Not so Pacific Islands

Not so Pacific Islands

by Pininvest Analysis

South East Asia Emerging Countries Funds on

  • 7 constituents
  • -19.5% 1y performance
  • 34.9% volatility
Check the investment theme exit_to_app


Pacific islands are - figuratively - linked in two extensive chains ringing China by the contingencies of geography and by quirks of history

In American and Chinese perspectives,  the meaning of the island chains winding alongside the Asian landmass, from the north of Japan to the Pacific Islands and to Australia, are bound to differ

Contrasting sensitivities do not necessarily have to be confrontational, but the ambition of China to project power in its near- and far- abroad is a game-changer in the Pacific region

Unease in the large and populous countries along the "chain", from Japan to Indonesia,  may quicky highten security concerns, vindicating sharp increases in military preparations before long

Without any fallback position, the archipelagos of small islands across the Southern Pacific do not have much of an option, delaying for now and preparing to align with the most forceful strategic patron later





In the views of American strategists and military, the first island chain draws a continuous line, no more than two hundred nautical miles from the Chinese coast, from the Ryukyu Islands  and Okinawa (south of Japan's mainland) along the western seaboard of the Philippines and Malaysia before reversing along Vietnam – rounding the South China Sea

Source -  US Department of Defense 2011 report (p. 23)

The second island chain, across the Philippine Sea, is, in a way, a figurative link between Pacific Islands, a wavy line from Central Japan (Yokota air base and Yokoska naval base) down to the Indonesia’s Western New Guinea (Manus Island base) by way of the Marianas and the scattered islands of Micronesia... were it not for Guam

This is because this "island chain" is essentially a pivot around the island of Guam, American territory gained following the Spanish-American war in 1898

For the U.S., Guam is a hugely important strategic military operating base, earning its nickname ‘the tip of the spear’ during WWII’s Pacific campaign, a  military air base with a two-mile long runway, huge munitions and fuel storage facilities, and a naval base, home port to four nuclear-powered fast attack submarines


And China...

In the Chinese perspective, the description of the chain links is hardly different, except for the fact that the US military base locations appear to be material proof, blocking China's outreach

credit Defense News 2016

By focusing attention on the American military presence, the map drawn by the Chinese Navy (PLAN) is in many ways revelatory of China's security constrictions

The first island chain, marked as a 'hard' barrier, links the entire US military base system off the coast of China, including South Korea and Japan, and merges with the second island chain in central Japan, branching up North

  • Extending  all the way to the Russian Kamchatka peninsula, the Chinese thinking appears to put the Sea of Okhotsk "in play"
  • Located north of Japan, the Sea has been a sensitive area of confrontation between Russia and the US during the Cold War, since the 1980's a stronghold for Russian nuclear-powered ballistic missile submarines, engaging the Chinese Navy today in training and operation drills, all in the vicinity of Japan
  • Unsurprisingly, the Chinese 'chain' skirts (more or less) the east coast of Taiwan (ocean side), marking China's sphere of influence
  • Vietnam, where the US do not have any military  base but access the Cam Ranh Bay facilities for navy repairs, is ignored 

The dotted line, faintly visible on the map, asserting China's sovereignty over the maritime domain from the east coast of the Philippines to Borneo and reverting along the Vietnamese coast, encompassing the South China Sea, paints the clearest picture of potential confrontation

Compared map reading of the island chains tell different stories which, in China's strictly military interpretation, is only proper

  • American military infrastructures may be large, especially at Guam, but are limited in number
  • While running the risk of reading too much in a single map, one cannot dismiss entirely the perception that the second chain is an after-thought, lacking strategic credibility in the Chinese perspective


By simply linking the well-known locations of US air and navy bases in Asia, 'island chains' never would, by themselves, provide any information 

And yet, revealed by map similarities and differences, the tenets underlying military as well as commercial perspectives  in both China and the US are growing apart


The tenets behind chain links

In a 2016 paper entitled Barriers, Springboards and Benchmarks: China Conceptualizes the Pacific “Island Chains”, co-authors A. Erickson, of the China Maritime Studies Institute at the Naval War College and J. Wuthnow of the National Defense University point at ways of thinking the island chains in the Chinese perspective


Benchmarks, in a territorial sense, measure the extent of China's influence and, as national goals unfold over time, the significance attached to these benchmarks will portend instability

By spelling out the basic tenets underlying benchmarks, Chinese and American national expectations might be monitored with some caution and clarity

Potential responses to disruption as well as attainment of a new equilibrium have to embrace these tenets, shaping the island chains as barriers constraining China's ambitions, while marking them simultaneously as springboards for offensive

Fostering insecurity, a 'new' equilibrium seems destined to look like stalemate between a legacy power, the US, digging in, and an emerging global power, China, set on renewing the regional order


Barriers - a military stalemate

From a military perspective, stalemate is the most probable outcome in the medium term because American capacity still remains overwhelming

By weaponizing the shoals in the South China Sea, China has probably achieved its most pressing military objective, countering the US in what could turn out to be the weakest segment of the American regional alliances, the Philippines

  •  For China, the real prize would be control over Taiwan because military bases on the island open unfettered access to the Pacific Ocean, weakening fatally the entire US defense system, inherited from the WWII American victory

For America, reinforcement of regional alliances is likely to require much flexibility in updating existing bilateral agreements

  • A quadrupling (or more) of the contributions currently honored by Japan and South Korea for US base upkeep, as recently requested by the US Administration, is absurd but significant upgrade of their own national military capacity is not and  military build-up, integrated with the American deployment, can reinvigorate old alliances
  • Even the weakest link, the Philippines, might be brought back in the American alliance system with strong and purposeful US negotiators, the reopening of the vast naval base of Subic Bay being the ultimate prize


Iron against iron, military tension along the Chinese coast is not any less perilous because it remains latent

It is not farfetched to imagine how China's growing naval power presses against the first island chain repressing its global ambitions, compounding the value of a 'breakthrough' of which Taiwan would be the likely target

Neither is it improbable to suggest that America, challenged by China's grievances, will double down and 'hold the fort' by requiring forceful military commitments of its allies

Constraining China's military ambitions is a tactic which will do for a while, but not a strategy resolving the tension of which the island chain as barrier is the lasting symbol

A military stalemate remains inherently weak because the positions will be worn down over time, and disruption is all but certain if one party to the confrontation manages to place military objectives in a broader context

China's path to achieve its global ambitions certainly appears to adopt such a two-pronged strategy, asserting military power behind walls and letting trade flows trickle beyond, across the island archipelago's of the Pacific 



Trade policies on the Pacific Islands, driven by the commercial attraction of the Chinese mainland market for local industries, on investments in infrastructure and on steady but closely managed flows of tourism, have lent themselves to much comment from Western analysts

In truth, Chinese presence across the region dates back hundreds of years, a fact which should not raise any new flag....and not surprise anyone

Where Chinese trade loses in credibility what it gains in strength of purpose is in the heavy-handed approach of a global game plan, or just the assumption such a plan exists...

Seductiveness of Chinese trade offers may be irresistible on mostly impoverished islands but, the less they weigh, the more clear-eyed islanders become of the price to pay, sooner or later

Observing the presence of Chinese business across the South Pacific, more or less loosely attached to the Belt and Road infrastructure initiative, there is no doubt trade projects Chinese influence

Recognizing the positives of the trade is no less desirable than rebuking the abuse of overweening Chinese influence in local affairs

Abiding by guidelines of responsible aid may be a stretch, but steadfast support of transparent foreign investment and trade, linked to the aid Australia and others continue to provide, could redress the balance


Reaching beyond 'island chains' by non-military means, Chinese trade policies have caught the region's established powers, foremost Australia, New Zealand and the US, wrong-footed

  source Congressional Record Service  -  credit

The battles waged in the distant Pacific Islands may be bloodless but they are no less decisive 

The Chinese outreach across the region should be recognized for what it is, a  campaign to gain the upperhand in political and economic affairs, influence writ large


The Western Pacific Islands, on the 'second Island Chain', are formed by Guam (US territory), the Commonwealth of Northern Marianas (CNMI) and three Freely Associated States—Palau, the Federation of Micronesia (FSM), and the Republic of the Marshall Islands (RMI)

The Marianas (CNMI) are placed under US sovereignty, with US citizenship of its residents and of people born on the islands, a US-based legal system with appeals taken by the Ninth Court (Central California) and a non-voting delegate at the US House of Representatives (but without representation at the US Senate)

The three Freely Associated States are tied to the US under Compacts of Free Association (COFA), providing that no foreign militaries have access to the territories and the US provide financial support , visa-free travel and the right to reside in America

Of the later three, only the Federation of Micronesia has recognized the People's Republic of China (PRC) since 1989


Ocean-wide, beyond the second Island Chain, Chinese economic influence is signaled in part (but in part only) by the diplomatic switch from recognizing Taiwan to the PRC

Following diplomatic recognitions in the late 70's and early 80's by newly minted independent countries, asserting their political freedom, China has been making inroads in the late 1990's and significant 'wins' in 2019 (Solomon Islands and Kiribati) following an apparent 15-year 'lull'

These diplomatic breakthroughs by China have to be placed in context of tenacious efforts to gain support with economic and financial contributions

  • Fidji - 1975
  • Kiribati - from 1980 to 2003 - breaking off relations with the PRC after a dispute about a land lease which had enabled Beijing to maintain a satellite-tracking station in the country since 1997 - recognizing the PRC again in Sept. 2019
  • Nauru - from 1980 to 2002 - maintained diplomatic relations with Taiwan (ROC) since 2002
  • Papua New Guinea (PNG) - since 1976, when PNG gained independence
  • Samoa - since 1975
  • Solomon Islands - since Sept. 2019
  • Tonga - since 1998
  • Tuvalu - since 2004
  • Vanuatu - since 1982

In free association with New Zealand , the Cook Islands became a state in 1965 and the island of Niue in 1974, with diplomatic relations to China (PRC) respectively in 1997 (China being the first country to do so) and in 2007


A trade manifesto 

Dwindling diplomatic recognition of Taiwan may bring some symbolic vindication to China (PRC) but hardly matters in a hardheaded scope

Influence exercised by way of trade, local investments, infrastructure subsidies or social-econonmic support is more promising because China enjoys an advantage and because legacy Western powers have been lording over the island territories with a measure of 'post-colonial' neglect


China's advantage is geographic, economic and demographic, which, taken together, hold irresistible promise

Relative proximity to the continental China is turning island tourism into flourishing service industries, magnified by the smallness of the islands and the size of visitor cohorts

By virtue of their proximity with China mainland, the Northern Marianas (which are under U.S. sovereignty), benefited from the 2014 opening of a Chinese-owned casino by Best Sunshine in Saipan (population 50,000) - perceived as highly favorable locally with more peripheral Chinese businsses opened in its slip stream. Author G. Newsham further notes that  Chinese efforts to rein in Macau casinos to prevent capital outflows from China do not apply to Best Sunshine, despite extremely large sums of money moving from China through the Saipan casino (pdf case study 3 page 20)

Another example of 'casino policy', quoted by Mr. Gresham involves an even smaller island of the Marianas - Tinian (population 3 500) - of which the US lease two-thirds of territory.  Requests for the project to go ahead, that the military limit their activities because of their negative impact on 'tourism', would be amusing if they were not shared by the local population, eager for the economic potential

Tourism presents the additional merit - in a Chinese perspective - of remaining under official control at little cost - as Palau (population 20 000) discovered. While still recognizing Taiwan, China placed the island on the list of approved overseas destination in 2014, boosting tourism (50% of visitors were Chinese in 2015) and Chinese supporting services (hotels and restaurants) until the island was placed off-limits for packaged tours in 2017, collapsing the nascent tourist industry in the reversal


Economics can also be equated with access to natural resources, of immediate interest for China with the added advantage of installing powerful stakeholders in small insland economies

Contributing more than 60% of the global tuna catch, the Pacific tuna fishing grounds are the largest in the world and a lucrative business.  A strong Chinese commercial presence dominates the fishing industry in the Marshall Islands and Chinese industry reaches across the entire Pacific, stirring protests as far as French Polynesia about the increasing presence of Chinese fishing vessels

According to a Food and Agriculture Organization study completed in 2014, and cited by J.Burton in (July 2019), South Pacific island countries together received just over a modest US$340 million in fishing licence fees that year while tuna remains a vital source of food and employment for local people

Commodities offer many more attractions of which China is extremely keen

Case in point is Bougainville, an island of Papua New Guinea (PNG) striving for independencen which lead up to a December 2019 referendum supported by 98% of the vote (only 2% of the 181,067 voters supported the second referendum option of “greater autonomy”). On the island, the Panguna mine, recently valued at US$58 billion, developed by Bougainville Copper Ltd (BCL), a Rio Tinto subsidiary, provided about half the island's revenue until its closure in 1989, following refusal by the autonomous government to extend the licence. China has offered a development package including the construction of an airport, highway and bridges, contingent on collateral from long-term mining revenue

The way it goes....

Chinese interest in the nickel and copper of PNG is likely to extend to the same commodities  in resource rich French New Caledonia (subject of a special note to be published shortly) while mining of the  Oceanian deep seabed cannot be ignored much longer


By embedding Chinese business deeply in local economies which they come to dominate, Chinese influence pervades island politics across Oceania, providing support for infrastructure and vanity projects of local politicians, with rumblings about corruption

Successful by itself, the Chinese 'trade manifesto' can be expected to gain further traction in coordination with security and military priorities

Economic influence in the Marianas inserts Chinese interests in the second island chain, between two US allies, Japan and Australia and next to Guam

But, with the exception of Vanuatu, China has not managed to leverage economic contribution for geostrategic purpose, such as its position on the South China Sea

Chinese military presence in the Southern Pacific is discussed - and denied by Vanuatu where Chinese companies were said to be negotiating an investment in dual-use (civilian and military) deep water port facilities in Vanuatu (as well as on Samoa) according to Mrs N. Rolland - case study 4 (page 33)

It remains that Western powers cannot ignore  the new reality as the Belt and Road Initiative spreads across Ocenia, facilitating infrastructure investments in ports and airports, in communications by undersea cables and the Beidou-3 satellite system, mandating dual-use and military involvement by nature...


In the short term (approx. since 2014), a decisive push has contributed to China's two-pronged strategy, military in the South China Sea and economic across the Pacific, but its success owes as much to the void left by distracted legacy powers

Western allies may have paid some attention to the diplomatic tug-of-war between China and Taiwan as the back-and-forth engagement of some island-nations seems to suggest (Kiribati, Nauru, Solomon Islands)

China may be tempted to load some of the island nations with excessive debt, but a 2018 study by R. Fox and M. Dornan concludes that, with the exception of Tonga, Samoa and Vanuatu, debt traps have not been sprung (and hardly by China alone in these cases). The opportunity could arise to gain control over precious commodities, as in Bougainville, but financial burden might not be the risk to island-nations it is made out to be


However, framing competion with China in strictly geostrategic terms may be missing defining issues for the near future

The central issue around which islanders converge, and which might cement a trusting relationship, is not financial, nor Chinese overbearing influence -  it is climate change, leading to more extreme weather during the cyclone season, a decline in tuna populations (related to ocean acidification) and rising  sea levels (at least eight low-lying islands have been submerged in recent years)

 Central to discussions at the latest Pacific Islands Forum (Aug. '19) of 18 Pacific nations (incl. Australia and New Zeland next to the island-nations), climate change policies - and lack thereof - led to bitter confrontation and, ultimately, to Australia and New Zealand vetoing all references to coal and efforts to set specific emission targets in the final joint communique

While the Australian stance is familiar (the country has, with the US, the largest carbon-emission per person) and China's support of the Pacific nations mildly hypocritical (the country is world's largest emitter in absolute terms), the rift with the island-nations must be mended with urgency, on terms fitting the outlook of these small nations

This nagging conclusion opens an array of policies which may be unassuming on a global scale, but valuable for their beneficiairies across the Southern Pacific, as we hope to discuss in our follow-up note