The Bank of China is poised to secure its first comprehensive foothold in the Pacific region, as its application to establish a full banking branch in Papua New Guinea’s capital, Port Moresby, is nearing final approval after a lengthy regulatory process.
In 2019, the Bank of China entered into a memorandum of understanding with the PNG government, marking the beginning of a collaborative journey, and last June, it opened a representative office in Port Moresby, signifying its ambition to expand operations.
Prime Minister James Marape has strongly advocated for the approval of a full commercial operating license for the Bank of China, emphasizing the significant economic advantages it promises to bring to the nation.
This strategic move is under close surveillance by the Australian government, which harbors concerns about the potential for criminal organizations and the Chinese government to take advantage of the bank’s presence in Port Moresby, especially with the impending opening of the city’s first casino next year.
Bridi Rice, a former Australian government official specializing in anti-money laundering, cautioned that if the Bank of China does not comply with the stringent anti-money laundering regulations upheld by Western institutions, it could lead to an increased risk of financial crime within PNG.
She poignantly remarked, “The trifecta of casino, new bank, and special economic zone is a well-worn criminal path in other parts of the world, particularly South-East Asia,” highlighting the pervasive risks associated with such developments.
“For Papua New Guinea, this is not just a geopolitical move; it represents a shift with profound implications for financial inclusion, criminal activities, and developmental progress for generations to come.”
Chinese bank closes in
A reliable source close to the licensing process confirmed that the Bank of China has fulfilled its licensing fee obligations, with expectations set on PNG’s reserve bank to grant final approval in the near future.
PNG’s Foreign Minister, Justin Tkatchenko, expressed optimism that the approval process may conclude by this year or in early 2025, underscoring its importance for the nation’s economic growth.
“Papua New Guineans, Australians, or anyone purchasing products from China will be able to transact directly in the Chinese currency,” he conveyed during an interview with the ABC, emphasizing the potential ease of trade between the nations.
Minister Tkatchenko predicted that this development could lead to a reduction in goods prices within PNG, ultimately benefiting consumers in the process.
“It will introduce greater competition in pricing, offering better opportunities for small local businesses and Papua New Guinean enterprises seeking to import goods from overseas,” he explained.
“So it’s projected to be a win-win situation across the board.”
In contrast, Australia and the United States have persistently engaged Western banks, urging them to maintain their presence in the Pacific, while they monitor China’s growing financial influence in the region.
Why are Australian banks getting out of the Pacific?
According to Pacific analyst Jess Collins from the Lowy Institute, the state-owned Bank of China could face pressure to report client information back to Beijing, raising concerns about surveillance and influence.
“With the mass exodus of Western banks from the region, the concern is that China will fill the void, risking the economic security of Pacific nations,” she noted, bringing attention to the wider implications of this shift.
“This development serves as yet another example of China exerting pressure on Australia’s traditional areas of regional partnership, compelling the Australian government to allocate more resources toward regional security efforts.”
Casino operations outsourced
Concerns among Australian officials and analysts persist regarding how the new Bank of China branch may intersect with PNG’s first casino set to launch in Port Moresby next year.
Earlier this month, Prime Minister Marape officiated at a groundbreaking ceremony for the “Million Kina” casino, which is part of the contentious Paga Hill Estate — an extensive commercial and tourist development planned in the bustling heart of the capital.
Set to feature a 300-room luxury hotel and an upgraded port for cruise liners, the casino will operate within a “special economic zone,” complete with expedited customs, immigration, and tax processes designed to cater exclusively to foreign visitors and high-stakes gamblers.
The initiative, while ambitious, has ignited political controversy in PNG, as regulatory bodies challenge the validity of the casino’s license application and demand a halt to its construction.
Gudmundur Fridriksson, CEO of the Paga Hill Development Company (PHDC), reassured stakeholders that casino operations would be delegated to an appropriate third-party operator, contributing 30 percent of gross revenue to the PNG government for supporting grassroots initiatives and social programs.
“We completely understand public concerns,” he acknowledged.
“This arrangement ensures that the venue’s operations remain fully compliant, regardless of the patron and the source of their currency.”
Fridriksson expressed that the casino has the potential to diversify tourism efforts and change negative public perception by becoming a landmark attraction for Port Moresby, likening it to Australia’s celebrated Sydney Harbour.
James Marape has touted the anticipated economic benefits of this new development, asserting that it holds the capacity to dramatically transform the capital and project an image of a contemporary, progressive nation to the global community.
Yet, Bridi Rice, now CEO of Development Intelligence Lab, remains skeptical, suggesting that the casino could inadvertently create pathways for fraudulent activities.
“There exists no better environment for a money laundering operation than a cash-rich establishment in a country known for corruption issues and lax anti-money laundering enforcement,” she warned.
PNG’s Foreign Minister refuted these concerns, affirming that robust new anti-fraud and anti-corruption laws would mitigate risks associated with the Bank of China’s operations.
“For even us members of parliament, it’s a challenge to withdraw small amounts of cash without being questioned on various aspects of the money’s origins and intended use,” Mr. Tkatchenko stated, highlighting the stringent regulations in place.
Bank’s ‘symbolic’ significance
In addition, China is fervently promoting its currency for cross-border transactions as part of a broader initiative to undermine the US dollar’s prevailing dominance in the global economy.
The establishment of a representative office in PNG was hailed by the Bank of China as a “vivid interpretation” of President Xi Jinping’s Belt and Road Initiative, aimed at enhancing bilateral cooperation specifically around the Renminbi (RMB) settlement.
However, Dinny McMahon, an expert in Chinese markets at Trivium, commented that the geopolitical ramifications of a new Bank of China branch in PNG are “more symbolic than substantive”.
He advised that the bank’s primary focus will likely be on serving Chinese businesses and nationals operating in PNG, with the further adoption of RMB services contingent on client demand.
Mr. McMahon also pointed out that the RMB remains more expensive for many cross-border transactions, suggesting that even Chinese firms may opt to use US dollars for international payments.
“If the RMB gains broader global appeal, then businesses in PNG may increasingly adopt it—not necessarily due to the establishment of a Bank of China branch,” he concluded.
ZeDesktop32__LR_G6 Typography_lineHeightMobile24__crkfh Typography_lineHeightDesktop40__BuoRf Typography_marginBottomMobileSmall__6wx7m Typography_marginBottomDesktopSmall__CboX4 Typography_bold__FqafP Typography_colourInherit__dfnUx Typography_normalise__u5o1s” data-component=”Heading”>Regional Economic Dynamics
The ongoing developments in Papua New Guinea (PNG) highlight a broader trend of shifting economic dynamics within the Pacific region. The emergence of the Bank of China and the establishment of the casino in Port Moresby are pivotal moments that may reshape the financial landscape and further integrate PNG into China’s economic orbit.
As Australia and the United States grapple with these changes, they are compelled to reassess their strategies and engagement in the Pacific. Increased Chinese presence and influence necessitate countermeasures, particularly in terms of ensuring that Pacific nations are not unduly swayed by financial partnerships that may undermine their long-term economic security.
However, for PNG, the potential economic benefits could lead to substantial improvements in infrastructure, trade, and ultimately quality of life for its citizens. The success of the financial and commercial initiatives hinges on transparent governance, effective regulation, and the ability to manage foreign influences responsibly.
As stakeholders closely monitor these developments, the outcome of the Bank of China’s operations and the new casino’s impact on PNG will be critical in determining the nation’s economic trajectory and its role in the broader geopolitical context of the Pacific region.
