WEBVTT - Why China Wants Sway Over Vanuatu 0:00:00.280 --> 0:00:03.920 Two months ago, we devoted an episode to a tropical 0:00:04.040 --> 0:00:09.400 paradise that was fast becoming a geopolitical football. That paradise 0:00:09.720 --> 0:00:14.600 was the Maldives, the subject economic and political rivalry between 0:00:14.680 --> 0:00:19.480 China and India. But things move fast. There's another superpower 0:00:19.520 --> 0:00:23.680 playground that's getting hot, the South Pacific. China's sway is 0:00:23.800 --> 0:00:27.320 increasing in a region that's traditionally a sphere of American, 0:00:27.640 --> 0:00:32.479 French and Australian influence. The country most in focus is Vanuatu, 0:00:32.600 --> 0:00:35.800 where China is dishing out lots of loans and beefing 0:00:35.960 --> 0:00:40.600 up the nation's infrastructure. But sooner or later, critics say 0:00:40.680 --> 0:00:43.720 China will want to convert some of that leverage into 0:00:43.760 --> 0:00:56.840 a base for its military. Welcome to Benchmark, a show 0:00:56.880 --> 0:01:00.680 about the global economy. I'm Daniel moss Net, aonomics writer 0:01:00.800 --> 0:01:04.880 and editor at Limburg Opinion in New York. And I'm 0:01:04.959 --> 0:01:09.160 Scott Landman and economics editor Limburgh News in Washington. So 0:01:09.280 --> 0:01:11.880 what's at stake in Vanawa to in the South Pacific? 0:01:12.360 --> 0:01:16.560 How has the region's economic and political profile changed and 0:01:16.600 --> 0:01:20.240 what are the consequences. Our guest Jonathan Prike from the 0:01:20.280 --> 0:01:24.600 Lower Institute in Sydney, will try to explain it for us, Jonathan, 0:01:24.640 --> 0:01:27.480 thanks for joining us, Thanks for having me guys. First 0:01:27.520 --> 0:01:31.000 of all, why should we care if China's influence in 0:01:31.040 --> 0:01:34.840 the South Pacific is growing or shrinking? Well, yeah, why 0:01:34.840 --> 0:01:37.160 don't we start with a bit of geography on on 0:01:37.440 --> 0:01:40.560 what we mean by the South Pacific. The South Pacific 0:01:40.800 --> 0:01:43.920 is the region of the Pacific Islands that makes is 0:01:43.920 --> 0:01:47.440 made up of fourteen sovereign nations, and they range from 0:01:47.560 --> 0:01:51.240 in size from tiny New a country of fred people, 0:01:51.560 --> 0:01:53.880 to Papua New Guinea, a country of more than eight million. 0:01:54.400 --> 0:01:58.320 They take up of the world surface and are rich 0:01:58.400 --> 0:02:02.240 in fishery resources, but are smaller people numbers. I think 0:02:02.280 --> 0:02:05.120 total population of the Pacific Islands is somewhere around thirteen 0:02:05.160 --> 0:02:08.760 million people. But because they make up of the world surface, 0:02:08.800 --> 0:02:11.960 because of that, the fisheries and exclusive economics own resources 0:02:11.960 --> 0:02:14.880 that they have. There is a significant some significant interests 0:02:14.960 --> 0:02:17.239 in the region. But when you step back and look 0:02:17.280 --> 0:02:21.440 at the South Pacific in the global geopolitical sphere, it's 0:02:21.480 --> 0:02:25.679 really hard to see a huge amount of significance. It's 0:02:25.720 --> 0:02:28.799 not on major shipping routes. It's it's distant from from 0:02:28.840 --> 0:02:31.920 the power bases in Asia. But when you look to 0:02:31.960 --> 0:02:34.320 World War Two, you can see at the significant role 0:02:34.360 --> 0:02:36.720 that the Pacific Islands region has played in geo strategy 0:02:36.760 --> 0:02:40.320 in the past. And why is it important. Well, it's 0:02:40.320 --> 0:02:44.120 important particularly for Australia because we see the Pacific as 0:02:44.240 --> 0:02:48.040 really our backyard. Former Prime Minister of pup Guinea sorry 0:02:48.080 --> 0:02:51.640 of Australia, John Howard once called the Pacific our patch. 0:02:51.960 --> 0:02:54.840 So we now have changed that language to call in 0:02:54.880 --> 0:02:57.399 ourselves the partner of choice for the Pacific and that's 0:02:57.400 --> 0:03:00.280 a relation, a relationship that we want to make tame 0:03:00.360 --> 0:03:03.360 in the region. So it's definitely this, this rise of 0:03:03.440 --> 0:03:06.000 China and the Pacific is definitely causing a great degree 0:03:06.040 --> 0:03:11.040 of anxiety in Canberra and in other traditional power bases 0:03:11.080 --> 0:03:13.600 that have had a role to play in the Pacific, 0:03:13.760 --> 0:03:18.440 that of Tokyo, Washington and Wellington. So how did Vanua 0:03:18.520 --> 0:03:23.760 to become the geo strategic flashpoint in all this, especially 0:03:23.840 --> 0:03:27.080 with regards to China and Australia right now? Yeah, So 0:03:27.120 --> 0:03:30.120 it's it's important to note that China's rise in the 0:03:30.200 --> 0:03:34.200 Pacific hasn't happened overnight. Indeed, China has links to the 0:03:34.240 --> 0:03:38.760 Pacific that go back hundreds of years, generations of Chinese 0:03:38.840 --> 0:03:41.240 migrants that are in the Pacific that play an important 0:03:41.320 --> 0:03:44.640 role in a lot of these communities. But really since 0:03:44.680 --> 0:03:47.000 about two thousand and six, we have seen a ramping 0:03:47.080 --> 0:03:51.440 up of China's engagement in the Pacific. And I also 0:03:51.520 --> 0:03:54.800 note that China's only engaged formally with eight countries in 0:03:54.800 --> 0:03:59.280 the Pacific Islands. There remain reign six support Taiwan, and 0:03:59.320 --> 0:04:01.600 they now make up just one third of the of 0:04:01.600 --> 0:04:05.520 Taiwan's remaining support based in the United Nations. So that's 0:04:05.520 --> 0:04:08.760 such just an interesting little little elements of China's engagement. 0:04:08.800 --> 0:04:10.880 But since two thousand and six, China has really been 0:04:11.280 --> 0:04:14.280 been ramping up its engagement in the Pacific. A lot 0:04:14.360 --> 0:04:16.200 of that has come in the form of what we 0:04:16.279 --> 0:04:18.520 see what China's doing elsewhere in the world, the form 0:04:18.600 --> 0:04:25.120 of concessional loans to build large infrastructure projects, and China's 0:04:25.120 --> 0:04:27.120 been doing this in a big way in a number 0:04:27.160 --> 0:04:30.040 of countries in the Pacific, Vanawatta being one of them. 0:04:30.200 --> 0:04:32.719 For research from the Lower Institute has shown that that 0:04:33.000 --> 0:04:36.279 China has injected over one point eight billion dollars of 0:04:37.000 --> 0:04:40.520 lending and grants into the Pacific Island region since two 0:04:40.520 --> 0:04:43.560 thousand and six. That would put it anywhere between the 0:04:43.560 --> 0:04:46.559 top three and top five donor to the Pacific Islands region. 0:04:47.680 --> 0:04:52.000 Vanawatu has immerges a flashpoint for this engagement this year 0:04:52.520 --> 0:04:54.719 because when you take a look at the all the 0:04:54.760 --> 0:04:58.279 different projects that China's engaged in, all the infrastructure projects, 0:04:58.760 --> 0:05:01.560 most of them to pically are pretty benign. In a 0:05:01.560 --> 0:05:03.880 lot of these countries, you know that big government buildings 0:05:03.920 --> 0:05:09.039 that rehabilitating city centers that not really you can't really 0:05:09.080 --> 0:05:13.120 see how they could be of dual use as we 0:05:13.200 --> 0:05:15.000 have seen China do in other parts of the the world. 0:05:15.040 --> 0:05:17.480 So they're not critical infrastructure. That not deep seaports and 0:05:17.560 --> 0:05:22.440 not airports. They're not these these projects that China might 0:05:22.520 --> 0:05:26.800 want to consider doing an asset buyback or um you 0:05:27.000 --> 0:05:29.760 want to use as a dual use facility later down 0:05:29.760 --> 0:05:33.840 the road. That's different in Vanuatu. In Vanuatu, China has 0:05:33.920 --> 0:05:38.520 rehabilitated a port, a deep sea port on the country's 0:05:38.560 --> 0:05:42.520 largest island, but one of its least inhabited. And you know, 0:05:42.600 --> 0:05:44.960 analysts are from around the world look at look at 0:05:45.000 --> 0:05:47.400 that project. Look at this now deep sea port that 0:05:48.120 --> 0:05:52.039 reports have sean has the capacity to host an aircraft carrier. 0:05:52.400 --> 0:05:56.760 They look at that project with a great degree of anxiety. Jonathan, 0:05:56.839 --> 0:06:01.360 How have the region's economics changed. Is it a shift 0:06:01.400 --> 0:06:05.800 in the contours of foreign aid traditionally dominated by Australia, 0:06:05.920 --> 0:06:09.719 France and the US, or is there something else going 0:06:09.800 --> 0:06:14.080 on here economically? Yeah, well, the economics of Pacific Islands, 0:06:14.120 --> 0:06:18.920 of these smaller countries is quite unique. You know, most 0:06:18.920 --> 0:06:20.839 of these countries are not going to follow a traditional 0:06:21.000 --> 0:06:24.000 traditional economic development pathway just because of the small size 0:06:24.080 --> 0:06:27.200 of most of these economies and just their remoteness to market. 0:06:27.720 --> 0:06:31.760 So in the case of Vanuatu, Vanuatu is one of 0:06:31.800 --> 0:06:35.520 the most tourist dependent economies in the world, but foreign 0:06:35.560 --> 0:06:38.280 aid is always going to also going to be a 0:06:38.320 --> 0:06:43.320 significant contributor to economic development and to the the economies 0:06:43.600 --> 0:06:47.200 more broadly in these countries. So the fact that China 0:06:47.279 --> 0:06:51.000 is injecting a lot of infrastructure into Vanuatu does have 0:06:51.360 --> 0:06:54.799 an impact on on Vanuatu's economy, but it's not nearly 0:06:54.839 --> 0:06:58.839 as important as the as the tourism markets that Vanawatu 0:06:59.000 --> 0:07:02.080 benefits from, which are dominated by Australia and New Zealand, 0:07:02.160 --> 0:07:05.880 and from cruise ships. So you know, well, the sport 0:07:05.960 --> 0:07:08.320 that they have built is as sensibly to to increase 0:07:08.400 --> 0:07:11.960 the amount of tourism arrivals. We haven't actually seen that eventuate. 0:07:12.520 --> 0:07:15.640 But there is also another lends to look at this 0:07:15.760 --> 0:07:19.120 Chinese lending through is that of the debt that Vanawata 0:07:19.280 --> 0:07:23.080 is stacking up by taking on these loans, and that 0:07:23.200 --> 0:07:28.760 debt profile gives China significant economic leverage over Vanawatta. How 0:07:28.800 --> 0:07:31.720 they can use that leverage to their advantage is a 0:07:31.800 --> 0:07:35.720 question I'm everyone is wondering. I'm not convinced that Vanawata 0:07:36.040 --> 0:07:38.800 can really be brought through through this economic leverage. That 0:07:38.880 --> 0:07:41.360 this is a country with with agency and you know, 0:07:41.400 --> 0:07:44.560 their their foreign minister has come out recently after these 0:07:44.880 --> 0:07:48.640 recent Saga has hit the press and said emphatically that 0:07:48.720 --> 0:07:51.160 there is no way that they would let China develop 0:07:51.200 --> 0:07:54.240 any sort of dual use military assets or any sort 0:07:54.240 --> 0:07:57.680 of fixed base in Vanawatta. They just have no interest 0:07:57.720 --> 0:08:00.440 in doing it. So just because China has this economic 0:08:00.480 --> 0:08:03.560 leverage over Vanuata doesn't mean they're going to be able 0:08:03.600 --> 0:08:05.520 to wield it as they might like in the future. 0:08:06.040 --> 0:08:10.120 Jonathan talking about economic leverage from another point of view. 0:08:10.280 --> 0:08:13.080 Here in Washington lately, we're spending a lot of time 0:08:13.480 --> 0:08:17.120 writing and following what's going on between the US and 0:08:17.200 --> 0:08:21.000 China over trade, with the potential for a trade war 0:08:21.320 --> 0:08:24.720 looming high in a lot of people's minds, is there 0:08:24.760 --> 0:08:30.760 any connection between how China might approach trade negotiations with 0:08:30.840 --> 0:08:35.280 the United States or with other trading partners end China's 0:08:35.320 --> 0:08:39.800 approach to influence in the South Pacific or just the 0:08:39.840 --> 0:08:43.320 Greater Asia Pacific region. Well, yeah, that's a it's a 0:08:43.320 --> 0:08:46.600 really interesting question, I guess. In the South Pacific, trade 0:08:46.720 --> 0:08:52.079 is really insignificance component of the relationship or China's export 0:08:52.600 --> 0:08:55.400 to a degree to these countries, but it's not at 0:08:55.400 --> 0:08:59.240 all significant for China's trading profile so far. More important 0:08:59.320 --> 0:09:01.840 I think for their engagement in the South Pacific is 0:09:02.240 --> 0:09:05.440 to build political and formal influence in these countries, to 0:09:05.559 --> 0:09:08.640 get support at the United Nations, to get our geopolitical support, 0:09:09.160 --> 0:09:12.600 and too, yes, secure their support in the future. PUPN 0:09:12.600 --> 0:09:15.120 New Guinea is a different story. Pup New guineas country 0:09:15.120 --> 0:09:17.880 of eight ten million people that is rich in a 0:09:17.920 --> 0:09:20.360 whole range of natural resources that China might be interested 0:09:20.400 --> 0:09:25.319 in securing. But yeah, the trade component of this relationship 0:09:25.360 --> 0:09:30.000 hasn't really eventuated in any significant degree at the moment. 0:09:30.400 --> 0:09:34.559 China's engagement with Australia. A major component of that is 0:09:34.960 --> 0:09:37.280 the trade relationship, and it has a significant influence on 0:09:37.320 --> 0:09:40.800 the way in which we in Australia interacts with China, 0:09:40.880 --> 0:09:44.080 and I guess it does shape the lens of the 0:09:44.080 --> 0:09:47.000 way Australians are looking at China in the Pacific and 0:09:47.040 --> 0:09:50.040 our immediate region because of just the challenges we're having 0:09:50.080 --> 0:09:54.679 with our bilacteral relationship between Australia and China. There's been 0:09:54.800 --> 0:09:59.520 some commentary that Britain wants to play a role enshoring 0:09:59.600 --> 0:10:03.440 up the neighborhood. Jonathan, is this a joke? I mean, 0:10:03.600 --> 0:10:08.080 Britain can't decide what its relations with France and Germany 0:10:08.120 --> 0:10:11.080 should be, how can they give the South Pacific any 0:10:11.120 --> 0:10:14.240 serious attention? Yeah, look, that's a great question. And I 0:10:14.240 --> 0:10:18.880 think people have taken the announcements of Britain opening three 0:10:18.960 --> 0:10:23.280 new diplomatic missions in the Pacific as a lot of 0:10:23.280 --> 0:10:25.760 people have been heralding it as a potential game changer 0:10:26.000 --> 0:10:28.760 or a Pacific pivot, and you know, I think that's 0:10:28.760 --> 0:10:32.439 all nonsense. To be honest. First of all, the United 0:10:32.480 --> 0:10:35.319 Kingdom has colonized half of the region, and to think 0:10:35.320 --> 0:10:37.640 that they can come in and now act as as savior. 0:10:37.800 --> 0:10:39.280 I think you know, we've seen how that story is 0:10:39.280 --> 0:10:42.719 played out in the past. And just because they are 0:10:43.080 --> 0:10:46.800 it is a post Brexit, UK is expanding its geopolitical 0:10:46.880 --> 0:10:49.840 network again. It wants to establish itself more as a 0:10:49.840 --> 0:10:52.880 global player. The South Pacific has been and will always 0:10:52.920 --> 0:10:55.679 be on the fringe of geopolitical interest for the United Kingdom. 0:10:56.200 --> 0:10:59.920 France has also committed to doing more in the South Pacific. 0:11:00.559 --> 0:11:03.520 But if we are expecting them to really change the 0:11:03.600 --> 0:11:06.120 landscape in any significant way, then um, I think we're 0:11:06.160 --> 0:11:08.559 all going to be let down. The real owners should 0:11:08.559 --> 0:11:10.880 be on the traditional powers that have been involved in 0:11:10.880 --> 0:11:14.080 the Pacific for a long time, Australia, New Zealand, Japan 0:11:14.160 --> 0:11:17.640 and the United States two look at the way in 0:11:17.640 --> 0:11:20.559 which we're engaging with the Pacific and to really up 0:11:20.559 --> 0:11:24.440 our game, to do more to maintain our positions as 0:11:24.480 --> 0:11:26.880 being the partners of choice in the Pacific Islands region. 0:11:27.520 --> 0:11:32.320 As the United States been alarmed at these developments at 0:11:32.320 --> 0:11:37.600 all lately or or monitoring the situation in the South Pacific. Yeah, 0:11:37.640 --> 0:11:41.000 so it's an interesting relationship between the United States and 0:11:41.040 --> 0:11:44.600 Australia with regards to the Pacific Islands region, and it's 0:11:44.600 --> 0:11:47.400 it's quite a unique one in that the United States 0:11:47.440 --> 0:11:50.520 really does take a quite a hands off approach with 0:11:50.640 --> 0:11:54.079 this part of the Pacific because they see Australia has 0:11:54.120 --> 0:11:56.120 been a safe set of hands to be looking after 0:11:56.480 --> 0:11:58.720 this part of the world, and they really do look 0:11:58.720 --> 0:12:00.560 to us for guidance as to how they should be 0:12:00.559 --> 0:12:03.400 engaging in this part of the world and in Banawatu 0:12:03.480 --> 0:12:06.880 and other countries in the Pacific. So I'm sure there 0:12:06.880 --> 0:12:11.840 have been some stern conversations between American and Australia about 0:12:11.960 --> 0:12:14.600 as to what is going on in our immediate neighborhood 0:12:14.920 --> 0:12:19.000 and asking whether Australia has dropped the ball here. But 0:12:19.280 --> 0:12:21.280 I think the reality is that there was not much 0:12:21.760 --> 0:12:24.320 Australia or the United States could have done to to 0:12:24.360 --> 0:12:26.400 really curb the way in which China has been engaging 0:12:26.440 --> 0:12:28.000 to this point. It would have or it would have 0:12:28.000 --> 0:12:31.319 taken a very concerted effort, but we past that point 0:12:31.360 --> 0:12:33.720 now and we have to work make sure we work 0:12:33.880 --> 0:12:36.240 with China as much as possible to make sure what 0:12:36.240 --> 0:12:39.720 they're doing in the region is beneficial to everyone. Jonathan, 0:12:39.800 --> 0:12:43.319 You've done some work on labor mobility in the South Pacific. 0:12:43.640 --> 0:12:48.359 What are the microeconomics of this issue. Have the internal 0:12:48.520 --> 0:12:53.360 economies of these island states changed significantly and is that 0:12:53.480 --> 0:12:56.840 playing a role here? Oh yeah, so later mobility is 0:12:56.840 --> 0:12:59.040 going to be a critical component for economic development in 0:12:59.080 --> 0:13:02.439 a lot of these countries, as Australia, New Zealand and 0:13:02.559 --> 0:13:07.160 other Western nations. We go through labor shortages, particularly in 0:13:07.360 --> 0:13:11.559 areas of the economy such as agriculture and horticulture and 0:13:11.720 --> 0:13:14.800 the care industries, where there just aren't enough Australians to 0:13:14.840 --> 0:13:17.640 fill these demand We should be looking more and more 0:13:17.679 --> 0:13:20.680 to the Pacific to help fill our labor shortages, and 0:13:21.360 --> 0:13:23.480 we have been doing that more in recent years that 0:13:23.600 --> 0:13:27.080 we have seasonal worker programs where we bring Pacific Islanders 0:13:27.160 --> 0:13:31.600 into Australian New Zealand who work in fruit picking and 0:13:32.000 --> 0:13:34.600 the benefits speak for themselves. I mean, the average income 0:13:34.679 --> 0:13:39.120 for these people increases by more than fourfold, and they 0:13:39.120 --> 0:13:42.439 all want to come back, and they all are incredibly 0:13:42.440 --> 0:13:45.439 happy with the scheme. And on the employer's side, increases 0:13:45.480 --> 0:13:49.079 productivity of their employe, of their workforce by almost by 0:13:49.160 --> 0:13:51.959 bringing these Pacific Islanders in. So it's really a win 0:13:52.000 --> 0:13:54.840 win for everyone and it shows just how important labor 0:13:54.880 --> 0:13:57.640 mobility will be as a component of economic development for 0:13:57.640 --> 0:14:00.280 the Pacific in the future. Now as to how it's 0:14:00.360 --> 0:14:03.679 changed the economies of these countries, it's not a one 0:14:03.720 --> 0:14:06.440 size fits all. I mean, Tonga is a country that 0:14:06.520 --> 0:14:10.960 has really lent into lab mobility in a big way. 0:14:11.080 --> 0:14:13.800 And now I think that the last numbers I saw 0:14:13.840 --> 0:14:17.840 with something like of the working age male population of 0:14:17.840 --> 0:14:21.320 Tonga now every year work abroad and that is having 0:14:21.400 --> 0:14:25.200 a significant impact on the domestic economy. And you know 0:14:25.240 --> 0:14:28.080 that there's now labor shortages back in Tonga as a 0:14:28.080 --> 0:14:32.120 result of so many workers going abroad. But when you 0:14:32.160 --> 0:14:35.160 look to other countries like Solomon Islands pop in New Guinea, 0:14:35.200 --> 0:14:37.560 where there is a much larger workforce waiting to and 0:14:37.600 --> 0:14:40.480 ready to go, then you know you can still see 0:14:40.480 --> 0:14:44.200 how the untapped potential of lab mobility in the Pacific. 0:14:44.320 --> 0:14:46.360 It just we need to have a better balance of 0:14:46.400 --> 0:14:50.160 where these workers are coming from, because I think having 0:14:50.800 --> 0:14:53.800 that many workers from from Tonga every year is just 0:14:54.120 --> 0:14:57.360 going to be unsustainable practice for the tongue and economy. 0:14:57.760 --> 0:15:01.760 Go Tonga. On that note, Jonathan, thank you so much 0:15:01.800 --> 0:15:08.280 for joining us. Thank you. Benchmark will be back next 0:15:08.320 --> 0:15:11.040 week until then you can find us on the Bloomberg terminal, 0:15:11.040 --> 0:15:15.200 Bloomberg dot com, our Bloomberg App, and podcast destinations such 0:15:15.240 --> 0:15:19.360 as app podcasts, Spotify, or wherever you listen. We love 0:15:19.400 --> 0:15:21.520 it if you took the time to rate and review 0:15:21.600 --> 0:15:24.480 the show so more listeners can find us. You can 0:15:24.520 --> 0:15:28.200 also check us out on Twitter, follow me at Scott 0:15:28.440 --> 0:15:33.400 Landman Dan You're at most Underscore ETA, and our guest 0:15:33.480 --> 0:15:38.240 is at Jonathan Underscore p r y k E. Benchmark 0:15:38.320 --> 0:15:41.400 is produced by tober Foreheads. The head of Bloomberg Podcasts 0:15:41.520 --> 0:15:45.040 is Francesca lev Thanks for listening, See you next time.