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New Zealand’s China reset?

Posted By on December 20, 2018 @ 10:30

In February, New Zealand Foreign Minister Winston Peters announced a revised approach to the Pacific islands. Central to the coalition government’s ‘Pacific reset’ was a pledge to increase New Zealand’s diplomatic and development footprint in the region. This included a NZ$714 million boost to aid and development spending, as well NZ$180 million for a new strategic international development fund.

Since then, there has been a raft of developments. The government’s May budget provided New Zealand’s foreign service with a significant boost in funding. The government’s strategic defence policy statement, released in July, was noteworthy for its unusually frank language about China’s actions. And last month, Peters announced the creation of a $10 million Pacific fund that will operate beyond the parameters of formal aid arrangements and an increase in the number of staff posted offshore in the Pacific.

New Zealand’s relationship with China, and the rewards it has brought, are well known. The country is now NZ’s largest trading partner in goods, and second largest when services are included. The dairy sector, especially, has profited immensely; it currently supplies over 80% of China’s butter imports and over 50% of its cheese imports.

The government’s hike in aid funding, change of tone and upgrade of maritime patrol capabilities are soft-power responses to a mounting dilemma: how to counter China’s escalation of influence in the South Pacific.

The Belt and Road Initiative, which was first unveiled in 2013, is at the heart of Beijing’s growing presence. In its simplest form, the initiative is President Xi Jinping’s grand plan to boost China’s trade links across Eurasia. China has deployed hundreds of billions of dollars—often through loans or financial guarantees—to other countries for big infrastructure projects. The ambition of the BRI is enormous: it targets, by one estimate, about two-thirds of the world’s population, a third of global GDP and a quarter of all trade.

New Zealand signed a non-binding memorandum of arrangement with China on the BRI in 2017—one of the first Western countries to do so. However, looking at what was signed, it’s hard to find anything out of the ordinary. Collaboration in mutually beneficial areas such as education and tourism has been going on for many years.

Stephen Jacobi, the executive director of the New Zealand China Council, is arguably most vocal advocate of BRI involvement in New Zealand. According to Jacobi, trade flows, not infrastructure, are ‘the real play’ in the region. Yet some believe that Jacobi is too optimistic and he very rarely offers a critical word on the strategic goals the BRI is seeking to achieve.

Sri Lanka’s BRI experience shows how things can go wrong. In December 2017, having failed to pay accumulated debts to China, the country handed over its strategically located Hambantota Port in a debt-for-equity swap. Given that the economic rationale for the port is weak, there’s been a great deal of speculation that it could become a Chinese naval facility.

China’s aid investments in the Pacific, which lag well behind Australia’s, stand out because they often involve high-profile projects. Through the BRI, for example, China has pledged an eye-watering US$3.5 billion to build a new road network in Papua New Guinea. On the other hand, Australia and New Zealand have historically invested in areas such as education and training for better governance. Similar to what happened in Sri Lanka, Canberra and Wellington fear that countries in the region will be snared in ‘debt traps’ which will be exploited by China.

Closer to home, Peters’ cash injection hasn’t deterred Beijing. In fact, China has responded by simply upping its own involvement. In recent months, Niue and the Cook Islands—whose citizens carry New Zealand passports—have made commitments to join the BRI. While both have a degree of autonomy, Wellington has tended to lead when it comes to foreign policy.

At the APEC conference in PNG, New Zealand’s ‘soft power’ push was on show. Prime Minister Jacinda Ardern announced that New Zealand would join the US, Japan and Australia to expand access to electricity in PNG. There was also an announcement, by Peters and his Australian counterpart Marise Payne, of a joint cybersecurity project with Pacific island countries.

If Trade Minister David Parker’s comments at APEC are anything to go by, New Zealand’s strategy is to act as an ‘honest broker’ between China and the US. But the geopolitical tensions that bubbled up at the summit—mainly over who would be the better investment partner for the region—underline how that spot might be difficult to maintain. Xi’s meeting with eight Pacific leaders and Tonga’s signing up to the BRI indicate that China is upping the ante.

On her return from PNG, Ardern reiterated Parker’s comments, saying that New Zealand’s approach was based on principles and not aligned with any one country.

Last month, the government turned down Spark Telecom’s proposed use of Huawei equipment in New Zealand’s 5G network on the advice of its main intelligence agency. Andrew Little, the minister responsible for the Government Communications Security Bureau, is yet to go into any detail on why the company’s involvement would create a national security risk.

With an upgrade of the NZ–China free trade agreement on the cards, this was a tough call for the government—though the language in China’s 2017 national intelligence law probably made the decision easier. Article 7 of the law makes it clear that Chinese organisations are expected to collaborate in national intelligence work. More generally, the government’s caution is understandable, especially given the scale of cyber theft undertaken by groups linked to the Chinese state.

In the past year, New Zealand’s foreign policy has become more cautious towards China. To counterbalance the Chinese thrust into the South Pacific, Wellington appears to be shifting back to its traditional ANZUS partners. The Huawei decision looks to be an indicator of the government’s willingness to speak out against China, even if it is the line that Beijing doesn’t want to hear. It will be interesting to watch how this shift in policy plays out, especially given the fluctuations that could come with the unusual nature of the coalition government in Wellington.

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[1] boost: https://www.stuff.co.nz/national/politics/103738729/budget-2018-1b-for-foreign-affairs-massive-boost-to-pacific-aid-and-a-new-embassy

[2] strategic defence policy statement: https://defence.govt.nz/what-we-do/assessing-our-future-strategic-environment/strategic-defence-policy/

[3] beyond: https://www.beehive.govt.nz/release/pacific-reset-picks-pace

[4] relationship: https://www.mfat.govt.nz/en/countries-and-regions/north-asia/china

[5] Belt and Road Initiative: https://www.asiamediacentre.org.nz/features/explainer-belt-and-road-initiative-china/

[6] estimate: https://www.aspistrategist.org.au/strategic-implications-of-chinas-belt-and-road-initiative-too-big-to-ignore/

[7] hard to find: https://www.victoria.ac.nz/__data/assets/pdf_file/0006/1675707/The-Belt-and-Road-A-New-Zealand-Appraisal-publish-version.pdf

[8] the real play: https://www.newsroom.co.nz/2017/07/20/39400/what-does-chinas-belt-and-road-mean-for-nz

[9] optimistic: https://croakingcassandra.com/2018/02/26/56488/

[10] debt-for-equity swap: https://www.belfercenter.org/sites/default/files/files/publication/Debtbook%20Diplomacy%20PDF.pdf

[11] weak: https://www.csis.org/analysis/game-loans-how-china-bought-hambantota

[12] lag: https://www.abc.net.au/news/2018-08-09/aid-to-pacific-island-nations/10082702

[13] commitments: https://www.radionz.co.nz/international/pacific-news/375548/cook-islands-to-join-china-s-belt-and-road

[14] on show: https://www.newsroom.co.nz/2018/11/16/326792/nz-walks-the-talk-in-the-pacific

[15] announced: https://www.radionz.co.nz/international/pacific-news/376208/nz-to-join-australia-and-partners-on-png-electricity-project

[16] announcement: https://www.beehive.govt.nz/release/australia-and-new-zealand-announce-joint-pacific-cyber-cooperation

[17] tensions: https://www.abc.net.au/news/2018-11-18/apec-leaders-fail-to-agree-on-communique-wording/10508974

[18] Tonga’s signing up: https://www.abc.net.au/news/2018-11-19/china-defers-tongas-loan-payments-as-nation-signs-up-to-bri/10509140

[19] saying: https://www.radionz.co.nz/news/political/376352/nz-aligned-with-principles-not-countries-over-apec-divisions-ardern

[20] turned down: https://www.radionz.co.nz/news/national/377014/reasons-to-block-spark-s-5g-rollout-classified

[21] Andrew Little: https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12167867

[22] upgrade: https://www.stuff.co.nz/business/103876454/china-trade-agreement-upgrade-to-reflect-modern-trading-relationship-pm

[23] clear: https://s3-ap-southeast-2.amazonaws.com/ad-aspi/2018-10/Huawei%20and%20Australias%205G%20Network.pdf?wk2qurC5OGPs1DZmePkkYm_bKw8Rn5Yj

[24] scale: https://www.afr.com/news/policy/foreign-affairs/chinese-spies-responsible-for-surge-in-cyber-hacking-20181119-h182j3