Amid intensifying competition in the region, Australia is bankrolling a Chinese government-backed construction company with a chequered history to build Nauru’s new port.
In January, the Chinese Communist Party’s news organ had happy news for the Pacific island nation of Nauru following its decision to align with Beijing and ditch its diplomatic recognition of Taiwan.
The Global Times pointed to the work of a Beijing-controlled company behind an $80 million (US$51 million) port project in Nauru, China Harbour Engineering Company, and quoted a senior official hinting that China’s largesse could extend beyond trade and investment to security.
Beijing would not “set restrictions for fields of our co-operation”, a Chinese Foreign Ministry spokesperson told the Global Times when asked if Nauru might sign a policing deal with China.
The Aiwo port overhaul is just one of China Harbour’s key infrastructure projects across the South Pacific and elsewhere in the developing world.
Something that sets it apart from others is that a good chunk of its funding – $20.7 million (US$13.3 million) out of the redevelopment’s total budget of $80 million (US$51 million), according to Nauruan budget papers – was provided by Australia via the multilateral Asian Development Bank (ADB), which is co-ordinating the wharf rebuild and which oversaw the selection of China Harbour as lead contractor.
The revelation raises questions about why Australia is bankrolling a project that, while aiding an impoverished neighbour in Nauru, may be advancing China’s regional interests.
There are also concerns about the conduct of China Harbour. This masthead has seen classified reports that detail serious probity issues with China Harbour’s use of some of the project’s funds.
According to the documents, authorities in Australia have traced a “suspicious” series of payments totalling $500,000(US$322,000) from China Harbour in the first half of 2020.
The money passed through an Australian bank and landed in the account of the brother of a high-ranking Nauruan official who has played a key role in the port project and has been a driver of Nauru’s historic decision to shift its support towards China.
Added to these secretly held concerns in Canberra are better known problems with the port project, which has run years over time and millions of dollars over budget.
The Lowy Institute’s pacific director, Meg Keen, said the revelations about the Nauru port project go to the heart of an intense debate in Canberra about whether multilateral institutions need major reform.
The Asian Development Bank (ADB) counts Australia, the U.S and Japan as its biggest funders but also includes China as a member.
The public part of this debate has focused on questions of price and quality, with Australia’s international development minister, Pat Conroy, last year warning of projects going to cut-price bidders in the absence of due diligence.
Wider political questions are also emerging. Earlier this year, the Australian Financial Review reported that Treasurer Jim Chalmers had discussed concerns with his Canadian counterpart that another multilateral institution, the Beijing-led Asian Infrastructure Investment Bank (AIIB), was dedicated to furthering the Chinese Communist Party’s geopolitical ambitions.
U.S strategic affairs analyst Thomas Shugart has previously warned that Australian and US funding of South Pacific infrastructure projects – often via the Asian Development Bank – that are won by companies such as China Harbour might be helping China gain a strategic foothold in the region.
Former senior U.S official Charles Edel, the inaugural Australia Chair and a senior adviser at the Centre for Strategic and International Studies, said the Chinese government’s claims that companies such as China Harbour were purely commercial should be viewed sceptically given Beijing’s strategic aims.
The Lowy institute’s Keen says Canberra must drive reform at the Asian Development Bank to ensure its projects deliver quality development in the Pacific.
“In this region, the need for infrastructure is enormous, and Australia must go into collaborations via bodies like the ADB to meet this massive need,” says Keen. “But Australia needs to push for greater accountability and quality control, especially when Canberra’s money is involved.
“Quality control and anti-corruption rules need to apply to whoever wins a project, be they Chinese or Australian.”
Keen says that Canberra’s efforts to reform the Asian Development Bank should not be aimed at “excluding China”, noting that its state-owned enterprises do both “good and bad projects” around the world, as do Australian companies.
Australian firms have also been involved in corruption claims in the Pacific: in Nauru, Gold Coast mining company Getax allegedly bribed at least half a dozen politicians, and Australian offshore asylum seeker processing companies have also faced corruption allegations.
While Australian authorities have sought to hold wrongdoers to account, albeit with limited success – Getax is facing charges in Queensland after a much-delayed federal police probe – Chinese state-owned companies typically enjoy the protection of Beijing.
The Chinese company building Nauru’s port, China Harbour, has been the subject of numerous scandals.
It is a major player in Beijing’s grand global infrastructure gambit, the Belt and Road initiative, and has faced multiple allegations of bribery and corruption to win projects.
In December 2021, the Asian Development Bank banned China Harbour, which did not respond to a request for comment, from participating in new bank-funded projects for two years over bribery allegations in Bangladesh.
That same year, U.S President Joe Biden reaffirmed financial sanctions announced by his predecessor, Donald Trump, targeted at China Harbour’s majority owner, the Beijing-controlled China Communications Construction Company, for its roles as a “Chinese Communist military company”.
China Harbour’s parent company was also debarred by the World Bank in 2009 for eight years over claims of corruption in the Philippines.
According to a Chinese website promoting the Belt and Road initiative, China Harbour has won key infrastructure projects after “cultivating the South Pacific Island market for many years”. The company has won key airport and harbour upgrades in Papua New Guinea and a university expansion project in Solomon Islands, and faced a storm of publicity in 2018 in connection to the redevelopment of a Sri Lankan port.
In a statement, the Asian Development Bank said China Harbour had been selected by Nauru following a tender process that the bank reviewed and endorsed. It said it was not aware of the suspicious payment and asked for relevant information to be shared.
Blake Johnson, senior analyst at the Australian Strategic Policy Institute, said companies such as China Harbour had delivered substandard projects in the region for years.
“The Australian government should invest in supporting greater conversations and the sharing of experiences between Pacific governments on infrastructure projects to grow the region’s understanding of the potential risks and consequences of engaging the services of certain corporations that regularly underperform, regardless of ownership,” he said.
China Harbour’s involvement in Nauru’s port redevelopment, as well as a major solar energy project on the island, has received minimal publicity in Australia, even though taxpayers here are paying for part of the port project.
The Australian government has recently moved to consolidate ties with Nauru, promising it would continue funding the island’s asylum seeker detention centre under a deal worth $350 million a year. Conroy visited the country in January promising to tighten security ties and help tackle problems in Nauru’s banking system.
The Nauru government did not respond to questions about the project, while the relative of the senior official who received $500,000(US$322,000) in funds from China Harbour dismissed questions about the “suspicious” payment.
He explained the transactions by saying that Australia’s Bendigo Bank had refused to allow the Chinese company to move funds to Nauru, so he offered his personal bank account as a way of enabling the firm to shift money to the Pacific Island to build the port.
The relative, who this masthead is not naming for legal reasons, said his bank account was later shut down by Bendigo Bank after he received the $500,000(US$322,000). Banking documents show Bendigo Bank believed the transfers were suspicious.
In response to questions about the payments and China Harbour’s Nauru projects sent to Foreign Minister Penny Wong, a DFAT spokesperson said: “The Australian government is working closely with Nauru and other partners, including the Asian Development Bank, to address challenges relating to the Asian Development Bank-led Nauru Port Redevelopment Project, including significant project delays.”
The spokesperson said Australia had no tolerance for fraud and corruption in the aid program.
“We work closely with delivery partners to minimise the risk of fraud and corruption in the implementation of our development assistance,” the spokesperson said.
