Construction projects in PNG increasingly being developed by Chinese firms

China’s Belt and Road Initiative (BRI) is becoming one of the main drivers of construction activity in Papua New Guinea. Local media reported that China has overtaken Australia as the largest donor to the South Pacific region, pledging $4bn in 2017; however, the nation’s growing presence in the region has also raised some concerns.

Mixed Benefits

Although a number of large-scale infrastructure projects have commenced as a result of the BRI, the majority of these have been awarded to Chinese companies, and contractors often bring in their own workers rather than employing PNG’s local workforce. These factors are creating increasingly high levels of competition for local firms.

China’s growing influence in PNG has raised similar concerns among Western allies, particularly Australia. While little has been done to publicly counter China, a few steps have been taken in crucial areas. The Australian government successfully shut Chinese firm Huawei out of the tender to construct a submarine cable linking PNG to Australia and the Solomon Islands. Nonetheless, in August 2018 it was announced that Chinese interests will indeed fund and construct the domestic portion of the cable connecting Port Moresby, Alotau, Popondetta, Lae and Madang. The Export-Import Bank of China is providing PGK661m ($206.4m) of funding, and Huawei is the main contractor.

Despite the concerns of some local and foreign stakeholders, relations between Beijing and Port Moresby remain strong, and Chinese influence in the construction sector appears set to continue. In June 2018 Prime Minister Peter O’Neill formally signed PNG’s commitment to China’s transnational BRI during his visit to China, making PNG the second Pacific country after Timor-Leste to do so.

Domestic Perspective

There are a number of other high-profile, Chinese-led projects being carried out in the country. The Noble Centre, for example, is considered an indicator of PNG’s recovery. The 23-storey structure, being built in downtown Port Moresby, will be the tallest building in PNG when it is completed in 2019. China Railway Construction Engineering Group PNG Real Estate Company is the developer of the PGK250m ($78m) project, and China Railway Construction Engineering is the main contractor. The building will have 11 floors of office space and 220 car parking spaces.

Chinese interests are involved in a number of other essential national infrastructure developments as well, with Australian think tank the Lowy Institute estimating that China spent some $858.4m on 207 projects from 2006 to 2016.

However, not all China-backed developments have been well received. For instance, since construction began in 2006 on the Pacific Marine Industrial Zone, whose main contractor is China Shenyang International Economic and Technical Cooperation Corporation, little progress has been made beyond a road and a gate, despite PGK30m ($9.4m) being spent.

One of the most criticised elements of China-backed projects is use of outside labour. While many local workers, especially in rural areas, may not have advanced construction skills, the lack of work exacerbates this by limiting training and knowledge-transfer opportunities. The use of foreign labour also prevents the broader economy from benefitting, as less money reaches the real economy. According to David Cusick, general manager of operations at Rhodes PNG, a building materials supplier, this is evident in PNG’s underdeveloped manufacturing base, an industry that is vital to the construction sector given the country’s ongoing foreign exchange issues. “In-house manufacturing could help construction companies survive, but manufacturing in PNG is simply not developed enough at this stage,” Cusick told OBG. “This can happen when countries are too dependent on other markets.”