but is also recasting the regional development model and discourse. Chinese largesse amounts to a ‘silent revolution’ as Beijing’s Pacific Island economic partners find themselves with an alternative source of funding and a wider set of policy options. China, which is now the major bilateral lender to the region, offers a new port of call and fresh economic avenues, with the possibility of large-scale interventions. As a result, the established rules of regional economic governance are challenged and rewritten.
4) While China’s growing engagement with Pacific Island countries has brought upon significant opportunities for national and regional economic development, at the same time China is using economic means to achieve strategic and foreign policy objectives at the expense of the established regional partners. In fact, the rationale of Beijing’s geo-economic proactivity appears to be the unbundling of Pacific Islands nations and their traditional Western patrons, “one loan at the time”. China is extending hundreds of millions of dollars in loans to small island countries that are clearly incapable of paying them back, to the aim of converting economic loss into geopolitical gain. By changing the regional economic ecosystem China envisions the alteration of the regional geopolitical order to advance its Indo-Pacific grand-strategic goals.
5) China has successfully forged strong economic relationships within the region by exploiting synergistically the island states’ budgetary and societal imperatives and the local political elites’ quest for electoral consensus as well as their policy short-termism and post-colonial resentment. In particular, Pacific Island governments have reacted positively to China’s proffer of long-term commitment predicated upon a strategic alliance for development, display of wealth and know-how, readily available comprehensive aid packages, articulated regional vision and defiance of Western powers. Economic partnership with China has been optimistically embraced and Chinese loans and investment eschatologically received in spite of Western concern and contrariety, as they appeared to come from a friendly nation without strings attached.
6) Pacific Island nations at the receiving end of China’s strategic munificence are making themselves vulnerable to “debtbook diplomacy”. Many of these countries have taken on massive Chinese loans with little clear prospect for repayment and have strategic assets or diplomatic sway that China could demand. As Beijing accumulates more economic leverage through lending, the debtor countries slide toward a state of clientelization in which its resources, policies and diplomacy are instrumentalized by China in its quest to displace the broader rules-based order.
7) Beijing has also been taking advantage of weaknesses in Western regional economic policies and diplomatic styles to widen and deepen its influence in Oceania. The Western guardians of the region have been assuming that the area was of low criticality and reasonably secure for too long. The United States largely handed ‘strategic oversight’ of the region to its “Five Eyes” intelligence‐sharing partners Australia and New Zealand, that have been taken off guard by the combination of China’s geo-economics with “Chinese characteristics”, narratives of geopolitical emancipation and successful developmental model.
8) The Western wardens of the Pacific are momentously challenged by China’s ascendancy in Oceania and confronted with their own “strategic anxiety” about the potential risks posed by China’s loans generating “debt-trap diplomacy” and about Chinese investment in infrastructure, particularly ports, which could become strategic footholds in the future. Australia and New Zealand are therefore rethinking their role in the region and committing more resources to maintaining and reviving their Pacific ties. Declaring a “new chapter” in relations with the Pacific, Australia has announced an unprecedently substantial package to boost ties with Pacific island nations amid concerns about China’s growing influence in the region stipulating that a strong, stable Pacific region would assist Australia’s security and economic growth. New Zealand has announced a “Pacific reset” to reevaluate and rewire its regional relationships. The U.S., seeing the strategic intent driving the surge in China’s state-directed economic investment and aid in the Pacific Islands, has framed the region as an essential part of Washington’s free and open Indo-Pacific policy.