No longer ‘hole of Asia-Pacific doughnut’, South Pacific eyes China trade deal


China and a group of South Pacific island countries could start talks this year toward their first formal trade agreement, according to an official from a regional network of nations.

But while such talks could provide a boost to Beijing’s offshore economic ambitions as U.S influence spreads in the region, a potential pact is not expected any time soon.

The idea of a trade deal is in its “embryonic stage”, said Zarak Khan, director of programmes and initiatives with the secretariat of the 18-member Pacific Islands Forum.

Feasibility studies have been carried out, he added, and forum members “are interested in getting more preferential market access for South Pacific goods”.

You can see that the South Pacific is keen to sign, and the world is paying attention to the South Pacific Zarak Khan, Pacific Islands Forum

“We need to know what the appetite is from the Chinese side,” Khan told the Post on Tuesday.

“You can see that the South Pacific is keen to sign, and the world is paying attention to the South Pacific,” he added. “The Pacific, for a long time, was neglected. Some people have said the Pacific was the hole of the Asia-Pacific doughnut, but discussions were happening on the periphery.”

Negotiations could span years. For instance, China began gathering support for the world’s biggest trade pact – the Regional Comprehensive Economic Partnership – in 2012. That deal, which was similarly seen as a bid to counter growing US influence in the Asia-Pacific region, took a decade to hammer out.

In the South Pacific, Khan said, China is especially seen as a source of aid, particularly in helping island countries cultivate digital economies.

“I think our leaders have been quite transparent in telling partners about the types of support that we need,” he said.

“China is world renowned for its ability in the digital economy area. This is of particular interest to the South Pacific, as some of the biggest companies in the world are operating in China, and we’re hoping they can share their capacity, in terms of business-to-business exchanges, with the Pacific region.”

The Fiji-based Pacific Islands forum, like the intergovernmental Asia-Pacific Economic Cooperation (APEC), steers policy for member nations across a 165.2 million sq km (63.8 million square mile) expanse of sea, but does not negotiate agreements with outside countries.

The island countries, many impoverished and saddled by high costs because of their remote locations, have said they want foreign help that creates jobs, reduces the impact of rising sea levels and revives tourism that stalled during the pandemic.

China is seen especially as a source of help setting up a “digital economy” in the Pacific, Khan said.

China and any number of South Pacific nations could pursue a free-trade agreement (FTA) that slashes import tariffs, he said, or consider a different kind of trade “modality” instead.

The Ministry of Commerce in Beijing did not respond to a request for comment.

In May, China signed 52 bilateral deals with South Pacific nations, largely in trade, tourism and economic development.

Founded in 1971, the Pacific Islands Forum is made up of Australia, the Cook Islands, the Federated States of Micronesia, Fiji, French Polynesia, Kiribati, Nauru, New Caledonia, New Zealand, Niue, Palau, Papua New Guinea, the Republic of Marshall Islands, Samoa, Solomon Islands, Tonga, Tuvalu and Vanuatu.

Access to South Pacific fisheries happens to be on China’s agenda, and Khan said some nations welcome Chinese help in processing tuna catches onshore.

“China seems to be focusing more on opening up the economy as a key economic policy this year,” said Zhang Zhiwei, a chief economist at Pinpoint Asset Management. “A trade deal would certainly help countries involved.”

Some Pacific Island states prefer closer ties to Australia and the United States, which have historical alliances, and they have established what are known as compacts of free association with Washington, outlining their relationships of free association.

Western countries have stepped up their own pledges of economic support as Chinese clout grows.

Between China and South Pacific countries, “the natural economic interaction between them is not in the sale of goods and services from one side to the other”, said Denny Roy, a senior fellow at the East-West Centre think tank in Hawaii.

“Rather, the islands want China to build infrastructure for them, and China wants fishing and basing rights,” Roy said. “An FTA could move China a step closer to achieving the tipping point of outweighing the influence of US-Australia-New Zealand over certain Pacific island states.”

The South Pacific is keen to sign, and the world is paying attention to the South Pacific Zarak Khan

The Chinese Ministry of Commerce indicates that China is working on – or has completed – joint free-trade feasibility studies with Fiji and Papua New Guinea. A Chinese delegation is expected to attend a forum in July for economic ministers, Khan said.

A China-centred trade pact would add to the Pacific Agreement on Closer Economic Relations Plus that was signed by 10 forum members in 2017 and ratified by three. Their deal covers goods, services and investment linked to the region’s wealthier, larger nations, Australia and New Zealand.

The European Union has separate economic “partnership” agreements on trade and development with Papua New Guinea and Fiji. Samoa and the Solomon Islands intend to join these deals, according to the secretariat’s website.

Khan said Tonga, Tuvalu and Vanuatu may sign on as well.

Singapore and the U.S have expressed interest over the past year in their own trade agreements in the South Pacific, Khan added.