Wellingtons strategic recalibration for a changing South Pacific region – Observer Research Foundation

Whether New Zealands new strategic direction will help it navigate its shifting relationship with China, while balancing security cooperation with the West remains to be seen

The South Pacific has been a region of geopolitical tussle since the World War II. Critical shipping lanes, untapped blue economy resources, and strategic ports in the island nations have further intensified regional competition. Historically, Australia and New Zealand have been the dominant powers in the region. The United States (US), an ally to both traditional Pacific powers, has also been an active partner here. Among these three major powers, the South Pacific has enjoyed a relatively stable environment conducive to development and economic progress. These traditional powers have also been wary of external forces trying to change the status quo in the South Pacific.

However, there is a new entrant. In recent times, China has intensified its engagement in the South Pacific, especially with the Pacific Island Forum (PIF) countries. China has engaged in chequebook diplomacy at large by providing the region with lucrative Foreign Direct Investment (FDI) inflows and developmental aid. Chinas focus on the PIF is understandable as, at one point, eight of its 14 members recognised Taiwan as an independent country. Today, only four recognise Taiwans independence.

China has intensified its engagement in the South Pacific, especially with the Pacific Island Forum (PIF) countries. China has engaged in chequebook diplomacy at large by providing the region with lucrative Foreign Direct Investment (FDI) inflows and developmental aid.

While Australia has treated Chinese incursions in the South Pacific as hostile, and successive governments since the Malcom Turnbull government of 2015 have made critical remarks about Beijings regional engagement, neighbouring New Zealand followed a different strategy. Unlike Canberra, Wellington embraced Chinas economic opportunities through its growing market and manufacturing base. Today, Beijing is Wellingtons largest trading partner, with bilateral trade reaching US$ 25 billion in 2022. However, as Chinas foreign policy assumes more aggressive tones, in the past six years, New Zealand too has become cognisant of the Chinese threat in the region. Successive governments have expressed concerns regarding Beijings military build-up in the region and the depth of Chinese investments in the South Pacific. This article analyses New Zealands strategic recalibration for the South Pacific and the geoeconomic factors that pushed Wellington to do so.

Commercial orientation drives the China-New Zealand bilateral relationship. In a rare case, New Zealand leads the Balance of Payments, with exports worth US$ 19.2 billion. Yet, New Zealands heavy reliance on China has created economic dependencies in the long run.

Exports to China comprise 35 percent of total global exports from New Zealand. As an export-dependent economy, China has become crucial to the island nations economic progress. Beijings imports mainly constitute perishable commodities such as dairy, meat and wood. As much as 45 percent of exports from these industries in New Zealand are directed towards China, making export returns from China essential. One in four New Zealanders depends on exports for livelihood, thereby making an amicable trade relationship with China an important foreign policy imperative. Another important economic linkage is the impact of the Chinese economy on global terms of trade. New Zealands terms of tradedifference in import-export prices for a countrys commoditieshave grown significantly, as Chinese economic heft has contributed to increasing export prices and Chinese industrialisation has contributed to lowering import prices.

China responded by decreasing its imports to New Zealand by 7 percent in 2023, resulting in a US$ 1.7 billion loss of export revenue for Wellington.

As a small state, New Zealand has historically refrained from directly criticising China over its South Pacific engagement and its increasing military build-up in recent years. Yet, Beijings increasingly domineering strategic policy in New Zealands backyard has prompted criticism from the Labour government between 2017-22. Former Prime Minister Jacinda Ardern raised concerns about Chinas aggressive engagement in the region at Washington DC as well as the Madrid Summit of the North Atlantic Treaty Organization in July 2022. China responded by decreasing its imports to New Zealand by 7 percent in 2023, resulting in a US$ 1.7 billion loss of export revenue for Wellington. Chinese state media also published pieces stating that New Zealands imports mostly consist of elastic commodities and can be sourced from elsewhere and that Wellington needs to weigh in its relationship with China while it builds rapport with the West.

Coupled with incidences of Chinese cyber espionage in 2018 and then again in 2023, the Chinese Communist Partys interference in domestic elections in 2019 and further economic bullying, the Labour government came out with the Pacific Reset policy in 2018, meant to provide a direction to Wellingtons earlier ambiguous stance vis--vis Chinese engagement in the South Pacific.

The policy unveiled New Zealands stance on the intensifying regional competition for resources and influence. Without mentioning China, the document stated that New Zealand faces compounding challenges of a scope and magnitude not previously seen in our neighbourhood. Under the policy, New Zealand stepped up its diplomatic presence and aid in the South Pacific with 14 additional postings in the region and a commitment of US$ 1 billion in developmental aid. The policy also implored security partners such as Australia and US to step up their military coordination with New Zealand in the region for upholding international law, order and the rules-based system.

New Zealand stepped up its diplomatic presence and aid in the South Pacific with 14 additional postings in the region and a commitment of US$ 1 billion in developmental aid.

Complementary to this policy, New Zealands government issued a notification concerning FDI regulation, giving Wellington the right to screen and stop any foreign investment for national security purposes. The July 2018 Strategic Defence Policy Statement further stated that Australia and US were its trusted security partners and expressed concern regarding Chinese ambitions in the South China Sea, North-east Asia, Antarctica, and South Pacific. These laws and national policy directions were seen in action in the same year, when Wellington banned Chinese tech company, Huawei, in domestic 5G rollouts.

Building on these policies and strategic directions, New Zealand released its inaugural national security strategy in July 2023, followed by the Defence Policy and Strategic Statement 2023 and Future Force Design Principles 2023, released in August 2023. These documents outline the countrys approach to a changing international order, and note the intensifying contestation between great-powers in its neighbourhood. The documents state that Beijing has sought to grow its political, economic, and security influence in the Pacific at the expense of more traditional partners such as New Zealand and Australia and that Chinas more assertive pursuit of foreign policy imperatives is the primary driver of global strategic competition and has contributed to a world where power is the norm instead of rules.

The inaugural strategic policy also expresses concern regarding Chinese involvement in strategic sectors such as port-building and airport construction in the Pacific.

These complementary policy documents suggest a shift in Wellingtons strategic outlook: shift towards its traditional security system of ANZUS partners; willingness of the government to counter Chinese ambitions and military buildup in the region; zero tolerance for security incidents such as cyberattacks, espionage and interference in domestic elections by Chinese actors. The inaugural strategic policy also expresses concern regarding Chinese involvement in strategic sectors such as port-building and airport construction in the Pacific. Some multipurpose port designs can be used for civilian and military purposes. It says that this would fundamentally alter the strategic balance in the region.

Wellington walks a tightrope between Western security alliances and its economic relationship with China. As mentioned earlier, New Zealands exports are heavily dependent on the Chinese consumer base. Yet, it needs to shore up Western alliances, for securing its surrounding seas, and providing an environment conducive for economic growth and investments. Australia and the US have already started mounting pressures on Wellington to join the second phase of AUKUS. Yet, economically the island nation is heavily dependent on Chinas burgeoning middle class that has lapped up the island nations exports and generated substantial export revenues. Between 2008, when the China-New Zealand Free Trade Agreement was signed, to 2022, exports from New Zealand rose eightfold. Wellington worries that Chinas authoritarian leadership might instrumentalise its economic leverage to gain political benefits or hinder Wellingtons alliance with the West.

Australia and the US have already started mounting pressures on Wellington to join the second phase of AUKUS.

For long, Wellington has followed a policy of pacification towards China, ignoring its inroads in the Pacific and purporting ambiguous statements about its role in intensifying competition and tensions in the region. While its military partner, Australia has been critical since 2016, New Zealands concerns have found sure footing only in 2018, with the ban of Huawei tech in 5G rollouts. In 2023, there seems to be consensus amongst Wellingtons policymakers to counter Chinas strategic inroads in the region while maintaining crucial economic ties. What remains to be seen is whether New Zealands new strategic direction will help it navigate its shifting relationship with China, while balancing security cooperation with the West.

Prithvi Guptais a Research Assistant with the Strategic Studies Programme at the Observer Research Foundation

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Wellingtons strategic recalibration for a changing South Pacific region - Observer Research Foundation