China’s push into the Pacific represents “clear risks” for island states desperate for investment.
In a report released by the influential Lowy Institute on Monday, stability concerns were raised about the expanding Belt and Road Initiative, which lies at the heart of Beijing’s foreign policy.
But the think tank based in Sydney made it clear that allegations of “debt-trap” diplomacy have been overblown.
“The sheer scale of Chinese lending and the lack of strong institutional mechanisms to protect the debt sustainability of borrowing countries mean a continuation of business, as usual, would pose clear risks,” the report said.
President Xi Jinping’s administration has been repeatedly accused of offering lucrative but unserviceable loans to gain leverage or snap up strategically vital assets such as ports, airports or electricity providers.
While Lowy stated that accusations of China engaging in “debt-trap” diplomacy in the Pacific were exaggerated, the trend was not positive. It also pointed out that countries such as Papua New Guinea and Vanuatu were dangerously exposed.
“The risks are especially acute for the small and fragile economies of the Pacific. The sheer scale of China’s lending and its lack of strong institutional mechanisms to protect the debt sustainability of borrowing countries poses clear risks,” the report highlighted.
Between 2011 and 2018, China committed loans to the region worth US$6 billion or around 21% of regional GDP.
A majority of that money, $4.1 billion, was earmarked for Papua New Guinea. Only a fraction, less than $1 billion, has so far been dispersed but China is still the single largest creditor in Tonga, Samoa, and Vanuatu.
“If China wants to remain a major development financier in the Pacific without fulfilling the debt trap accusations of its critics, it will need to substantially restructure its approach, including by adopting formal lending rules similar to those of the multilateral development banks,” the report said.
The South Pacific has become a forum for intense competition for influence between China, the United States, and Australia in recent years.
The island nations sit on a vital shipping crossroad, contain vast reserves of fish stocks, and provide a potential base for leading militaries to project power well beyond their borders.
Beijing has stepped up engagement through a series of high profile visits with the Solomon Islands and Kiribati announcing they would switch diplomatic recognition from Taiwan to Beijing after a long courtship by the country’s Communist leaders.
Six Pacific governments are currently debtors to Beijing – the Cook Islands, Fiji, Papua New Guinea, Samoa, Tonga, and Vanuatu.
“Three small Pacific economies – Tonga, Samoa, and Vanuatu – also appear to be among those most heavily indebted to China anywhere in the world,” it said.
– additional reporting AFP