China comes to market: Trade reveals the symbiosis between mineral-rich PNG and the resource-hungry Asian giant

The Report: Papua New Guinea 2012 – Country Profile

The People’s Republic of China (PRC) has become an active partner of Papua New Guinea in recent years, and the close ties have risen each to prominence in the other’s homeland. PNG is China’s largest trading partner among South Pacific nations, while the Asian powerhouse has climbed to second place, behind Australia, in terms of trade volume with PNG. As a result, political relations between Beijing and Port Moresby have taken on new strategic significance.

A CLOSER FIT: Behind much of this is the global surge in Chinese overseas investment and interest that has followed the country’s growing appetite for minerals and energy. This rise in demand has coincided with PNG’s opening to wider and more diverse international trade and diplomatic relationships in Asia-Pacific as a whole. PNG was among the first countries to recognise the PRC, and the two nations exchanged embassies in 1976. Other milestones include a 1996 trade agreement, followed by a Memorandum of Understanding on the Promotion for Economic and Trade Cooperation, an Agreement on Fisheries Cooperation, and an Agreement on the Promotion and Protection of Investment. There are also agreements on double taxation and tax evasion. More recently, in 2010, a treaty on economic and technical cooperation was signed.

Within the framework of these agreements, Chinese investment in PNG has rapidly expanded. The flagship project for cooperation is the $1.5bn Ramu nickel and cobalt mine in Madang Province, which is due to hit maximum capacity in mid-2013. At that point, the mine should be producing some 31,150 tonnes of nickel and 3300 tonnes of cobalt per year, for a 20-year term. The Metallurgical Corp of China holds an 85% stake in the project (see Mining chapter).

Meanwhile, following a 2009 contract between Chinese energy firm SINOPEC and ExxonMobil, the country has purchased 2m tonnes of PNG’s natural gas every year. Indeed, at the end of 2010, the Chinese ambassador to PNG told the local press that trade between the two countries had reached over $900m per year.

FINANCIAL SUPPORT: China has also funded some major aid and development projects in PNG, including the construction of the Usino-Yamagi road with a grant aid investment of some PGK22m ($10.5m). This is located in Madang, where China also provided a soft loan to back up the Pacific Marine Industrial Zone (PMIZ). This $300m regional tuna fish trans-shipment and processing plant is financed in part by a $71m concessional loan from Exim Bank of China (see Industry chapter).

China has also been behind aid projects such as accommodation expansion at Goroka and Vudal universities, the Sir John Guise Stadium, the Wawin National High School, the Wewak Sports Stadium, the Papa Lealea road upgrade and the Hagen Agriculture Technical cooperation project. Many local students have also been awarded scholarships to study in China, while many PNG civil servants have also been provided with training by Beijing. As both countries face many similar challenges in development, the two have often found areas where experiences can be exchanged and programmes improved upon.

STRATEGIC COOPERATION: There has also been some military cooperation in recent times, with the Chinese People’s Liberation Army providing some training for the PNG Defence Force. From PNG’s point of view then, China has much to offer, and Port Moresby views relations with Beijing as an important part of its widening out perspective in its overseas relations.

In this context, PNG has tried to improve its relations with others in the region as well, courting the Association of South-East Asian Nations (ASEAN), for example. PNG gained observer status in 1976, and 10 years later signed a Treaty of Amity and Cooperation. Yet, with ASEAN concentrating on consolidation as it tries to move towards a single internal market, combined with the troubled relationship with Indonesia over West Papua – expansion to include PNG, and Timor Leste, has languished. Going forward, PNG may pursue closer ties with China, benefitting from the countries ongoing expansion of economic and diplomatic influence.

Countries: China and Papua New Guinea
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