Chinese Assistance in the Pacific: Agency, Effectiveness and the Role of Pacific Island Governments

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Asia & the Paciﬁc Policy Studies, vol. ••, no. ••, pp. ••–•• doi: 10.1002/app5.35 Original Article

Chinese Assistance in the Paciﬁc: Agency, Effectiveness and the Role of Paciﬁc Island Governments

Matthew Dornan and Philippa Brant*

Abstract 1. Introduction

Chinese development assistance in the Pacific Chinese development assistance in the Pacific has attracted increasing attention since the 1st has attracted increasing attention since the 1st China-Pacific Island Countries Economic China-Pacific Island Countries Economic Development and Cooperation Forum in Development and Cooperation Forum in 2006, 2006, at which China announced US$492 at which China announced renminbi (RMB) 3 million in concessional loans to the region. billion (US$492 million) in concessional loans Another US$1 billion in concessional loans to the region. Many studies have focused on was announced at the 2nd China-Pacific geostrategic implications of such assistance, Forum in 2013. This article explores how and on the relationship between China and tra- Pacific island governments negotiate and ditional aid donors (Henderson & Reilly 2003; oversee the implementation of Chinese official Windybank 2005; D’Arcy 2007a; Hanson & development assistance in four Pacific Island Fifita 2011; Yang 2011). Pacific Island schol- case study countries where assistance has ars have examined how Pacific Island govern- been significant: Tonga, Vanuatu, Samoa and ments have encouraged, and benefited from, the Cook Islands. We argue that the way in competition between major donors (Powles which governments have pursued, overseen 2010; Tarte 2010; Wesley-Smith 2010, 2013). and implemented projects has differed consid- However, as discussed below, none of these erably, and is an important determinant of the studies specifically examines aid effectiveness, effectiveness and developmental impact of nor do they look in detail at how Pacific Island Chinese assistance. governments negotiate or oversee Chinese aid projects. Key words: Chinese aid, Pacific Island coun- This article addresses this research gap by tries, China Eximbank, development assis- exploring how four Pacific Island governments tance, Small Island Developing States (SIDS) have pursued and implemented Chinese aid projects, and by discussing the impact of these approaches. Our results are based on interviews with 50 civil servants, political and business leaders, and Chinese embassy staff across four Pacific Island case study countries: * Dornan: Development Policy Centre, Crawford Tonga, Vanuatu, Samoa and the Cook Islands, School of Public Policy, The Australian National University, Canberra, Australian Capital Territory as well as New Zealand. Chinese contractors 0200, Australia; Brant: Lowy Institute for Interna- responsible for implementing aid projects in tional Policy, Sydney, New South Wales 2000, Aus- these countries declined to be interviewed. tralia. Corresponding author: Dornan, email Chinese assistance to the four case study coun- Ͻ[email protected]Ͼ. tries, situated in both Polynesia and Melanesia,

© 2014 The Authors. Asia and the Pacific Policy Studies published by Wiley Publishing Asia Pty Ltd and Crawford School of Public Policy at The Australian National University. This is an open access article under the terms of the Creative Commons Attribution-NonCommercial License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited and is not used for commercial purposes. 2 Asia & the Pacific Policy Studies •• 2014 has been both significant and at times contro- countries that recognise the PRC between 2006 versial. The research reveals that the approach and 2011. As a point of comparison, Australian of governments in negotiating, overseeing aid to the Pacific Islands in the same period and/or implementing Chinese aid projects has totalled US$4.8 billion (Hayward-Jones 2013). differed considerably. We argue that this is an A large component of this Chinese assistance important determinant of the effectiveness and was the 2006 ‘soft loan facility’—an RMB 3 developmental impact of Chinese assistance to billion regional funding facility negotiated and each country. disbursed bilaterally. Many of these loans took a number of years to be implemented (Brant 2013). More recently in November 2013, a new 2. Background regional assistance package was announced at the 2nd China-Pacific Islands Countries Forum 2.1 China and the Pacific Islands in Guangzhou. The most significant outcome was the announcement of up to US$1 billion in The People’s Republic of China (PRC) has a concessional finance, to be provided over four strong and growing engagement in the Pacific years (Xu & Zhao 2013). China also announced Islands region. China currently has diplomatic a commercial loan facility of US$1 billion, relations with eight countries—the Cook administered through China Development Islands, Federated States of Micronesia, Fiji, Bank (CDB). Niue, Papua New Guinea (PNG), Samoa, There is a large and growing literature on Tonga, and Vanuatu. The region has been the Chinese engagement in the Pacific. Much site of very active ‘chequebook diplomacy’ in of the early literature that was focused on the past decade, as Taiwan also has six diplo- the geopolitical implications for traditional matic allies in the Pacific (Hanson & Fifita powers in the region was alarmist in nature. 2011). Pacific Island leaders have not been Henderson and Reilly (2003) argued that passive in this; Pacific Island scholars have China ‘is incorporating the Pacific Islands documented how governments have played into its broader quest to become a major China and Taiwan off against one another in Asia-Pacific power’, with Henderson (2001) order to secure greater resources (Crocombe characterising the Pacific as ‘undergoing a 2007; Tarte 2010; Wesley-Smith 2010, 2013; geopolitical transition from American to Asian Varrall 2012). Such overt ‘chequebook diplo- influence’. This body of literature typically macy’ has now largely come to an end. China portrayed Pacific Island countries as ‘vulner- and Taiwan negotiated a tacit ‘agreement’ to able to manipulation’ (Windybank 2005). no longer engage in overt tactics designed to Subsequent work has provided a more bal- buy off each other’s diplomatic allies after the anced perspective, emphasising the potential election of Taiwanese President Ma Ying-jeou benefits of Chinese assistance for Pacific in 2008. Although some Pacific Island govern- Island countries (Wesley-Smith 2010, 2013; ments have continued to ‘play the Taiwan Zhang 2010) and highlighting the active role card’, no Pacific Island country has been suc- played by Pacific Islanders in negotiating geo- cessful in switching allegiance since the 2008 political tensions (Tarte 2010; Wesley-Smith 1 agreement. 2010, 2013). Some of these authors have China disbursed approximately US$850 examined the implications of China’s presence million in bilateral aid to the eight Pacific Island in the region for Australia and New Zealand 1. In mid-2011, Vanuatu’s Minister of Foreign Affairs (D’Arcy 2007a), while others have focused stated his intention to establish a trade office in Taiwan instead on what it means for Pacific Islanders (and alluded to full diplomatic relations). He also wrote a (Iati 2010; Langa’oi 2010; Tarte 2010; letter to China asking it to provide funds to meet Vanuatu’s Wesley-Smith 2010). A broader literature is US$32 million budget shortfall, which the Chinese Ambassador agreed to provide ‘part of’ but only according concerned with the Chinese diaspora in the to China’s own conditions and capacity (i.e. continued Pacific (see, for example, D’Arcy 2007b, support of the One China policy). Nelson 2010, Smith & D’Arcy 2013).

None of this literature has considered tance Committee (DAC) donors such as Chinese assistance from an aid effectiveness Australia. Chinese bilateral foreign aid is pro- perspective, nor has it provided detailed analy- vided in three forms: grants and interest-free sis of Chinese development assistance in loans administered through state finances, Pacific Island countries. Chinese assistance is and concessional loans administered through instead normally discussed in the abstract, China Eximbank. China utilises these modali- with little distinction between different aid ties for different kinds of support and accord- modalities. The Chinese government is also ing to its assessment of the recipient country’s generally treated as a homogenous entity, with financial management and situation. no discussion of the various actors involved in Interest-free loans are usually provided for the negotiation and delivery of Chinese devel- 20 years, which includes five years of use, a opment assistance.2 Some useful research is five-year grace period, and 10 years of repay- now emerging on the ‘bottom-up’ processes of ment (People’s Republic of China 2011). These Chinese aid, including the role of Chinese loans are used for public facilities and projects companies (see Smith 2013); however, these that ‘improve people’s livelihood’. The repay- studies have not focused on the roles played by ment terms can be renegotiated, and outstand- Pacific Island governments in negotiating and ing debts can be cancelled (in effect turning overseeing assistance. them into grants). Grants are not usually disbursed as cash, but rather are provided ‘in- 2.2 China’s Foreign Aid Program kind’, and are used for small and medium-size projects that improve ‘social welfare’, for An understanding of China’s foreign aid humanitarian aid, and as other in-kind assis- program is important. A key problem in the tance. Grants are commonly given in amounts literature on Chinese aid is the tendency to of either RMB 10 million (US$1.64 million) or lump all of the different types of Chinese eco- RMB 20 million (US$3.28 million). Small cash nomic engagement together under the label donations are also sometimes provided, usually ‘aid’. Partly, this results from China’s lack of in response to natural disasters or humanitarian transparency in the types and terms and con- emergencies. ditions of its assistance. It is also sometimes Concessional (or preferential) loans are pro- the result of lazy or confused analysis (see, for vided to fund larger projects, with a minimum example, Lum et al. 2009). loan of RMB 20 million (US$3.28 million) In April 2013, the Chinese government for and a current annual interest rate of between the first time provided an annual figure (RMB 2–3 per cent, with 15–20 year repayment after 40 billion or US$6.4 billion) for its global aid an initial 5 to 7-year grace period (People’s budget (Du 2013). This places the amount of Republic of China 2011). These loans are Chinese assistance on an approximate level provided by China Eximbank ‘under the with mid-level OECD Development Assis- designation of the Chinese Government’. The 2. Iati’s (2010) examination of Chinese development assis- objective of these concessional loans is to tance to Samoa provides a good example of the problems ‘promote economic development and improve that can result. Iati is very positive about China’s assistance living standards in developing countries’, and to Samoa, with one of his principal arguments being that to ‘boost economic cooperation between deve- China’s ‘cancellation of Samoa’s hefty debt is a prominent loping countries and China’. Projects must be sign that Beijing does not intend to hold Samoa to ransom for any of its assets’.Although we do not take issue with this able to yield ‘sound economic returns’ or gen- general argument, Iati’s failure to distinguish between dif- erate ‘social benefits’. Interestingly, one of the ferent types of Chinese loans is problematic. The ‘hefty’ key principles is that ‘the borrowing country debt to which Iati refers involved MOFCOM interest-free shall have sound diplomatic relations with the loans that were valued at approximately US$11 million, Chinese Government, and shall be politically and the debt cancellation in question formed part of a broader initiative in 2006, described below. Iati ignores stable and economically sound, with debt debts to China Eximbank, which are of far greater value and servicing capacity and reliable contract- are discussed below, and which were never cancelled. performance record’ (China Eximbank 2011,

© 2014 The Authors. Asia and the Pacific Policy Studies published by Wiley Publishing Asia Pty Ltd and Crawford School of Public Policy at The Australian National University 4 Asia & the Pacific Policy Studies •• 2014 emphasis added). Unlike the interest-free the program, the Ministry of Finance approves loans, concessional loans are not easily can- the budget, and other ministries and govern- celled or rescheduled (Brautigam 2009). ment bodies are also involved in providing Chinese ‘aid’ is not conceived as a separate specific sectoral aid—such as scholarships policy; aid flows are but one (small) element through the Ministry of Education and medical within China’s economic statecraft, which also assistance through the Ministry of Health. As includes official loans at commercial rates, mentioned, China Eximbank and Chinese export credits and suppliers’ credits. Chinese companies have executing and implementing foreign aid has (non-political) conditions roles. attached, reflecting the links between aid, Embassies also play an important role, par- investment and development. For Eximbank’s ticularly because the Department of Foreign concessional loans, the contractor must be a Aid (within MOFCOM) has no overseas Chinese company and (in principle) at least 50 offices and thus no direct in-country project per cent of materials must be procured from managers. In partner countries, generally a China. For projects funded through grants or single official—usually the Economic and interest-free loans, similar conditions apply. In Commercial Counsellor—in the Chinese em- this sense, Chinese aid is heavily criticised by bassy has responsibility for the aid program. In other donors (and recipients) for being ‘tied’.3 addition, Ministry of Foreign Affairs diplo- The tied nature of Chinese aid fits with mats provide advice to Beijing about the aid its idea that aid should be ‘win-win’, with projects for a particular country. The Chinese Chinese companies, suppliers, and workers Ambassadors can provide some grants directly also benefiting from the provision of assis- themselves, at their discretion. tance. Foreign aid is an important part of the Chinese contractors are heavily involved in Chinese government’s ‘go global’ strategy, the implementation of Chinese aid projects. providing support to Chinese companies to Companies must be on the ‘list of approved gain overseas experience, as well as future companies’ in order to tender for projects, investment and market access opportunities. and this process is managed by MOFCOM. There are further domestic drivers for the tying The companies are state-owned enterprises of aid, which Alden and Chen (2009, p. 9) (SOEs), many of which grew out of former summarise well: government departments or bodies but are now usually disconnected from the government A strong rationale in the form of Chinese com- aid apparatus. They are important actors in petitiveness; the oversupply of local firms in areas like construction; cultural cohesion; and China’s foreign aid program, often being the work ethic; as well as familiarity with Chinese ‘face’ of China within recipient communities. government procedures, are all features that The role of contractors and other key actors in explain the preference for use of Chinese firms the negotiation and implementation of Chinese and factors of production in the delivery of assistance in four Pacific Island case study projects. countries is discussed below. There are a number of actors within the 3. Case Studies Chinese state apparatus involved in China’s foreign aid policy and program management. 3.1 Tonga The State Council sets the policy direction, the Department of Foreign Aid (DFA) within the Tonga is the Pacific Island country where Ministry of Commerce (MOFCOM) manages Chinese assistance has arguably been most prominent. MOFCOM has funded a number 3. This point is often lost in studies by Pacific Island of grant-based infrastructure projects in scholars, which instead emphasise the ‘conditionality’ of aid provided by traditional powers, and contrast it to the the past 10 years, including construction of (incorrectly labelled) ‘no strings’ attached approach of two high school buildings, the National Con- China (see, for example, Iati 2010, Langa’oi 2010). vention Centre and refurbishment of the

Dateline Hotel. Grant-based assistance to Fund (IMF) had until recently labelled Tonga Tonga announced by China has increased as being at high risk of external debt distress.5 recently, with the delivery (somewhat contro- Debt remains a significant burden for the versially) of an MA60 aircraft for domestic use Tongan economy. The current Tongan govern- by Royal Tonga Airlines, and the proposed ment has established a ‘no new loans’ policy in construction of the St George Palace office recognition of the difficulties it will encounter block in 2013–2014 and 2014–2015.4 Assis- in future years servicing its debt obligations. tance of this type has been ‘lumpy’, varying At the same time, the Tongan Prime Minister considerably in value from year to year (assis- has requested that the Eximbank loans be con- tance will jump from US$0.34 million in verted into grants. Repayment of the first 2012–13 to US$20.38 million in 2013–14 Eximbank loan was to have begun in 2013–14, according to budget estimates). with repayments rising to over 17 per cent More significant than grant-based assistance of government revenue in 2014–15 when is concessional lending. Since 2008, Chinese repayment of the second loan commenced. assistance to Tonga has been dominated by However, China agreed recently to defer these two large China Eximbank concessional loans, repayments in response to requests from the which commenced in November 2008 and Tongan government. Although there is lack March 2010. The first China Eximbank loan to of clarity and detail about this agreement, Tonga arose as a result of the 2006 riot, which interviewees confirmed that repayment has saw the destruction of much of the central been deferred for five years, but that the business district of Nuku’alofa. The loan of 20-year maturity does not change. This means RMB 440 million (approximately US$72.14 that annual repayments will be larger when million) dwarfed earlier assistance from they begin in 2018–19. China. It was approved by parliament for There has also been criticism within Tonga reconstruction of the Nuku’alofa central busi- about how the two China Eximbank loans ness district, and involved both civil works were agreed, and of the way in which the elements and an on-lending facility for private funding has been used. The negotiation and sector businesses affected by the riot. A second establishment of both loans was led by the loan of RMB 291 million (approximately Prime Minister at the time, the Hon Dr Feleti US$47.71 million) was agreed to 18 months Sevele, with the support of His Majesty King later for road construction and rehabilitation. George Tupou V. Input from the civil service Both loans were denominated in Chinese in negotiations was, by almost all accounts, RMB, were to be provided for a period of 20 limited. The Ministry of Finance advised the years with a five-year grace period, and were government against the first loan given its to accrue interest at a rate of 2 per cent; stan- fiscal implications and resultant foreign dard Chinese concessional loans. exchange risk. This advice was dismissed. Par- The loans have been criticised on numerous liament approved the loan for reconstruction grounds. At a macroeconomic level, there are work. However, there was limited uptake of concerns about the indebtedness of the Tongan loans offered to businesses that had been government. Public debt in Tonga is 43 destroyed in the riots. Consequently, approxi- per cent of gross domestic product (GDP), the mately 38 per cent of funding was actually majority of which is external debt (39 per cent used for construction of Vuna wharf and exten- of GDP). The two loans from China Eximbank sion of the Royal Palace; something that has account for 64 per cent of this debt stock, led to significant criticism and two politically while 2.2 per cent is owed to the Bank of China. As a result, the International Monetary 5. This rating has now been lowered to moderate risk of external debt distress, but due to a small improvement in Tonga’s Country Policy and Institutional Assessment 4. The donated aircraft was criticised on safety grounds, (CPIA) scores rather than a reduction in debt levels. with New Zealand suspending its assistance to Tonga’s Tongan officials interviewed as part of this research tourism sector in protest. viewed the improvement with scepticism.

© 2014 The Authors. Asia and the Pacific Policy Studies published by Wiley Publishing Asia Pty Ltd and Crawford School of Public Policy at The Australian National University 6 Asia & the Pacific Policy Studies •• 2014 charged inquiries (Brown Pulu 2012). Interest- in requests for translation of design documents ingly, the fiscal implications of the loan were (which were in Chinese) and adherence to barely discussed by parliament. Debate was Australian road construction standards, with instead dominated by parliamentarians arguing which ministry officials are familiar. the case for spending outside of Nuku’alofa Tongan civil servants were also concerned (and in their constituencies). This was report- about oversight arrangements, although con- edly part of the reason that the government struction quality was generally considered pursued the second loan. sound. There was dissatisfaction with oversight The second loan for road development across by engineers appointed by China Eximbank Tonga was also reported by civil servants to be and the design company; these groups were ‘politically driven’. The Ministry of Finance considered to be closely linked to construc- was not consulted about the second China tion firms. However, neither did the Tongan Eximbank loan; it was first informed about the government provide adequate oversight of con- government’s intention to sign the loan agree- struction. In the case of the loan for road reha- ment through media reports. Loan negotiations bilitation, the Ministry of Works responsible were led by the Deputy Prime Minister and for oversight had limited capacity to oversee Minister for Works, with the Prime Minister’s construction, with no fully qualified engineers support. Ministry of Infrastructure officials also or architects, and insufficient government reported being sidelined, both in the negotia- funding to outsource these activities. In the case tion process and in subsequent project selec- of reconstruction efforts, oversight was the tion.6 Parliament again approved the second responsibility of the Nuku’alofa Development China Eximbank loan with minimal opposition. Corporation (a Cabinet sub-committee), which Parliamentarians that were interviewed expre- outsourced project oversight to a clerk of works ssed their belief that both Eximbank loans from the private sector, Ca’Bella Limited. This would later be converted into grants, pointing was more effective. However, the arrangement out that this had already occurred in Samoa has been criticised by the opposition, given that (although as described below, this did not occur the same company later became a subcontractor for Eximbank loans). on one of the construction projects (reportedly Both loan agreements with China Eximbank at the request of His Majesty King George were signed by the Minister of Finance. Tupou V). Design and contractor agreements were signed between the Minister of Works and the various Chinese design and construction companies 3.2 Samoa that had won the tenders for work. Contractual agreements were short and sometimes vague. Samoa has a long-standing relationship For instance, there was no reference to dispute with China, having established diplomatic resolution or arbitration; a provision normally relations shortly after independence. As in included in such agreements. In its place is a Tonga, grant-based assistance has been modest short provision stating that disputes will be and varied considerably from year to year. settled in ‘a friendly manner’. Political leaders Grant-based assistance has been directed led the negotiations. Civil servants reported towards post-tsunami reconstruction (US$5.8 that in some cases, these figures undermined million, 2011–12—2013–14), refurbishment their attempts to negotiate conditions with of facilities for the Pacific Games (US$19 Chinese contractors. In the case of the second million, 2007) and Women and Youth Hall loan, the Ministry of Works was unsuccessful ($US1.6 million, 2009), agricultural assistance (US$0.8 million, 2009), and construction of eight school buildings. Samoa has also ben- 6. The Ministry of Works became the Ministry of Infra- efited from small interest-free loans provided structure in 2012–2013, when it was merged with the by MOFCOM. In 2006, these loans were con- Ministry of Transport and various other small agencies. verted into grants by the Chinese government;

© 2014 The Authors. Asia and the Pacific Policy Studies published by Wiley Publishing Asia Pty Ltd and Crawford School of Public Policy at The Australian National University Dornan and Brant: Chinese Assistance in the Pacific 7 a gesture repeated in other least developed projects is the use of clear and transparent countries in the region.7 processes for decision-making relating to China Eximbank loans are of considerably development assistance, which have helped greater value than other forms of assistance in safeguard the role of the civil service in nego- Samoa. Eximbank loans have been provided tiating and overseeing/implementing Exim- in recent years for construction of a number bank loans. Development assistance to Samoa of prominent public buildings, including must conform to 14 sector plans established by the National Convention Centre (US$52 the Samoan government. Development part- million, 2008–09—2012–13), the parliamen- ners meet on a quarterly basis to coordinate tary complex and adjacent Ministry of Jus- assistance in a meeting led by the Ministry of tice and Courts Administration buildings Finance. China participates in these meetings, (US$41 million, 2008–09—2010–11), a although is ‘not an active participant’. National Medical Centre and Ministry of Decisions relating to all major government Health Headquarters (US$41 million, 2010– projects are made by the Cabinet Development 11—ongoing), and a national broadband Committee, which is chaired by the Prime network (US$15 million, 2011–12—ongoing). Minister, and includes all Cabinet members, The terms and conditions of these Eximbank Chief Executive Officers of government agen- loans are identical to those provided in Tonga. cies and representatives from the private sector These loans are less significant as a proportion and civil society. Where development assis- of total debt than in Tonga. The majority of tance is needed to finance a project, it must public debt in Samoa is held by multilateral also be approved by a separate committee, the development banks; debt to China measures 16 Aid Coordination Committee, which is again per cent of total debt (approximately 9.4 chaired by the Prime Minister and includes per cent of GDP). Aggregate debt levels are representatives from relevant ministries. The nonetheless very high, at 60 per cent of GDP Ministry of Finance and Central Bank of in 2012–13, and a ‘no new loans’ policy is Samoa provide advice to both committees, reported to be in place. which is deemed especially important given The negotiation and implementation of the absence of rigorous cost-benefit analysis or loans has been less controversial than in feasibility studies that accompany Chinese Tonga, although there has been criticism of projects. All loans are approved by parliament travel by senior government officials paid for through a supplementary budget. by Chinese construction companies (some- Oversight of construction in general is more thing that has also occurred in Tonga, the Cook robust than in Tonga. The Ministry of Works, Islands and Vanuatu).8 An important reason Transport and Infrastructure organises over- for the general acceptance of Chinese-funded sight of Chinese-funded construction projects, including projects funded through grants and loans. The Ministry does not have capacity to 7. At the 1st China-Pacific Island Countries Economic and Development Cooperation Forum in 2006, Premier perform these roles itself, so for each project it Wen announced the following measure: ‘To support the issues an open tender in order to hire a clerk of Pacific island countries in developing their economy and works to oversee construction. These positions ease their debt burden, China will give zero-tariff treat- have been filled by both domestic and interna- ment to the majority of exports to China from the least tional construction/engineering firms in the developed countries in the region that have diplomatic ties with China. China will cancel their debts that became past. Contracts for both China Eximbank loans mature at the end of 2005 and extend by ten years the and construction works are signed by the Min- payment of debts contracted by other island countries that ister of Finance—a point of difference with became mature at the end of 2005’. Tonga where these roles are split between min- 8. Samoa’s Minister of Finance, Faumuina Tiatia Liuga, istries. No Eximbank funds are handled was criticised for a trip to China that was paid for by Shanghai Construction Group, the company contracted to directly by the Samoan government, but like in build a large civil service building funded by China EXIM Tonga, the Ministry of Finance must approve Bank (Samoa Observer 2013). payments from Eximbank to contractors.

© 2014 The Authors. Asia and the Paciﬁc Policy Studies published by Wiley Publishing Asia Pty Ltd and Crawford School of Public Policy at The Australian National University 8 Asia & the Paciﬁc Policy Studies •• 2014

Civil servants that were interviewed were a favourable 2013 IMF Article IV Consulta- generally satisfied with the projects that had tion. Civil servants and political leaders inter- been implemented, with one noting that ‘con- viewed for this research noted that in 2013 struction quality is the same as for other donor there has been an influx of Chinese construc- projects’. Decisions relating to project selec- tion companies into Vanuatu. These compa- tion are inevitably political, and the Prime nies present infrastructure project proposals Minister is known to wield considerable directly to ministers, and often claim to be able power. Nevertheless, the processes outlined to arrange financing through China Eximbank. above ensure that politicians are aware of the Five memoranda of understanding (MOUs) economic and fiscal impacts of such projects have been signed that allow companies to when making decisions. These decision- undertake feasibility studies for infrastructure making processes are considered to protect projects, most of which were for road con- against ‘dubious deals’, even where Chinese struction in rural areas. The feasibility studies construction companies lobby political leaders do not oblige the Vanuatu government to take for work (as also occurs in Tonga). The publi- on new loans, but they are a first step in secur- cation of loan and grant details by the Mini- ing Eximbank financing. The documents have stry of Finance was viewed as an additional not been made public. One feasibility study safeguard. viewed by the authors was more akin to a project proposal document than a feasibility 3.3 Vanuatu study; it contained no substantive economic or technical analysis but was instead a broad Chinese assistance to Vanuatu has received statement in support of the project. considerable attention in recent years. As in The most advanced of these new projects Samoa, Chinese assistance has a long history. involves the construction of roads in the Two interest-free loans were provided by islands of Tanna and Malekula by China MOFCOM for construction of Parliament Civil Engineering Construction Corporation House and the Port Vila campus of the Univer- (CCECC). Civil servants that were interviewed sity of the South Pacific (USP) in the 1980s claimed that an informal agreement for con- and 1990s. Both of these were later converted struction was made by the late Minister for into grants. Grant-based assistance has been Infrastructure and Public Utilities, Harry used to fund construction of sporting facilities Iauko, prior to the receipt of any advice from used in the 1983 Pacific Mini Games, dormi- the civil service. This type of arrangement is tories at the USP Port Vila campus, the Mela- reported to be common practice; it is widely nesia Spearhead Group building, the Vanuatu known that Chinese construction companies Agricultural College and the extension of offer ministers benefits such as meals and Malapoa high school (construction of which travel when lobbying for projects (as also has is soon to commence). A more controversial occurred in other countries). The majority of project funded recently is the National Con- civil servants interviewed labelled this ‘cor- vention Centre, which critics have labelled ruption’. However, some justified it on the unnecessary given that Vanuatu already has the ground that politicians simply wanted to Pacific’s largest convention centre (Dorney deliver infrastructure services to their constitu- 2013). ents, and were taking matters into their own Eximbank loans have been used in recent hands given the ineffectiveness of government years to purchase Y12 aircraft for use domes- service delivery. One interviewee described tically by Air Vanuatu, and to fund the this as ‘corruption, but not for personal e-government communication system. The benefit’. In this sense, it reflects the political Government of Vanuatu is now actively clientelism9 that is present in many developing seeking new loans from China Eximbank and other development partners, citing low debt 9. Political power is described as clientelistic where levels (public debt is 23 per cent of GDP) and policy preferences and the provision of public goods are of

© 2014 The Authors. Asia and the Pacific Policy Studies published by Wiley Publishing Asia Pty Ltd and Crawford School of Public Policy at The Australian National University Dornan and Brant: Chinese Assistance in the Pacific 9 countries, which in parts of Melanesia has million. The revised amount ensures that con- been compared, controversially, to traditional struction will proceed in Tanna and Malekula leadership by ‘big men’.10 (both political imperatives) but not on other The construction of roads in Tanna and islands. Malekula provides an interesting illustration of the tensions that arise in approving con- 3.4 Cook Islands cessional loans within the Vanuatu government. The loan originated in an informal In the past decade, China has provided some agreement between the late minister and the NZ$37 million (US$34 million) in foreign aid contractor. The political power of members of to the Cook Islands. China has funded four parliament from Tanna ensured that the loan main buildings in Rarotonga—the courthouse, received the support of Cabinet; it was widely police station, Ministry of Education and believed that the government would fall in a stadium. The courthouse and police station vote of no confidence if the loan did not were funded through Chinese grants, and the proceed. However, there was disquiet about stadium and Ministry of Education building the lack of consultation with the civil service, funded through a NZ$13 million (US$10.6 both in regards to the absence of economic million) concessional loan. China has also analysis and possible debt implications. pledged annual small grants, usually used for Cabinet therefore made two concessions. It purchase of equipment for the outer islands. requested that the contractor fund an economic The same Chinese company, CCECC, was cost-benefit analysis of the road, to be con- contracted to build all buildings over a period ducted by the Ministry of Finance and Eco- spanning 2004–2009, with one exception. nomic Management. The contractor agreed, Unusual within the Chinese aid process, the but dedicated very limited resources to the Ministry of Education building was con- study, which was based on only 6 days of field- structed by a local company. As this was the work by two economists, and lacked necessary first Chinese concessional loan to the Cook traffic volume data. The second concession by Islands, the government managed to negotiate Cabinet was more significant: the loan amount a deal that Chinese labourers could be used was halved, from US$100 million to US$50 during construction of the stadium, but a local contractor would be engaged for the Ministry secondary importance, and where politicians instead focus of Education building. on providing local public goods or private goods to their The Cooks Islands has recently negotiated a supporters (whose support is contingent on the transfer of these goods) (Hicken 2011). new NZ$23 million (US$18.7 million) loan 10. Politics in Melanesia has been described as with China Eximbank to upgrade water infra- clientelistic by a number of authors, some of whom have structure on Rarotonga. This is part of a trilat- noted the comparison with traditional leadership by ‘big eral project also involving New Zealand; the men’ (Fukuyama 2008). Kabutaulaka (1998), for example, first such case of a traditional bilateral donor writes that in Solomon Islands: ‘Voters have the same expectations of politicians today as the community had of working with China on a foreign aid-funded the traditional Big-Man, and most politicians react to these project in the world. The loan was pledged expectations as the village Big-Man would have— in 2006 as part of the regional concessional distributing wealth to members of the group and partici- loan package. The previous Cook Islands pating financially in nearly every community affair’. Both government wanted to borrow NZ$50 million arguments are contested, however. Fraenkel (2011) argues against the use of the term ‘clientelism’ to describe politics (US$40.6 million) to finance water infrastruc- in the Pacific, pointing to the high turnover of MPs and the ture. And at one stage, the Chinese loan was to fluidity of political allegiances in Melanesia (excluding have formed part of a broader ADB project. Fiji). Haque (2011) takes issue with cultural explanations However, the Puna Government, elected in of voter behaviour, arguing that voter behaviour is best 2010, put a hold on the loan while it assessed explained not as a continuation of traditional political culture in the form of big man style governance, but rather the fiscal situation in the Cook Islands. in terms of rational responses to ‘material incentives Known as Te Mato Vai, the NZ$60 million facing individuals’. (US$48.7 million) project due to commence in

© 2014 The Authors. Asia and the Paciﬁc Policy Studies published by Wiley Publishing Asia Pty Ltd and Crawford School of Public Policy at The Australian National University 10 Asia & the Paciﬁc Policy Studies •• 2014

2014 is the largest infrastructure development ernment itself has a keen interest in the success to take place on the island since the building of this trilateral project. A positive political and of the airport in 1974. CCECC, the Chinese development outcome here will help improve company that built the earlier Chinese aid proj- China’s image in the Cook Islands, the broader ects, has been contracted to implement the region, and with traditional donors. Chinese part of Te Mato Vai. This consists of In terms of grant aid, the Chinese govern- laying 26 km of ring mains around the island. ment has pledged more than NZ$34 million A New Zealand grant (NZ$15 million; US$12 (US$27.6 million) in grants to the Cook million) is funding other sections/components Islands over the past 12 years. Of the NZ$34 of the project, including a master plan and a million, NZ$20 million (US$16 million) project management unit, which will have remains unspent.11 Politicians have enjoyed the oversight of the whole project, including the flexibility that comes with this aid—a senti- Chinese company. According to a number of ment shared by politicians and civil servants in officials interviewed, the Cook Islands’ other case study countries. However, this flex- bureaucracy would not have had the capacity ibility has also enabled (some) politicians to to do this itself. Given concern with pre- select projects for short-term financial or vious Chinese construction, particularly over political gain. In 2013, the Cook Islands devel- designs, quality and supplies, this management oped a three-year strategy for the utilisation structure will likely be vital to the success of of grant funding, to manage the backlog of the project. The Cook Islands government has Chinese grants. The strategy has been also established a formal high-level gover- designed and driven by the Cook Islands to nance structure to help mitigate political risks. ensure the grant funds are spent on identified The Cook Islands appears to be an unlikely priority projects within the National Sustain- location for the first trilateral cooperation able Development Plan, and not redirected at project between China and a traditional donor. the whim of individuals. The NZ$20 million However, there are a number of factors that has been assigned to specific items in the explain why and how this has come about. First, 2013–14 budget. This process has been driven and most importantly, this cooperation has been by the Cook Islands bureaucracy and is sup- driven by the Cook Islands itself. Interviews ported by the Chinese embassy. with key government stakeholders revealed a strong desire for collaboration rather than competition among donors.Almost all development 4. Discussion partners, including China, participate in development partners’ roundtables. Second, China Chinese assistance has varied considerably and New Zealand themselves have a strong in the four case study countries. In Samoa, relationship; New Zealand was the first country assistance has in general met the expectations to negotiate a free trade agreement with China. and demands of the recipient government and In addition, the Cook Islands’ size and self- civil service. This has not occurred in Tonga governing state status (in free association and Vanuatu, where assistance has been more with New Zealand) means that the Chinese blatantly political, and oversight and transpar- embassy in Wellington is also responsible for ency more limited. Similar issues have arisen the China–Cook Islands relationship, making in the past in the Cook Islands, although the management of the trilateral project more government has recently sought to address straightforward. Finally, the project did not this. The differences between these countries require any new funding commitment from have arisen as a result of the way in which they China; there was an existing loan pledge negotiate, coordinate and oversee or imple- waiting to be accessed. With a history of prob- ment development assistance. The case studies lematic projects in the Cook Islands, particu- 11. This is due to a number of factors, including an inabil- larly due to poor construction and inappropriate ity to program funds and internal disagreement of grant designs for local conditions, the Chinese gov- allocation.

© 2014 The Authors. Asia and the Pacific Policy Studies published by Wiley Publishing Asia Pty Ltd and Crawford School of Public Policy at The Australian National University Dornan and Brant: Chinese Assistance in the Pacific 11 therefore serve to demonstrate how the actions about development assistance, that such deci- of Pacific Island governments have an impor- sions are made transparently, and that the civil tant bearing on the actual and perceived effec- service is informed about major projects (even tiveness of Chinese assistance. They also add those it opposes). Donor coordination meet- weight to the arguments of scholars who argue ings facilitated by the Ministry of Finance also that ‘shaping of the emerging regional order is help to reduce duplication and target assistance firmly in the hands of Pacific Island countries’ towards priority areas, although the participa- (Zhang 2010). tion of Chinese officials in these meetings The importance of how Pacific Island gov- could reportedly be improved. In the Cook ernments negotiate and oversee implementa- Islands, too, the government has recently taken tion of Chinese-funded projects reflects a lead in managing the development assistance broader discussions regarding state capacity it receives, particularly through the aforemen- and legitimacy in the Pacific. References to tioned development partners’ roundtables, in Pacific Island countries as ‘weak’ or ‘failed’ which the government outlines its priorities have become common in the last decade, par- and development plans to all partners, which ticularly in relation to Melanesia (as described then indicate where they can provide support. by Larmour 2005, Morgan 2005). Pacific The Ministry of Finance has again driven these Island scholars such as Larmour (2005) have arrangements, and Chinese participation is documented the ‘mimetic transfer’ of foreign reportedly on par with other partners. policies to Pacific Island countries, arguing Similar donor coordination arrangements that such transfers have produced mixed are in place in Vanuatu and Tonga, but are less results, particularly in cases where donors developed and have been promoted to a greater have sought to impose a ‘good governance’ extent by ‘traditional donors’ and regional agenda (DiMaggio & Powell 1991; Larmour bodies such as the Pacific Island Forum Sec- 2005). These arguments are relevant to the aid retariat (through the peer review process estab- effectiveness agenda promoted by the Paris lished as a result of the Cairns Compact). It is Declaration on Aid Effectiveness (and its widely believed that decisions are made subsequent iterations) and the Cairns Compact outside of these processes, a view that is sup- on Strengthening Development Cooperation ported by cases where ministers have pre- in the Pacific. Institutional arrangements sented projects at an advanced stage to the civil designed to improve aid effectiveness, such as service, with no regard for sectoral planning national planning and donor coordination priorities. Decision-making in relation to mechanisms, are successful where driven by Chinese assistance in Vanuatu is in many cases recipient governments. blatantly political, with ministers presenting This is clearly evident in the four case study project proposals designed to directly benefit countries. All four countries have policy pro- their constituencies. This is a reflection of the cesses in place for the consideration and political culture in Vanuatu, where political approval of development assistance. However, leaders are expected to channel state resources the extent to which these processes actually to constituents (Morgan 2004). Political influence decision-making varies. In Samoa, culture in Vanuatu has therefore adversely major projects are approved by a committee affected planning and decision-making at the with a wide membership base, and develop- national level. In Tonga, also, decision-making ment assistance is vetted by a second commit- outside of policy processes is evident. In the tee. Both committees are advised by relevant case of the second China Eximbank loan, the agencies from the civil service. Such pro- Ministry of Finance was informed of the loan cesses, although supported by ‘traditional through the media. In the case of the first donors’, have been developed since 2005 by loan, Ministry of Finance advice against the the Ministry of Finance and are very much loan was dismissed by government. domestic initiatives. They ensure that the gov- The role of central government agencies and ernment is informed when making decisions sector (or line) agencies has therefore had a

© 2014 The Authors. Asia and the Pacific Policy Studies published by Wiley Publishing Asia Pty Ltd and Crawford School of Public Policy at The Australian National University 12 Asia & the Pacific Policy Studies •• 2014 bearing on the perceived and actual effective- their support.12 Lack of transparency in these ness of Chinese assistance. The Ministries of cases has clearly augmented the space for Finance in the Cook Islands and Samoa have political clientelism, enabling political leaders played an important role in establishing insti- to negotiate directly with Chinese contractors. tutional arrangements that support aid effec- In Tonga and Vanuatu, lack of a transparent tiveness, which have in turn helped to ensure process has contributed to suspicion of that Chinese-funded projects meet the objec- Chinese assistance. In Tonga, the sensible act tives of government. Ministries of Finance in of appointing a clerk of work from the private both countries have also been heavily involved sector for oversight of construction became in negotiating and providing oversight of politically contentious due to lack of transpar- Chinese assistance, even where assistance is in ency. In Vanuatu, perceptions of corruption an area traditionally the responsibility of a among politicians have been made worse sector or line agency. The involvement of these due to the failure to adequately involve the central agencies is important, given their close civil service in decision-making. Conversely, links to political leaders, their capacity relative clear decision-making processes involving a to sector or line agencies and their ability to wide range of stakeholders in Samoa and Cook provide a broader assessment of the impact of Islands have helped to improve community a project than is likely from a sector agency awareness where Chinese stakeholders (PRIF 2013). The role of the Ministry of provide limited information. Finance (and Economic Planning) in Tonga Another point of difference between the and Vanuatu has been less prominent, as out- countries is in the way sector agencies have lined earlier. performed their functions. China does not Increased transparency has been another provide funding to governments for oversight result of efforts to improve aid effectiveness, of construction (neither do many other devel- and has had an impact on the perceived and opment partners, such as Japan). In Samoa, actual success of Chinese-funded projects. It is there is recognition of the limited capacity of well-known that Chinese assistance is opaque, the Ministry of Works, Transport and Infra- although transparency is increasing as a result structure to oversee construction; a clerk of of efforts by the Chinese government and works from the private sector is hired through outside pressure. There has been limited trans- open tender to perform the role. In Tonga, this parency in assistance to the four case study did not occur with the Eximbank loan for road countries. Contractual agreements were short rehabilitation and construction. The situation and lacking in detail. Pacific Island govern- in Vanuatu has changed over time. The ment officials and leaders were unclear about Vanuatu government in the past provided the relationship between contractors, China direct oversight of construction activities; a Eximbank and the different Chinese govern- strategy that was demonstrated to be ineffec- ment ministries. Tender processes in Beijing tive (some construction projects, such as the were opaque. One official noted that ‘all the Vanuatu Agricultural College building, were contractors provided a quote for the same poorly built). It now hires a clerk of works price, so how did they decide?’ to oversee construction activities, in what Contractors were shown to play an impor- civil servants argued was a demonstration of tant role in establishing Chinese-funded proj- how government has learned from previous ects. Contractors approached ministers with Chinese assistance. assurances that they could arrange Eximbank financing, despite construction funded by such loans needing to proceed to tender. The same 12. The activities of contractors were a concern among companies offered assurances that conce- Chinese embassy representatives. But Chinese embassy officials also argued that greater clarity was needed on ssional loans from Eximbank would be for- lines of responsibility and processes within Pacific Island given in the future—an assertion cited by governments, pointing to mixed messages from different politicians as a reason that loans had received ministries and politicians.

A similar learning process is evident in the about ministers seeking personal gain from Cook Islands. Earlier projects funded by China Chinese engagement—particularly grant aid. achieved mixed results, with a number of The ability of governments to prevent this type buildings being poorly constructed, limited of behaviour will have an important bearing domestic employment creation and assistance on the perceived and actual effectiveness of targeting areas that are not development priori- Chinese assistance. National planning and ties. The Ministry of Finance now emphasises donor coordination mechanisms that enhance the importance of policy processes for ensur- transparency have the potential to assist in this ing adequate oversight and targeting of assis- task, and will also impact the ability of Pacific tance. The Ministry of Foreign Affairs has Island governments to address other chal- developed a three-year strategy for allocating lenges, such as appropriate oversight of con- grant funding. As one official explained, ‘we struction and debt sustainability. now know better how to deal with the The impact and effectiveness of Chinese Chinese’. development assistance in Pacific Island coun- Pacific Island countries are also learning tries is therefore dependent in large part on the from one another. Civil servants from the actions of Pacific Island governments. Pacific Vanuatu Ministry of Infrastructure and Public Island countries are key players in the negotia- Utilities have communicated with colleagues tion, oversight, implementation and (ulti- in Tonga about oversight arrangements and mately) effectiveness of Chinese assistance. negotiating strategies prior to discussions with Research in four case study countries—Tonga, Chinese contractors. Tongan officials have Vanuatu, Samoa and Cook Islands—reveals spoken to colleagues in the Cook Islands. the central role that Pacific Island governments There is clearly potential for lessons to be themselves play in managing Chinese aid. It transferred across countries; a statement also highlights the important role of Chinese repeated by numerous civil servants inter- contractors in both the delivery and negotia- viewed for this project. Such ‘organic’ trans- tion of projects. This role poses a challenge for fers are driven by Pacific Island civil servants both Pacific Island governments and the that seek better ways of negotiating and over- Chinese government in terms of project seeing Chinese assistance. They are more oversight, potential corruption and broader likely to be successful than aid effectiveness reputational damage; and is an area where efforts that are promoted externally. One further research is required. The article has promising model is the trilateral cooperation argued that there is evidence of countries project in the Cook Islands, which is being led learning from experience and adhering to (or by the Cook Islands Ministry of Finance. developing better) processes to respond to Many countries in the region are following this these challenges. The Chinese government too new arrangement with interest as it may offer is recognising the need for more appropriate a framework for their own management of assistance, and is using the trilateral coopera- Chinese and ‘traditional donor’ assistance. tion project as an important pilot case. Local This article has argued that a key to the success development of oversight and planning of this model is that it is an initiative arrangements by government stakeholders is established and driven by the Cook Islands more important than ever, given the latest government. announcements of Chinese assistance to the region. 5. Conclusion May 2014. A number of factors will influence the scale and nature of Chinese assistance to the Pacific References in the future. Political dynamics within countries will clearly play a key role. There is Alden C, Chen AY (2009) Chinese Develop- ongoing concern in Pacific Island countries ment Cooperation in Africa: The Case of

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