Economic Relationship

• China has loaned a considerable amount of money to PNG, which is apparent in the size of PNG's debt owed to China. By 2023, PNG's annual repayments to China are projected to be $67 million USD. PNG has a history of receiving loans for China, especially for infrastructure projects.
• PNG has been stalled in the process of attempting to complete a $3.9 billion USD loan agreement with China for over a year, due to loan term and interest rate disagreements. For this reason, some experts opine that PNG's recent request for China to help it restructure its debt is unlikely to be met.
• Although not a trade agreement, PNG's current loan status with China could be seen as 'bad,' given that PNG's outstanding debt is 42% of its GDP. As of 2019, PNG owes $1.9 billion USD to China. However, PNG's current fiscal crisis is not a direct effect of the loan itself; multiple factors are at play, including recent debt recalculations and 'excessive' and wasteful spending by the previous PNG government.

Belt and Road Initiative

• PNG was the second country in the South Pacific to sign onto China's Belt and Road Initiative (BRI). Under this initiative, PNG has received $1.9 billion in concessional loans from China. This collaboration was preceded by a 2014 'strategic partnership' that centered around development, and a series of development 'cooperation documents' in 2016.
• Certain concessions that PNG has made as part of its BRI loan agreements could be considered bad for the country, including its agreement for areas constructed with Chinese loan monies to be governed according to Chinese law, rather than PNG law. Another significant concern is the impact of illegal Chinese laborers working within PNG on the country's labor market.

Proposed Free Trade Agreement

• In 2016, China announced that it would be conducting a feasibility study on a free trade agreement with PNG. However, in 2018, the PNG foreign minister announced that China was open to pursuing a free trade agreement and had agreed to conduct a feasibility study, which indicates some delay in the agreement.
• Later, in 2019, the prime minister of PNG was reported as 'pushing hard' for a free trade agreement with China. This is reportedly related to the prime minister's request that China help PNG 'restructure' its debt.
• Currently, China reports that a free trade agreement with PNG is still 'under consideration.' Research discovered no indication that China and PNG have any existing trade agreements.

Country Overview

• PNG borders Australia's north region and was a former Australian colony. It gained independence in 1975 and has a population of 8.3 million people.
• The country is the world’s most linguistically diverse country as its people speak around 850 indigenous languages. Agriculture is the main economic activity for PNG as 80% of people live in rural areas. The official languages of the country are English, Hiri Motu, and Tok Pisin.

Trade Deals

• According to the World Trade Organization (WTO), PNG and Australia have had a bilateral free trade agreement since 1977. The agreement was updated in 1991. The two countries negotiated an economic cooperation treaty in 2013 where they agreed to support free trade among themselves.
• PNG participated in a free-trade agreement for all the Pacific island countries, including Australia and New Zealand, called the Pacific Agreement on Closer Economic Relations (PACER) Plus. When negotiations were completed, the PNG government decided against signing it. The reasons for not signing the agreement included unresolved concerns on the protection of PNG's infant industry.
• Without being a part of PACER Plus, PNG has access to the Australian market through the "non-reciprocal South Pacific Regional Trade and Economic Cooperation Agreement." The South Pacific Regional Trade and Economic Cooperation Agreement was ratified in the 1980s and allows PNG and other Pacific countries to sell their goods in Australia and New Zealand, duty-free.
• Since PACER Plus failed to meet PNG's needs, the country is researching and working on identifying a new bilateral trade agreement with Australia. Government relations between the two countries are reinforced by the 'Joint Declaration for a New Papua New Guinea-Australia Partnership' and the 'Joint Declaration of Principles' of 1987 that was revised in 1992. Also, the two countries have agreed to develop a 'Comprehensive Strategic and Economic Partnership' to spearhead engagement in the areas of trade and investment, governance, and security cooperation, among others.

Total Bilateral Trade

• According to the Australian Government Department of Foreign Affairs and Trade (DFAT), the total bilateral trade between Australia and PNG was A$6.7 billion in 2018. Australia is also PNG’s largest trading and commercial partner. The country mainly exports meat, crude petroleum, wheat, civil engineering equipment/parts, and specialized machinery and parts to PNG. PNG mainly exports gold, silver, crude petroleum, and platinum to Australia.
• There was no evidence in the course of the research to suggest that Papua New Guinea has signed deals with Australia that are considered bad or unfair for Papua New Guinea. According to the Observatory of Economic Complexity, in 2017, Papua New Guinea imported goods worth $1.14B from Australia, while exporting more goods worth $2.54B to Australia.
• In 2018, Australia invested A$17 billion in PNG, with the bulk of it going into infrastructure projects and the gold, gas, and oil mining industries. This is according to DFAT.

Research Strategy