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Papua New Guinea

Papua New Guinea

The largest and most populous Pacific Island nation, Papua New Guinea is one of China’s most important diplomatic and economic partners in the region, but it is now caught in the crosshair of geostrategic competition between China and the traditional global powers.

Papua New Guinea

Written by Denghua Zhang.
Updated on 29 June 2021.

Historical Background

The largest and most populous Pacific Island nation, Papua New Guinea (PNG) established diplomatic relations with the People’s Republic of China (PRC) on 12 November 1976, one year after achieving independence from Australia. In October 1980, China opened its embassy in the capital, Port Moresby, while PNG opened its embassy in Beijing in April 1988.

In the context of China’s rapid inroads into the Pacific after Chinese Premier Wen Jiabao visited Fiji in 2006, the bilateral relationship between the PRC and PNG has grown rapidly. The Chinese Government regards PNG as one of its most important diplomatic and economic partners in the region. In November 2018, Chinese President Xi Jinping paid a state visit to PNG and attended the Asia-Pacific Economic Cooperation (APEC) Summit in Port Moresby. During the visit, President Xi met with leaders of China’s eight Pacific Island partner countries, including PNG, and upgraded the China–Pacific relationship to the level of a ‘comprehensive strategic partnership’—one of the highest categories of bilateral relations in China’s diplomatic jargon. China and PNG also signed 14 memorandums of understanding, covering areas such as visa exemptions for diplomatic and official passport holders, grant aid for economic and technical cooperation, and trade promotion. This was Xi’s second visit to the region as China’s president after he visited Fiji in 2014.

Considering China’s economic power and global influence, the PNG Government lists China as a major partner of cooperation and a focus of its ‘Look North’ policy[IF1] , which was designed in the 1990s to strengthen ties with major Asian economies. China has since become a popular destination for leaders and high-level officials from PNG. Between 2006 and 2020, the late PNG Prime Minister Sir Michael Somare (in office 1975–80, 1982–85, 2002–10) and his successor, Peter O’Neil (2012–19), paid two and seven visits to China, respectively, to seek opportunities for cooperation.

People-to-people links between PNG and China have also grown. PNG is home to the largest Chinese diaspora (about 20,000 people) in any Pacific Island nation. According to the author’s calculations, based on news reports published on the website of the Chinese Embassy in PNG, by the end of 2019, 474 PNG students had received Chinese Government scholarships. A growing number of PNG students have also chosen to pursue tertiary education in China at their own expense. In terms of tourism, concerns about high crime rates in Port Moresby have constrained Chinese tourists’ interest in PNG. In 2017, only 9,611 Chinese[IF2]  visited PNG, which lags well behind Palau (57,866) and Fiji (48,796) as China’s top-two tourist destinations in the Pacific.

BRI Status

Due to its large size and huge demand for infrastructure upgrades and maintenance, PNG is a priority in China’s rollout of the Belt and Road Initiative (BRI) in the Pacific. In June 2018, Prime Minister O’Neil paid an official visit to China and signed on to the BRI. Based on the joint press release, the two countries pledged to synergise PNG’s Development Strategic Plan 2010–2030 with the BRI and China’s Thirteenth Five-Year Plan (2016–20). Prime Minister O’Neil also attended the second Belt and Road Forum in Beijing in 2019, making him the second leader of a Pacific Island country to attend the summit, after Fijian Prime Minister Frank Bainimarama attended the first forum in China in 2017. The PNG Government sees the BRI as an opportunity to seek financial assistance to develop its economy, especially in rural areas. Some of the large infrastructure projects undertaken by Chinese contractors in PNG include the upgrade and maintenance of a highway between Lae Nadzab in Morobe Province and Henganofi Bridge in Eastern Highlands Province (worth 1.015 billion USD) and the upgrade of Mendi Airport in South Highlands Province (worth 8.1 million USD). To facilitate bilateral financial cooperation, in October 2018, the Chinese Government approved a plan by the Bank of China to establish a branch in Port Moresby, making it the first Chinese financial institution to have a presence in PNG.

Current Economic Relations

Trade: Figure 1 provides an overview of bilateral trade between PNG and China, based on the World Bank’s WITS database. Trade between the two countries in both directions has experienced notable growth since 2006. By 2018, PNG had become China’s most important trading partner among the Pacific Island countries and the largest exporter to China from the region. That year, its exports to China reached 2.819 billion USD, which accounted for nearly 80% of the region’s total exports to China. As PNG is endowed with rich mineral and energy resources, PNG’s main exports to China are mineral products and liquefied natural gas (LNG). Since 2014, PNG has exported 2 million tonnes of LNG to China per annum—a deal that will last 20 years. PNG is the second-largest importer from China among Pacific Island countries, second only to the Marshall Islands. In 2018, PNG imported 786.9 million USD worth of goods from China, which was equivalent to 21% of the whole region’s imports from China combined. PNG’s main imports from China include electrical machinery and iron and steel products. It is important to note that compared with most Pacific Island countries, PNG is among the few that enjoy a trade surplus with China: in 2018, the country had a surplus of 2.032 billion USD in its trade with China. To put these figures in context, in 2018, China, with a proportion of 17.4%, was the third-largest export market for PNG, behind Australia (20.1%) and Singapore (18.2%). China, with a proportion of 16.6%, was the second-largest source of imports for PNG, after Australia (34.2%).

Figure 1: PNG–China trade in 2007–18

Source: Compiled by the author based on the World Bank WITS database.

Investment: PNG is the leading destination for Chinese investment among the Pacific Island countries. Investment from China is concentrated in mining, retail, infrastructure, and forestry. For example, with an investment of 1.400 billion USD from a joint venture majority owned by the Metallurgical Corporation of China, the Ramu nickel mine is China’s largest single investment in the Pacific Islands. China’s Zijin Mining held a 47.5% stake (298 million USD) in the Porgera goldmine project, with Canadian mining company Barrick holding a matching share. This project made headlines in 2020, when the PNG Government threatened to cancel the mine’s licence, leading to a renegotiation of the holding in which the government share increased to 51%, although the Barrick–Zijin joint venture will continue to manage the mine. By 2019, China’s direct investment stock in PNG was 1.921 billion USD[IF3] , which represented nearly 40% of the total foreign investment stock in PNG (4.843 billion USD[IF4] ). However, as Figure 2 shows, China’s yearly investment inflows to PNG experienced significant fluctuations between 2007 and 2019, and even recorded net decreases of 79 million USD and 64.7 million USD in 2018 and 2019, respectively. Moreover, in 2019, PNG’s new Prime Minister, James Marape (in office since 2019), announced his intention to promote the ‘Take Back PNG’ policy focused on increasing PNG’s gains in the resource sector. The long-term impact on foreign investment including from China is yet to be seen, but the Porgera goldmine project indicates that Marape is willing to take strong actions in this regard.

Figure 2: Chinese Annual OFDI Flows to Papua New Guinea

Source: Chinese Ministry of Commerce.

Aid: China is a major aid donor to PNG. In 2018, China’s aid (including grants, interest-free loans, and concessional loans) to PNG exceeded 103.37 million USD, making China the fourth-largest donor to the Pacific country behind Australia (453.9 million USD), the Asian Development Bank (203.72 million USD), and the World Bank (192.37 million USD). In terms of aid forms, Chinese aid to PNG is dominated by concessional loans and grants. Examples of large-scale infrastructure projects funded by Chinese concessional loans include the construction of a dormitory for the University of Goroka and road upgrades in Port Moresby. Chinese grant aid projects are typified by the Sir John Guise Stadium (opened in 1991) and the International Convention Centre, used by the PNG Government to host the 1991 South Pacific Games and the 2018 APEC summit, respectively. China is also providing aid to PNG to combat the COVID-19 pandemic. Donations from China include 300,000 USD in cash, medical equipment, and a pledged donation of 200,000 doses of China-made vaccines.

Other Finance: On 7 August 2019, The Australian newspaper reported that about 7% of PNG’s government debt, amounting to 870 million AUD (586.2 million USD), was owed to China. However, data on the breakdown according to concessional loans (which are a component of Chinese aid) and commercial loans are unavailable.

Key Controversies

A major controversy relates to the growing number of ‘new-generation’ Chinese retailers who have arrived in PNG since the 1990s. Their dominance in the retail industry, coupled with other issues such as selling cheap but substandard goods and inadequate engagement with local communities (in contrast to the practices of ‘old-generation’ Chinese migrants who arrived before the 1990s), has caused substantial resentment among the local population in PNG. This was one of the factors that led to riots in PNG cities like Lae in 2009, with many Chinese businesses being affected.

There are also concerns about the employment of large numbers of Chinese workers in aid and contracting projects in PNG and their lack of English/Tok Pisin language competence, which are exacerbated by existing challenges [IF5] such as corruption and the weak capacity of PNG institutions. Local communities and civil society groups have also expressed concerns about the environmental impact of some Chinese projects, such as the deep-sea dumping of waste by the Ramu nickel mine, which has been a controversial project for many years and has met with fierce local resistance.

As the geostrategic competition between China and the traditional global powers heightens, China’s activities in PNG have fallen under the spotlight. A recent example is a reported plan by the (private) Fujian Zhonghong Fishery Company to establish an industrial fishing park in PNG’s Western Province. This raised alarm in Australia, with policymakers suggesting the project could pose a security threat to Canberra and threaten fish stocks.

Key Sources

English-Language Media:

Institutions and Websites:

Books, Reports, and Academic Articles:

Chinese Ministry of Commerce. 2019. 对外投资合作国别(地区)指南: 巴布亚新几内亚 [Guide for Countries and Regions on Overseas Investment and Cooperation: Papua New Guinea]. Beijing: Ministry of Commerce. Link.

D’Arcy, Paul, Patrick Matbob, and Linda Crowl (eds). 2014. Pacific–Asia Partnerships in Resource Development. Madang, PNG: Divine Word University Press.

Mitna, Philip. 2018. ‘Factors Influencing Papua New Guinea’s Foreign Policy in the Twenty-First Century.’ PhD thesis, The Australian National University, Canberra. Link.

South Pacific Tourism Organisation. 2018. Annual Review of Visitor Arrivals in Pacific Island Countries 2017. Suva: South Pacific Tourism Organisation. Link.

Cover Photo: Stilt houses in Port Moresby, Papua New Guinea. Credit: (CC) gailhampshire.

Updated on 29 June 2021.

Denghua Zhang is a Research Fellow at the Coral Bell School of Asia Pacific Affairs, The Australian National University. His research focuses on Chinese foreign policy, foreign aid, and China’s relations with the Asia-Pacific region, especially the Pacific. His book A Cautious New Approach: China’s Growing Trilateral Aid Cooperation was one of ANU Press’ top ten new releases in 2020.