Chinese Infrastructure Investment and Papua New Guinea
by Dr Graeme Smith
CSC academic group: Enterprise Development
Graeme is a postdoctoral fellow in the Discipline of International Business, University of Sydney Business School and the China Studies Centre. His research interests include the political economy of rural China and Chinese investment in the Pacific region, with ongoing projects in Anhui, Papua New Guinea and New Caledonia. He is the 2011 winner of the Gordon White Prize for the best article published in the China Quarterly, the leading journal in China Studies.
As a researcher, it’s always gratifying when your predictions come true. In a recent post in East Asia Forum, I argued that the focus on Chinese mining investment in Papua New Guinea was misplaced. While mining investment, in the form of the Ramu Nickel project, dominated the official figures for Chinese ODI into PNG, the most significant social and economic impacts in the Pacific were in the infrastructure and retail sectors. Here, I’ll focus on Chinese infrastructure investment in PNG, and the implications for our understanding of Chinese investors.
While Australia has struggled to attract infrastructure investment from China (to date, not a fen), the PNG government recently announced they were negotiating a loan facility with China Exim Bank worth in the region of $5 billion. This figure is equivalent to the combined revenue and grants received by the PNG government in 2011, and dwarfs the 2006 Soft Loan Facility of $375 million made to the Pacific as a whole.
|While Australia has struggled to attract infrastructure investment from China (to date, not a fen), the PNG government recently announced they were negotiating a loan facility with China Exim Bank worth in the region of $5 billion.|
As yet, there is little mention of this substantial deal in the Chinese media, and the Chinese embassy in Port Moresby has refused to be drawn on the loan, simply noting that it is under consideration. In September, Peter O’Neill was reported to have met with the vice president of China Exim Bank, and was captured in a grip-and-grin with Li Keqiang in Ningxia, but commentary largely revolved around just how closely PNG agrees with China’s stand over the Diaoyu Islands. Official reportage is restricted to a brief statement from the Ministry of Commerce (MOFCOM) on 7 September, which cites the Murdoch-owned Post Courier: ¹
“PNG proposes to fix its roads with a Chinese loan: 7 September. PNG’s Post Courier reports that during his State of the Nation Address to the 9th Parliament, Prime Minister Peter O’Neill announced that the PNG government would be seeking a loan from China Exim Bank to rebuild its main highways. O’Neill said that he would discuss this matter when he led a delegation to China in the near future.”
PNG’s lively blogosphere has pointed to the complexities of what happens when Chinese capital seeks a home in Melanesia. Rather than being a straightforward infrastructure project for badly needed repairs to the Highlands Highway, the loan appears to be fragmenting (even before it is agreed) into a set of smaller projects around diverse actors and local interests. Projects mentioned in association with the proposed concessional loan include the Yonki hydropower scheme, addressing the infrastructure needs of PNG’s two largest cities, Port Moresby and Lae, and even the upgrading of PNG’s state-owned enterprises. There is speculation over how the loan will be repaid (experience has show that while grants and interest-free loans are often forgiven, China Exim Bank’s concessional and commercial loans are not), with a “resources for infrastructure” deal, the so-called Angola model, distinctly possible.
|Rather than being a straightforward infrastructure project for badly needed repairs to the Highlands Highway, the loan appears to be fragmenting (even before it is agreed) into a set of smaller projects around diverse actors and local interests.|
My previous research into the 2006 China Exim Bank concessional loan package, which was used to fund four different infrastructure projects in PNG, revealed that it was not simply a top-down injection of capital from Beijing, as it was represented in the media and think tank reports. The terms, conditions and recipients of the loans were largely shaped from the bottom up. Although the loan facility is the same, the degree of sovereignty ceded by the PNG side varied for each project. Moreover, success in accessing the facility came down to the political clout of both the Chinese contractor within China, and the political savvy of their PNG partners in lobbying the PNG legislature.
The terms for the four successful project bids were hammered out in Port Moresby, Madang, Goroka and Alotau on the PNG side, and in Shenzhen, Guangzhou, Shanghai and even Shenyang on the Chinese side. In the case of the proposed loan, one would expect the lobbying to be more intense. With the previous loan facility, three of the four projects were closely tied to individual politicians, which helped in the bidding process, but which in the long-term has led to problems. Two of the main figures are no longer in parliament.
As James Reilly noted in an earlier China Express post, simple dichotomies of state-owned v. private, and formerly robust political constructs such as ‘fragmented authoritarianism’, are no longer adequate to explain the behaviour of Chinese companies and entrepreneurs operating far from headquarters. A brief survey of PNG-based Chinese infrastructure companies likely to be vying for a share of the $5 billion loan shows how quickly the landscape is evolving. In 2006, when the first loan arrived, there was only one major Chinese infrastructure company operating in PNG: COVEC PNG, which is nominally state- owned. A 2012 MOFCOM survey indicates that 13 of the top 20 Chinese companies in PNG are infrastructure contractors.
¹ Ministry of Commerce, “Baxin nixiang zhongguo daikuan gaizao gonglu (PNG approaches China for a loan to fix its roads),” Available at http://www.mofcom.gov.cn/aarticle/i/jyjl/l/201209/20120908326233.html?1045760280=371270105, last accessed 21 November 2012.