Paw Tracker newsletter (Week of May 30)

Over the past few months, the South Pacific island nations have shown their determination to maintain an independent position in the middle of charm campaigns launched by the US and its allies and, most recently, China. China’s foreign minister Wang Yi toured the region last week with the hope of reaching a sweeping security-trade agreement. He fell short on that goal. But a few bilateral deals with the Solomon Islands, Kiribati and Samoa were reached instead. The region’s leaders made clear to China’s top diplomat what the South Pacific countries see as their priorities. Now it is China’s turn to deliver on them to demonstrate its commitment to a “shared destiny of humankind.”

Talk of the Town

In a region where climate change and the ocean are among the most pressing security issues, China’s ability to deliver foreign aid results will likely be put to the test more than in any other region. 

Foreign Minister Wang Yi’s diplomatic whirlwind tour of eight South Pacific Island nations last week kicked off heated discussions in the Chinese media and social media about China’s “penetrating the first island chain” and establishing a foothold in the South Pacific. There was visible online euphoria about China “pissing off” Australia and the United States with the move, particularly the recent signing of a security agreement with the Solomon Islands.

But winning over the South Pacific Island nations takes more than just great power posturing, as Matthew Wale, the Solomon Islands’ opposition party leader said, “We don’t want to be the grass trampled by the elephants.” The nations of the region bear the brunt of some of the most pressing global challenges wherein China’s role is acutely felt.

“As I have done with every Leader I meet, I sought a stronger commitment from China on climate action,” Fiji’s Prime Minister Voreqe Bainimarama described how he approached the meeting with Wang Yi. He also sought Chinese cooperation in fighting illegal fishing and sustainably managing the ocean.

The region’s priorities and needs are reflected in China’s Position Paper on the Mutual Respect and Co-development with Pacific Island Nations, published at the end of Wang’s visit on May 31. Nuclear non-proliferation, oceans environment and climate change make up points 3, 7 and 11 of the 15-point document. The question is how China would deliver on such items. Keeping end-of-century temperature rise under 1.5 degrees, a core demand for small island nations, cannot be met simply by donations to the island nations themselves. Emission cuts in China are far more significant in this aspect. Reining in Chinese fishing fleets on the high seas is also primarily a Chinese regulatory challenge.

In an interview with Global Times, Chen Dezheng, director of the China-Pacific Island Climate Cooperation Center, set up in April, emphasized that China had been “shouldering its climate responsibilities in line with the developmental stage it is at,” and the Pacific Island nations are “innocent victims of a climate consequence created largely by developed countries.” He further highlighted the island nations’ short term need for meteorological monitoring (in preparation for better response to climate disasters) and long term needs for infrastructure (preserving existing inhabitant areas while expanding them for a high-sea-level future), two areas that appear to hit the sweet spots of Chinese foreign aid capabilities. 

The world is yet to see how China would harness its newly revitalized foreign aid toolbox to leave meaningful impacts in the South Pacific. The concrete action points in the Position Paper contain items including appointing a Chinese special envoy for South Pacific affairs, setting up a China-Pacific Islands disaster management cooperation mechanism, inviting Pacific Island nations to China-Island Nations oceans cooperation high-level forum and training climate specialists for countries in the region. In addition, multiple donations are to be made to the China-Pacific Island Nations Anti-Pandemic Fund, the Pacific Island Forum, and the Pacific Regional Environmental Program. One day ahead of Wang’s tour, China has also announced new fishing closure measures in the North Indian Ocean, a regulatory tool that has become a feature of Chinese fishing management on the high seas.

As the island nations have expressed concerns about being targeted solely for security considerations (as demonstrated by the region’s skepticism of the QUAD Initiative) and have failed to reach a consensus on a common security-trade pact with China, an issue-based and aid-based approach might make better sense. Winning hearts and minds in the region will test China’s diplomatic, foreign aid, investment and “branding” capabilities, shaped by implementing the BRI, for years to come.

This week's highlight project

Guinea: port construction contracted for Simandou iron mining project

China Harbor (CHEC) has won the bid to build the river port attached to the Simandou iron mining project in Guinea, marking another step forward in realizing the controversial mine’s game-changing potential of resources for the global metals market. Construction will take an estimated 21 months.

The mine is located deep in the mountainous, inland areas of eastern Guinea and requires a network of roads, railways, the river port at Forecariah and ultimately a new deep-water port to bring the ores to the international market. Preparation work for connection railways has already started last year by China Railway Construction Corporation (CRCC)    

A bit more context: Global markets have been waiting in anticipation for the completion of the Simandou mine, which reportedly has the potential to produce 150 million tonnes of the important ore per year, around 7% of total global production if realized. The Simandou mine has been in the works for around two decades, Rio Tinto was given exploration rights in 1997 and identified the site’s potential by the early 2000s. Over the next 20 years, the mine was entangled in corruption charges and lawsuits involving major business interests that tried, and failed, to materialize that potential. They include Rio Tinto, Israel’s BSGR and Brazil’s Vale. In November 2019, Winning Consortium Simandou, a business consortium consisting of major Chinese and Singaporean companies, won the right to develop half of the mining area (block 1 and 2). Construction began in March last year. It is noteworthy that the winning consortium also has a controversial track record in Guinea for its bauxite mining activities in the Boke region.

Other project & corporate updates

Bahrain: Three Chinese companies join bid for subway project

According to WeChat account GoalFore, China Harbor (CHEC), China Railway Group (CREGC) and CRRC will enter bidding for the USD2 billion Bahrain subway project. The bidding is for the first of four phases which will see the construction of 109km of subway lines through the capital city, Manama. The first phase covers two subway lines, 20 stations, and 29km of tracks.

The contract is a Public Private Partnership and includes the design and construction, as well as operation and maintenance for a period of 35 years. In other words, unlike an EPC “turn-key” project, the winning bidder will be invested for the long term in the project, with returns on investment likely to come from the successful operation of the subway over 35 years. Other bidders include big hitters such as Egypt’s Orascom Group, France’s Alstom, Korea’s Hyundai Group, India’s Larsen & Toubro, and Australia’s Plenary Group.

“Small countries, big markets”:  GoalFore notes that the USD2 billion contract up for grabs for just the first phase of the project demonstrates that “even small countries have big markets.” The Middle East is becoming a major region for Chinese investors and construction companies as its wealthy economies move to diversify their economies away from reliance on oil and gas exports. In 2021 the Middle East and North Africa region was the largest destination for Chinese investments and EPC contract signings.