Two months ago, we devoted an episode to a tropical paradise that was fast becoming a geopolitical football. That paradise was the Maldives, the subject economic and political rivalry between China and India. But things move fast. There's another superpower playground that's getting hot, the South Pacific. China's sway is increasing in a region that's traditionally a sphere of American,
French and Australian influence. The country most in focus is Vanuatu, where China is dishing out lots of loans and beefing up the nation's infrastructure. But sooner or later, critics say China will want to convert some of that leverage into a base for its military. Welcome to Benchmark, a show about the global economy. I'm Daniel moss Net, aonomics writer and editor at Limburg Opinion in New York. And I'm
Scott Landman and economics editor Limburgh News in Washington. So what's at stake in Vanawa to in the South Pacific? How has the region's economic and political profile changed and what are the consequences. Our guest Jonathan Prike from the Lower Institute in Sydney, will try to explain it for us, Jonathan, thanks for joining us, Thanks for having me guys. First of all, why should we care if China's influence in
the South Pacific is growing or shrinking? Well, yeah, why don't we start with a bit of geography on on what we mean by the South Pacific. The South Pacific is the region of the Pacific Islands that makes is made up of fourteen sovereign nations, and they range from in size from tiny New a country of fred people, to Papua New Guinea, a country of more than eight million. They take up of the world surface and are rich
in fishery resources, but are smaller people numbers. I think total population of the Pacific Islands is somewhere around thirteen million people. But because they make up of the world surface, because of that, the fisheries and exclusive economics own resources that they have. There is a significant some significant interests in the region. But when you step back and look at the South Pacific in the global geopolitical sphere, it's really hard to see a huge amount of significance. It's
not on major shipping routes. It's it's distant from from the power bases in Asia. But when you look to World War Two, you can see at the significant role that the Pacific Islands region has played in geo strategy in the past. And why is it important. Well, it's important particularly for Australia because we see the Pacific as really our backyard. Former Prime Minister of pup Guinea sorry of Australia, John Howard once called the Pacific our patch.
So we now have changed that language to call in ourselves the partner of choice for the Pacific and that's a relation, a relationship that we want to make tame in the region. So it's definitely this, this rise of China and the Pacific is definitely causing a great degree of anxiety in Canberra and in other traditional power bases that have had a role to play in the Pacific, that of Tokyo, Washington and Wellington. So how did Vanua to become the geo strategic flashpoint in all this, especially
with regards to China and Australia right now? Yeah, So it's it's important to note that China's rise in the Pacific hasn't happened overnight. Indeed, China has links to the Pacific that go back hundreds of years, generations of Chinese migrants that are in the Pacific that play an important role in a lot of these communities. But really since about two thousand and six, we have seen a ramping
up of China's engagement in the Pacific. And I also note that China's only engaged formally with eight countries in the Pacific Islands. There remain reign six support Taiwan, and they now make up just one third of the of Taiwan's remaining support based in the United Nations. So that's such just an interesting little little elements of China's engagement. But since two thousand and six, China has really been
been ramping up its engagement in the Pacific. A lot of that has come in the form of what we see what China's doing elsewhere in the world, the form of concessional loans to build large infrastructure projects, and China's been doing this in a big way in a number of countries in the Pacific, Vanawatta being one of them. For research from the Lower Institute has shown that that China has injected over one point eight billion dollars of lending and grants into the Pacific Island region since two
thousand and six. That would put it anywhere between the top three and top five donor to the Pacific Islands region. Vanawatu has immerges a flashpoint for this engagement this year because when you take a look at the all the different projects that China's engaged in, all the infrastructure projects,
most of them to pically are pretty benign. In a lot of these countries, you know that big government buildings that rehabilitating city centers that not really you can't really see how they could be of dual use as we have seen China do in other parts of the the world. So they're not critical infrastructure. That not deep seaports and not airports. They're not these these projects that China might want to consider doing an asset buyback or um you want to use as a dual use facility later down
the road. That's different in Vanuatu. In Vanuatu, China has rehabilitated a port, a deep sea port on the country's largest island, but one of its least inhabited. And you know, analysts are from around the world look at look at that project. Look at this now deep sea port that reports have sean has the capacity to host an aircraft carrier. They look at that project with a great degree of anxiety. Jonathan,
How have the region's economics changed. Is it a shift in the contours of foreign aid traditionally dominated by Australia, France and the US, or is there something else going on here economically? Yeah, well, the economics of Pacific Islands, of these smaller countries is quite unique. You know, most of these countries are not going to follow a traditional traditional economic development pathway just because of the small size of most of these economies and just their remoteness to market.
So in the case of Vanuatu, Vanuatu is one of the most tourist dependent economies in the world, but foreign aid is always going to also going to be a significant contributor to economic development and to the the economies
more broadly in these countries. So the fact that China is injecting a lot of infrastructure into Vanuatu does have an impact on on Vanuatu's economy, but it's not nearly as important as the as the tourism markets that Vanawatu benefits from, which are dominated by Australia and New Zealand, and from cruise ships. So you know, well, the sport that they have built is as sensibly to to increase the amount of tourism arrivals. We haven't actually seen that eventuate.
But there is also another lends to look at this Chinese lending through is that of the debt that Vanawata is stacking up by taking on these loans, and that debt profile gives China significant economic leverage over Vanawatta. How they can use that leverage to their advantage is a question I'm everyone is wondering. I'm not convinced that Vanawata
can really be brought through through this economic leverage. That this is a country with with agency and you know, their their foreign minister has come out recently after these recent Saga has hit the press and said emphatically that there is no way that they would let China develop any sort of dual use military assets or any sort of fixed base in Vanawatta. They just have no interest
in doing it. So just because China has this economic leverage over Vanuata doesn't mean they're going to be able to wield it as they might like in the future. Jonathan talking about economic leverage from another point of view.
Here in Washington lately, we're spending a lot of time writing and following what's going on between the US and China over trade, with the potential for a trade war looming high in a lot of people's minds, is there any connection between how China might approach trade negotiations with the United States or with other trading partners end China's approach to influence in the South Pacific or just the Greater Asia Pacific region. Well, yeah, that's a it's a
really interesting question, I guess. In the South Pacific, trade is really insignificance component of the relationship or China's export to a degree to these countries, but it's not at all significant for China's trading profile so far. More important I think for their engagement in the South Pacific is to build political and formal influence in these countries, to get support at the United Nations, to get our geopolitical support, and too, yes, secure their support in the future. PUPN
New Guinea is a different story. Pup New guineas country of eight ten million people that is rich in a whole range of natural resources that China might be interested in securing. But yeah, the trade component of this relationship hasn't really eventuated in any significant degree at the moment.
China's engagement with Australia. A major component of that is the trade relationship, and it has a significant influence on the way in which we in Australia interacts with China, and I guess it does shape the lens of the way Australians are looking at China in the Pacific and our immediate region because of just the challenges we're having with our bilacteral relationship between Australia and China. There's been some commentary that Britain wants to play a role enshoring
up the neighborhood. Jonathan, is this a joke? I mean, Britain can't decide what its relations with France and Germany should be, how can they give the South Pacific any serious attention? Yeah, look, that's a great question. And I think people have taken the announcements of Britain opening three new diplomatic missions in the Pacific as a lot of people have been heralding it as a potential game changer or a Pacific pivot, and you know, I think that's
all nonsense. To be honest. First of all, the United Kingdom has colonized half of the region, and to think that they can come in and now act as as savior. I think you know, we've seen how that story is played out in the past. And just because they are it is a post Brexit, UK is expanding its geopolitical network again. It wants to establish itself more as a global player. The South Pacific has been and will always be on the fringe of geopolitical interest for the United Kingdom.
France has also committed to doing more in the South Pacific. But if we are expecting them to really change the landscape in any significant way, then um, I think we're
all going to be let down. The real owners should be on the traditional powers that have been involved in the Pacific for a long time, Australia, New Zealand, Japan and the United States two look at the way in which we're engaging with the Pacific and to really up our game, to do more to maintain our positions as being the partners of choice in the Pacific Islands region. As the United States been alarmed at these developments at
all lately or or monitoring the situation in the South Pacific. Yeah, so it's an interesting relationship between the United States and Australia with regards to the Pacific Islands region, and it's it's quite a unique one in that the United States really does take a quite a hands off approach with this part of the Pacific because they see Australia has been a safe set of hands to be looking after this part of the world, and they really do look to us for guidance as to how they should be
engaging in this part of the world and in Banawatu and other countries in the Pacific. So I'm sure there have been some stern conversations between American and Australia about as to what is going on in our immediate neighborhood and asking whether Australia has dropped the ball here. But I think the reality is that there was not much Australia or the United States could have done to to really curb the way in which China has been engaging
to this point. It would have or it would have taken a very concerted effort, but we past that point now and we have to work make sure we work with China as much as possible to make sure what they're doing in the region is beneficial to everyone. Jonathan, You've done some work on labor mobility in the South Pacific. What are the microeconomics of this issue. Have the internal economies of these island states changed significantly and is that
playing a role here? Oh yeah, so later mobility is going to be a critical component for economic development in a lot of these countries, as Australia, New Zealand and
other Western nations. We go through labor shortages, particularly in areas of the economy such as agriculture and horticulture and the care industries, where there just aren't enough Australians to fill these demand We should be looking more and more to the Pacific to help fill our labor shortages, and we have been doing that more in recent years that we have seasonal worker programs where we bring Pacific Islanders into Australian New Zealand who work in fruit picking and
the benefits speak for themselves. I mean, the average income for these people increases by more than fourfold, and they all want to come back, and they all are incredibly happy with the scheme. And on the employer's side, increases productivity of their employe, of their workforce by almost by bringing these Pacific Islanders in. So it's really a win win for everyone and it shows just how important labor mobility will be as a component of economic development for
the Pacific in the future. Now as to how it's changed the economies of these countries, it's not a one size fits all. I mean, Tonga is a country that has really lent into lab mobility in a big way. And now I think that the last numbers I saw with something like of the working age male population of Tonga now every year work abroad and that is having a significant impact on the domestic economy. And you know that there's now labor shortages back in Tonga as a
result of so many workers going abroad. But when you look to other countries like Solomon Islands pop in New Guinea, where there is a much larger workforce waiting to and ready to go, then you know you can still see how the untapped potential of lab mobility in the Pacific. It just we need to have a better balance of where these workers are coming from, because I think having that many workers from from Tonga every year is just going to be unsustainable practice for the tongue and economy.
Go Tonga. On that note, Jonathan, thank you so much for joining us. Thank you. Benchmark will be back next week until then you can find us on the Bloomberg terminal, Bloomberg dot com, our Bloomberg App, and podcast destinations such as app podcasts, Spotify, or wherever you listen. We love it if you took the time to rate and review
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