China’s actions in Papua New Guinea provide an opening for Australia’s ‘step-up’
11 May 2020|

Australia’s ‘step-up’ program in the South Pacific may already be having an impact, at least in Papua New Guinea.

The program was developed to enable Australia to work with other nations, including New Zealand, the United States and Japan, in part to counter the escalating influence of the People’s Republic of China in the region.

There are signs that it’s bringing results.

The PNG government’s decision to effectively nationalise the Porgera Gold Mine raised immediate concerns (which I shared) that China might seize the opportunity to acquire the mine from the PNG government or to claim the right to run the mine.

However, the extraordinarily strong reaction to the decision by one of the Porgera Joint Venture partners, the Chinese-owned company Zijin Mining, which has close links to the Chinese Communist Party, suggests that’s unlikely to happen.

Zijin chairman Chen Jinghe wrote to PNG Prime Minister James Marape condemning the decision not to extend the lease and warning that it could seriously affect future Chinese investment in PNG.

Zijin’s response was even tougher than that of its partner in the joint venture, Canada-based Barrick Gold Corporation, which also condemned the decision. Legal proceedings brought by the mine’s operator, Barrick (Niugini) Limited, against the PNG government are now underway in the national court.

There are three reasons why Zijin has taken the position it has, despite the fact that it will cause great displeasure in Port Moresby.

First, the PNG government’s Porgera decision damages Zijin’s 47.5% equity in the project, one of the company’s most important international investments.

Second, it must worry the operators of the Chinese government-owned Ramu Nickel Mine in PNG’s Madang province. The provincial governor, landowners and conservation groups have been agitating for some time for the Ramu mine to be closed on environmental grounds. As a consequence, the mine’s majority Chinese owners have deferred a $1 billion expansion.

The third reason is more complex, but equally important.

In November 2018, China sought to hijack the APEC Leaders’ Summit in Port Moresby. The summit was the largest international event ever held in PNG and one the Australian government provided substantial funding and administrative support for. Prime Minister Scott Morrison led a long overdue fightback.

Australia, New Zealand, the US, Japan and South Korea took a coordinated approach to help meet PNG’s significant infrastructure, economic security and social welfare needs with wider support for the island nations of the South Pacific. PNG’s prime minister at the time, Peter O’Neill, publicly embraced the approach, which included one of his pet projects, extending rural electrification throughout his country.

China’s intervention was effectively countered.

Since then, there has been a change of government in PNG. The new government has accepted a $380 million long-term soft loan from Australia. That has removed the need for a similar loan from China.

PNG is also negotiating a structural adjustment, fiscal management, and economic and social development program with donor agencies and nations. There are signs that this initiative will be even more multilateral than was first expected, with the World Bank now becoming involved.

The Chinese government may still have some involvement in the package, but its role seems to be significantly diminished.

China has provided some support for PNG to help meet the Covid-19 threat, but its support has been minor compared with that of Australia, which has responded comprehensively and generously.

So, is Australia’s robust Pacific step-up program, supported by other nations, mitigating China’s influence, at least at the national level?

It’s clear that China remains very active at the provincial and local government levels, especially on Bougainville, which, in itself, is a major concern.

But at the national level, its efforts appear to be more restrained, at least in the short term. There’s no doubt that the fallout from China’s behaviour at the APEC summit is a factor.

The positive impact that the step-up and the engagement of other countries is having on PNG can’t be discounted.

That should encourage the Australian government, even given our own difficult fiscal and economic circumstances, to ensure our development assistance program, and step-up, continue. Both need to be more focused than ever on enhancing our unique country-to-country and people-to-people engagement and our broader relationship.

And we need to encourage New Zealand, the US, Japan and South Korea to contribute to the overall program.

If the response to the Porgera mine nationalisation is a guide, it just might be that the step-up and related measures are having the right impact.

It’s early days, and China doesn’t appear to be lessening its activity elsewhere in the South Pacific, notably in Solomon Islands, Vanuatu, Tonga and Samoa. But we might just be seeing the first positive signs that properly targeted programs delivered by Australia and its partners are having the desired effect.

The mine decision is very harmful to PNG’s international standing. One ratings agency has already downgraded its credit rating.

That will mean our assistance, if properly targeted and spent, is even more important than it is already. And when one looks at the critical state of the PNG budget, the economy, and social indicators, our help is desperately needed. It just has to be developed and delivered even more effectively.