How to Compete With China in the South Pacific

A group of small island countries in the South Pacific has become the latest flash point in the rivalry between the United States and China. Beijing has been eyeing Pacific Island countries as potential forward locations for its military operations. If successful, China would greatly increase its military reach and scope to intimidate U.S. allies, such as Australia and New Zealand. So concerned is the Biden administration that in September, the United States hosted more than a dozen Pacific Island leaders in Washington for a first-of-its-kind summit, which resulted in an American commitment to spend more than $800 million on infrastructure projects in the Pacific.

Washington and Canberra face a serious challenger in China. For years, Beijing has been building major infrastructure projects in the Pacific under its Belt and Road Initiative (BRI), including bridges, roads, wharfs, schools, and even vanity projects for elites. Chinese investment in this region presents the United States, Australia, and their partners with numerous problems, key among them corruption and the potential to undermine the governance structures that Western donors seek to strengthen.

One sector where Chinese influence is particularly concerning to Western countries is telecommunications. Beijing reportedly has the ability to work through state-owned information technology companies to access, store, and disrupt communications. Chinese companies—such as ZTE, Huawei, and China Mobile—have been popping up around the Pacific, and Australia is increasingly confronted with tough choices and caught in a game of whack-a-mole. By taking the lead on investment and infrastructure development, China is leaving the West scrambling to keep up instead of setting the agenda. Australia, the United States, and partner countries need to get out in front of China.

In July, to prevent a possible Chinese takeover, Australia and the private company Telstra spent $1.6 billion to purchase Digicel Pacific, the main telecommunications company in Papua New Guinea and other Pacific Island nations. (Digicel had approached Australia, claiming that a Chinese state-owned company was seeking to acquire it.) Canberra’s contribution to the deal amounted to $1.3 billion worth of taxpayer money—more than Australia’s annual overseas development assistance spending for the entire Pacific region. Considering Digicel’s acquisition won’t prevent other Chinese telecommunications providers from selling their services to the region, some Pacific experts have questioned whether Australia’s investment was worthwhile.

At the G-20 summit this month, the United States and Japan announced they would help fund Australia’s purchase of Digicel. This is extremely unusual if not unprecedented—an example of Washington and Tokyo spending public money to indirectly help an Australian company.

In August, another one of Australia’s developing neighbors came calling. Timor-Leste approached Canberra to resolve a standoff with the Australian company Woodside Energy. Timor-Leste’s state-owned company, Timor Gap, owns a controlling stake in the Greater Sunrise gas field in the Timor Sea. Woodside Energy is the prospective project operator. Timor-Leste wants the gas piped and processed on its south coast; Woodside Energy wants to pipe it to Darwin in Australia’s Northern Territory, where there is an existing processing facility. It’s a disagreement that’s been going on for 20 years.

If the dispute continues, Timor-Leste has warned Australia it could turn to China. The Chinese government and state-owned enterprises have already shown interest in Timor-Leste, including building a deep sea port, highway, and electricity grid. Australia faces the prospect of another infrastructure project falling into China’s orbit. The alternative is giving Timor-Leste an estimated $5.6 billion subsidy to build its own liquified natural gas infrastructure facility.

The situation raises the question: Will Australia again spend public money to crowd out Chinese involvement? Taxpayer dollars are already being spent on the appointment of a new special envoy to represent Canberra in negotiations. How much further will Australia go, and how long can it afford to keep this up? Even with the United States and Japan chipping in, Australia simply cannot meet the level of need in the Pacific, which is predicted to require around $3 billion in investment each year until 2030.

In recent years, the United States and its allies have sought to compete with Chinese investment but have thus far failed to come up with an effective response. There have been multiple announcements, including the Australia-Japan-U.S. Trilateral Infrastructure Partnership, the Blue Dot Network infrastructure certification scheme, and a new Quadrilateral Security Dialogue infrastructure pillar, among others. All these initiatives seek to mobilize billions of dollars in private sector finance to compete with China’s investment scale. However, leveraging private capital is likely decades away, and none of the above measures are targeted at breaking the whack-a-mole cycle.

It’s only a matter of time before the next private company or developing government receives an approach from China—or makes one. What’s needed is not just co-financing from Washington and Tokyo but a proactive system to help forecast where Pacific actors are likely to face tough investment choices in the future and how Australia and its allies can choose among competing projects. Something that could help allies achieve this is an infrastructure and investment forecasting capability that includes an analytic function. This could help assess where critical infrastructure risks are likely to arise in the future and where investment needs to follow.

Forecasting might suggest simply predicting where China or other third parties will invest so that Western countries can get there first. However, China’s infrastructure investments in the Pacific are partly opportunistic, making it harder to predict where it will invest next and for what reasons. Rather than predict, the forecasting unit would assess the relative merits of the complete scope of Pacific infrastructure investments. It would then overlay the prospects with Australian, U.S., and allied strategic interests and willingness to finance. Rather than beat China to the punch, it could create a pipeline of priority infrastructure projects so they can make investment decisions more quickly and on a rolling basis.

To achieve this, a Pacific forecasting unit would need to perform multiple complex functions. It would need to amalgamate data, geopolitics, and economic considerations. Primary tasks would include collecting data on the age and quality of existing Pacific infrastructure, including both publicly and privately owned assets; assessing the strategic risk to the United States and allies of Chinese or other third-party control; and scoping the investment environment. These factors would need to be balanced against the financial resources available to Australia, the United States, and other allies.

A forecasting unit would also need to assess the governance capacities of individual Pacific countries. Pacific nations with strong state and local governance are better able to maintain infrastructure projects over their lifespans. Conversely, countries with weak governance and corruption are by nature open to accepting offers from competing donors, undercutting the value of the infrastructure. This occurred in the case of Papua New Guinea: When China offered to build an unnecessary six-lane highway over the top of a functioning Australian-financed highway, Papua New Guinea’s government accepted.

It is possible that Australia, the United States, and others are already engaged in some form of forecasting. However, there is no single unit bringing these countries together in this endeavor. Joining up their efforts is necessary if they are to coordinate their individual approaches—something that must happen to execute an allied strategy for the Pacific.

Considering how complex both the unit itself and coordination between allies will be, the forecasting unit should have a narrow and well-defined focus during the start-up phase. Two sectors where Australia, the United States, and others have already worked collaboratively are telecommunications and energy infrastructure. These two areas could serve as pilot industries.

Take telecommunications. In addition to Digicel, there’s another major telecommunications company in the Pacific called Amalgamated Telecom Holdings (ATH). It’s a similar size and operates in a similar number of countries to Digicel, most recently expanding into Papua New Guinea. Digicel was struggling financially and looking to sell, which left it open to Chinese bids. An assessment of how other telecommunications companies are faring, including ATH, would be useful activity for the forecasting unit. Using this information, the forecasting unit could develop risk profiles.

Given their finite resources, a forecasting unit could also help Australia and others decide how to allocate resources within the region, such as with Timor-Leste’s Greater Sunrise gas field. Australia, the United States, Japan, and New Zealand have already invested in a troubled energy project in Papua New Guinea. The four countries have committed to a $1.7 billion electrification program, but it faces significant challenges. Before getting involved in another major energy project in the region, they should conduct a more thorough risk assessment in relation to Timor-Leste. The forecasting unit could help in this regard by conducting comparison studies to assess where funds would be better spent.

Ideally, the forecasting unit would provide confidential, early advice on the infrastructure projects that match multiple criteria sets. Working perfectly, the unit could allow Australia, the United States, and their partners to make proactive approaches to companies and governments as well as reduce some of the “strategic surprise” in the Pacific, as U.S. Indo-Pacific coordinator Kurt Campbell called it.

The time has come for Australia and its allies to lead, not chase, infrastructure and investment in the Pacific. Otherwise, they’re stuck in a game they can no longer afford to play.

The post How to Compete With China in the South Pacific appeared first on Foreign Policy.