China Encroaches on Australia's Backyard

11 MINS READApr 23, 2019 | 10:30 GMT
One of Fiji's many islands. Fiji is one of the four independent countries that make up the Melanesian subregion of the Pacific Islands. The other three include Papua New Guinea, the Solomon Islands and Vanuatu.
Melanesia is one of three subregions of the Pacific Islands, along with Micronesia and Polynesia. In addition to Australian and French holdings, the subregion is home to four independent countries: Vanuatu, Solomon Islands, Fiji and Papua New Guinea. 
  • China's increasing economic ties to Papua New Guinea, Fiji and Vanuatu are threatening Australia and New Zealand's historic grasp on the Pacific island subregion of Melanesia. 
  • In coordination with the United States, both Australia and New Zealand will deploy their subregional heft and longstanding diplomatic, economic and defense ties to counter Beijing's efforts and, in turn, maintain their prominent role among the island countries.
  • But China's infrastructure largesse and massive market for raw materials, along with its ambitions in the greater region, will solidify Beijing's presence in Melanesia — challenging the broader U.S. strategic hold on the South Pacific in the process. 

On the world stage, Australia ranks as a middle power at best. But among the islands of the Pacific Ocean, Australia is almost a superpower — serving as a major source of aid, a hungry market and a stalwart defense ally for these tiny nations. This is especially true in the subregion of Melanesia, which has long been a key backstop for U.S. dominance in the Asia-Pacific. Australia and New Zealand each have a strong incentive to bolster Washington's power in the subregion both to amplify their own positions on the world stage and prevent security threats to their respective countries. 

But China's increasing presence in Melanesia's resource-rich economies and infrastructure outlays, along with signs of nascent military ambitions in the area, are now threatening Australia's and New Zealand's preeminence in the region — and, by extension, that of the United States. The U.S. allies have attempted to stem China's spread by leveraging their historic large outlays of aid and defense assistance, as well as their regional diplomatic role. But Australia's own economic ties with China, as well as increasing internal pressures to cut international aid, will restrict Canberra's ability to counter Beijing — opening the door for a more permanent Chinese presence in the Pacific Islands. 

The Big Picture

In our 2019 Annual Forecast, Stratfor highlighted the role of U.S. allies in the intensifying great power competition between the United States and China. The Pacific subregion of Melanesia is one such area where this dynamic is now on full display. The United States has long relied on Australia and New Zealand to check its rivals in the Pacific Islands. But China's recent rise in Melanesia is providing opportunities for these small island nations to play the great powers off each other.

Australia's Backyard 

Melanesia is one of three subregions of the Pacific Islands, along with Micronesia and Polynesia. In addition to Australian and French holdings, the subregion is home to four independent countries: Vanuatu, the Solomon Islands, Fiji and Papua New Guinea.

Papua New Guinea is by far the largest country in Melanesia, both in terms of landmass and population. With an economy based on mineral and hydrocarbon exports, Papua New Guinea also boasts the third-highest gross domestic product in the Pacific behind New Zealand and the U.S. state of Hawaii. Fiji, however, has the most developed economy in the subregion, based in manufacturing. And all of Melanesia, including Vanuatu and the Solomon Islands, have more capacity for economic self-sufficiently than their smaller peers elsewhere in the Pacific. 

But in order to exploit their land and maritime resources, the countries of Melanesia require sizable investment, access to large markets and infrastructure assistance, as well as defense aid to ensure stability and police their extensive waters. This means Melanesian nations must seek larger powers to act as patrons — a role that has historically been filled by Australia and New Zealand, due to the threats the islands pose to their security.

At the narrowest point of the Torres Strait, Papua New Guinea is just 150 kilometers (roughly 93 miles) from the Australian mainland, while the more far flung Melanesian islands all front Australia's densely populated and economically vital east coast. Along with Australia, the British Empire's reign in the Pacific encompassed Fiji, Vanuatu and the Solomon Islands for much of its history. Then after World War I, Australia inherited rule over what is now Papua New Guinea from British and German imperial control — largely administering the country from 1919 until it gained independence in 1975. Today, all of these countries remain in the British Commonwealth alongside Australia, which still presides over three external territories in Melanesia: Norfolk, Phillip and Nepean islands. 

A Security Stronghold 

In the broader U.S. strategic map of the Pacific, Melanesia overlaps with the so-called second island chain, which extends south from Japan through Micronesia to Papua New Guinea. During World War II, Melanesia was the starting point of the northern thrust of the U.S. island-hopping campaign to defeat imperial Japan, which had sought to use the islands' position to sever transit between the United States and Australia and New Zealand.

But while Melanesia is just one of Washington's many adjuncts to the broader Pacific, the subregion serves as crucial security foothold for Australia. Australia's larger defense strategy rests on two pillars: The first, called "forward defense," consists of supporting the United States and its allies in sometimes distant conflicts to ensure global order and to secure Washington's support in return, should Canberra ever come under threat. And the second, called "continental defense," focuses on defending Australia's maritime approaches, many of which run through the ocean surrounding Melanesia. 

During World War II, Japan's invasion of Papua New Guinea and Indonesia sparked fears that Australia would be next. And the 1970s brought concern that the decolonizing countries of Melanesia would become targets for Soviet expansion. But even without the contingency of a military invasion, the proximity of the islands to Australia means that unrest or instability can bring refugees to the country by sea or compel a messy intervention. 

This map shows the sea lanes to Australia and New Zealand that traverse Melanesia

To this end, Australia — and to a lesser extent, New Zealand — have long operated as Melanesia's prime beneficiaries. Both founding members of the premier regional coordinating body, the Pacific Islands Forum, these two countries help bankroll all of the major regional cooperation organizations. Australia has also played a defense role in Melanesia and the broader Pacific islands by providing patrol vessels, training, infrastructure and arms sales. 

China's Rise

However, China's precipitous economic rise and growing clout in the Pacific have begun to impinge on Australia and New Zealand's historic maritime domain. Between 2011 and 2018, China's total committed aid to the entire Pacific Islands region was second only to Australia's.

In addition to serving as a valuable source of hydrocarbon and mineral resources, China sees Melanesia as a key foothold in the broader Pacific Islands — and one that extends its reach outside of the first and second island chains off the east Asian coast. And as a result, Papua New Guinea, Fiji and Vanuatu have all joined China's massive Belt and Road Initiative, along with several other Polynesian and Micronesian nations in the Pacific. 

Papua New Guinea: In recent years, China has significantly expanded its economic footprint in the subregion's largest country, Papua New Guinea. In 2018, Beijing narrowly beat out Australia to become the country's top destination for mineral and hydrocarbon exports. And unlike Australia, China's imports from the country are steadily increasing, growing 17 percent between 2014 and 2018, while Australia's shrunk by 3 percent and U.S. ally Japan's dropped 2 percent. From 2012 to 2018, China invested a total of $4.78 billion into Papua New Guinea. Beijing also now holds nearly a quarter of Papua New Guinea's external debt (roughly $588 million), and committed more aid to the country than Australia between 2011 and 2018. 

Fiji: In 2006, a coup led Australia and New Zealand to upend their diplomatic relations with Fiji, impose sanctions and push the country out of the Pacific Islands Forum and the British Commonwealth. While Fiji was isolated from the West, China quickly swooped in to fill the gap — investing a total of $270 million into the country between 2009 and 2014, when it transitioned back into a civilian-led government And while Australia's ties with Fiji have since renormalized, China has nonetheless managed to maintain much of the headway it had secured during Canberra's absence.

Between 2011 and 2018, China committed $340 million in aid to Fiji and overdelivered — doling out 340 percent of that amount across 42 projects. By contrast, Australia has spent only 84 percent of the $424 million it committed. Today, Beijing holds $249.2 million of the country's external debt, about 37 percent of the total. China has also deepened its links with the Fijian police forces, even cooperating with Fiji to send Chinese personnel to New Zealand to apprehend Chinese nationals.

Vanuatu: China has also bolstered its ties with Vanuatu, with particular interest in its exports as well as military facilities. Beijing now holds nearly half of the country's total debt at $134 million and, like Papua New Guinea, is now the country's top trade partner. In 2016, a Chinese state-owned enterprise renovated the Luganville Wharf on the country's Espiritu Santo island, located near where U.S. forces were based during World War II. The revamped wharf is intended to host cruise liners, but its size has fueled speculation about eventual dual military use. Reports have also emerged that China is considering building an unspecified military facility on the island, though Vanuatu has denied these rumors. 

Australia and New Zealand's Response

Beijing's outreach in Papua New Guinea, Fiji and Vanuatu is long-term and will no doubt be sustained, particularly as the Chinese market grows at a pace Australia cannot hope to match. But joint U.S.-Australian efforts to counterbalance China in Melanesia have achieved some success in containing the Chinese rise.

In response to China's overall push into the region, Australia announced plans in November 2018 for a $2.14 billion infrastructure package for transportation, energy, telecommunications and water projects across the Pacific islands. This will consist of $1.4 billion infrastructure bank and $710 million for facilitating Australian investment into the islands. The country also plans to expand its Pacific Maritime Security Program to provide further patrol vessels while expanding it to include aerial surveillance. 

This map shows the Exclusive Economic Zones among islands in Melanesia

In late 2018, Australia, Japan, the United States and New Zealand teamed on a joint $1.2 billion upgrade to Papua New Guinea's electric grid. The upgrade included new telecommunications infrastructure as well, in an effort to counter Chinese tech giant Huawei's plans to install 3,390 miles of undersea cables linking Papua New Guinea's outlying islands. In August 2018, there were also signs China was interested in helping to develop the Lombrum naval base on Papua New Guinea's Manus Island, where a Chinese state-owned enterprise is already carrying out an airport project. Australia and the United States swiftly moved to preempt China's move — announcing just two months later that they would partner to develop the base instead. 

When it comes to defense aid in particular, Canberra still has the edge over Beijing due to its proximity and naval capacity. In Fiji, for example, China and Australia have both provided boats to help the country patrol and surveil its waters. But in August 2018, Fiji's government selected Australia over China to fund its Black Rock military facility by offering a holistic contract that included more infrastructure and training agreements, which Beijing could not match.  

China's Permanent Presence

However, Australia and New Zealand's historic role as the premier power in Melanesia has never been without controversy among the region's nations. Over the decades, both countries have found themselves embroiled in political situations that have periodically upended relations with the subregion's countries, such as their post-coup divorce with Fiji in 2006. Canberra and Wellington's assistance have always been contingent on Melanesian countries upholding democratic norms as well, such as good governance and transparency — with the hopes that such structures would foster long-term stability and eventually wean them off aid altogether. 

Unlike Australia and New Zealand, China's outreach isn't contingent on Melanesian countries upholding democratic norms — making Beijing's assistance more appealing, and potentially more reliable.

Australia, in particular, is also facing a domestic political push to decrease aid payouts, leading to worldwide cuts and a cap at $4.2 billion through 2022. And while the Asia-Pacific region has so far largely been shielded from these cuts, continued pressure from Canberra could eventually bring assistance to Melanesia further under the knife.

But as Australia wrings its hands about aid costs, China, by contrast, is likely to only increase its overseas infrastructure spending as a way to keep its domestic industry churning amid its economic slowdown. This, along with Beijing's great power competition with the United States and Melanesia's alignment with its global Belt and Road Initiative, means China will only look to anchor its hold and further spread its influence across the islands. And unlike Australia, China's outreach doesn't come with any strings attached to the nations' regional activity — making its assistance more appealing (and potentially more reliable, should Canberra begin tightening its purse strings).

Within this new reality, Australia will move to check any efforts that impinge on its defense of the maritime approaches to the continent — though such efforts will continue to be more reactive than proactive. Australia's economy is also deeply entwined with that of China's, which will force it to navigate between its U.S. defense ties and its Chinese trade relations. As a result, Australia will avoid taking too confrontational of a stance against China, and will instead focus on working with and around Melanesia's eastern suitor to ensure the West keeps its edge.

Editor's Note: Two maps accompanying this analysis have been replaced to correct typographical errors.

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