How, then, are these factors playing out in Papua New Guinea and how are they affecting local communities?

While the Chinese state is effectively absent from the lives of its expatriate retail investors in Papua New Guinea, these shopkeepers dominate the retail trade in major towns across the country and were the target of nationwide riots in May 2009. They have become a source of resentment for local inhabitants, who believe Chinese entrepreneurs are monopolising business and employment opportunities and preventing local participation in the retail sector. The Papua New Guinean state recently responded to these concerns by launching a A$56 million campaign to assist local entrepreneurs trying to compete in the retail sector.

While smaller-scale Chinese investors are now beginning to expand beyond this sector, the capital raised for their ventures is still privately sourced. The Chinese state has only a limited influence on these entrepreneurs’ lives, mostly through its embassy in Port Moresby. The embassy assists with setting up friendship associations and mutual aid groups, but it has little capacity or inclination to intervene beyond social initiatives of this type — a policy that Chinese expatriates, in turn, have come to resent. As one shopkeeper complained: ‘Even when someone gets killed, they’re no use. They’ll just send out a notice telling you to take extra care, and not to go out’.

Meanwhile, researchers from the Lowy Institute have devoted much ink to Chinese infrastructure aid in the Pacific, calling on the Chinese government to address issues of transparency, project quality and the impacts of debt. Yet for Chinese infrastructure providers in Papua New Guinea, there is nothing particularly remarkable about international ‘aid’, which they treat as just another type of investment, rather than funding in need of extra standards of quality and oversight.

For companies such as the Chinese Overseas Engineering Group (the Asian Development Bank’s favoured contractor for road-building projects in Papua New Guinea) and China Harbour Engineering (which recently won a US$285 million project to build Phase I of the Tide Terminal project in Lae), Chinese government aid projects are only a small part of their overseas business strategy. Moreover, companies such as these are influential enough to attract support from the Chinese state for projects developed in collaboration with local partners in Papua New Guinea. Consequently, what first appears to be state-run aid often turns out to be company-driven outward direct investment (ODI), and international aid projects are simply assimilated into these companies’ overall business dealings. Indeed, these types of infrastructure projects are increasingly dominant in Chinese investment in Papua New Guinea, overtaking China’s longstanding focus on natural resource acquisition.

To date, China’s most significant investment in Papua New Guinea’s mining sector is the Ramu Nickel project, managed and majority owned by China Metallurgical Group Corporation (MCC). After nearly two years of court delays, MCC recently conducted the mine’s first on-load test, which produced nickel and cobalt hydroxides, although it is expected that final processing into sulfates will be undertaken in China.

Local resistance to the project has centred on environmental and labour issues so far, but future disputes may involve the issue of royalty payments to landowners. Under the mining development contract, which was negotiated with the former Somare government, MCC will pay a low rate of royalties on revenue from resource sales, at 1.25 per cent. This figure is in accordance with Papua New Guinea’s Mining Act, rather than the 2 per cent generally paid by other mining projects. So if the project fails to deliver substantial royalties, it could face a new source of local opposition.

Despite being run by a company whose director argues that ‘central government enterprises that secure mines overseas are in reality securing resources for China’, this project is not controlled from Beijing. Due to the emergence of MCC from the former Chinese Ministry of Metallurgy, the corporation is divided into province-based corporations; the Ramu nickel mine, for example, is staffed by contractors from Sichuan province. These contracting companies are brought in for specific tasks, and are financially independent from MCC’s head office. Rather than constituting a single work unit, each site has a distinctive work culture based on shared histories, cultural preferences and local dialects. This level of fragmentation and complexity presents numerous opportunities for Papua New Guinea, as it means Chinese actors are often more flexible and willing to compromise than other companies.

Given all of these factors, the implications of Chinese investment in Papua New Guinea are more complex than media reports of ‘neo-colonial slavery’ suggest. Some analysts have called on the Chinese government to do more to rein in the broader effects of this sudden increase in ODI, such as illegal immigration and the reluctance of Chinese infrastructure companies to employ local labour, and there is evidence that elements within the Chinese state share these aspirations. But as Chinese ODI becomes an increasingly organic phenomenon in Papua New Guinea and beyond, the leverage of the Chinese state is becoming ever more limited.

Graeme Smith is a postdoctoral research fellow at the China Studies Centre, University of Sydney Business School, and an Australian Development Research Award fellow at the Australian National University.

This article appeared in the most recent edition of the East Asia Forum Quarterly, ‘China’s Investment Abroad’.