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Report disputes China debt-trap claims

China expanionismELOUISE FOWLER
| Australian Financial Review

SYDNEY - The claim that China has engaged in ‘debt-trap diplomacy’ by offering loans worth hundreds of billions of dollars to strategically located Pacific island nations, leaving them vulnerable to China’s influence, has been hosed down in a new Lowy Institute report.

"The evidence to date suggests China has not been engaged in deliberate ‘debt-trap’ diplomacy in the Pacific," researchers at the foreign policy think tank concluded.

Beijing was accused by Harvard researchers 18 months ago of using its K3 trillion international infrastructure building fund, known as the Belt and Road Initiative, to push 16 Asian and Pacific countries into debt in order to extract geopolitical concessions.

This accusation against Beijing comes as China emerges as a major new financier and the Pacific once again becomes an arena for geostrategic competition among much larger players.

While the Lowy Institute researchers argue there is no evidence of debt-trap diplomacy, their report found that Australia's regional neighbours in the Pacific face an "especially acute" risk of being saddled with unsustainable debts from China.

"What we argue is something more nuanced, where China’s lending behaviour to date hasn’t been so problematic that you would call it a debt-trap but there are indeed worrying aspects which pose clear risks going forward for some countries," said the report's lead author, Roland Rajah.

The report found six Pacific governments currently owe money to China - Cook Islands, Fiji, Papua New Guinea, Samoa, Tonga and Vanuatu. The authors expect two more Pacific nations, the Solomon Islands and Kiribati, will take loans with Beijing, as both recently announced a switch in diplomatic relations from Taiwan to China.

Of the six Pacific governments that owe money to China, the report found China has become the single largest lender to Tonga, Samoa and Vanuatu.

“'[They] appear to be among those most heavily indebted to China anywhere in the world," Mr Rajah and his co-authors Jonathan Pryke and Alexandre Dayant found in Oceans of Debt? Belt and Road and the Debt Diplomacy in the Pacific.

The authors argued the sheer scale of China’s lending meant it should adopt multilateral development bank lending rules and "require the provision of concessional financing to countries at greater risk of debt distress."

Modelling from the research shows four of the six countries that borrow from China — Vanuatu, Samoa, Tonga, and Fiji — are already effectively at a warning threshold and, with the exception of Fiji, are likely to be pushed into unsustainable debt.

"Vanuatu stands out as a particular concern...while Papua New Guinea would also see a dramatic increase in debt beyond our warnings threshold," the report found.

Despite China's expanding presence in the region and the vast nature of the Belt and Road Initiative, the report's analysis shows China was not the dominant creditor in the Pacific.

"China was responsible for 37% of all official sector loans disbursed to the region in 2011–2017. The Asian Development Bank provided a slightly higher share, at 41 per cent."

China's increased presence has prompted the Australian government to respond with its own new debt-financing initiatives as part of its broader Pacific ‘step-up,' but the authors caution that if Australia wants a stronger presence in the Pacific, it should reverse the current stagnation in its overall aid budget.

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David Kitchnoge

Good article. China is here to stay and a number of economies including Australia are better off for its rise.

We should be wary of China but certainly not be afraid of it.

China recognises that for it to have credibility at the global stage, it must necessarily begin to behave like the west.

It must adopt the rules based world order.

PNG is very much part of this world order and so we should be able to hold our own with the Chinese.

Their Belt and Road initiative is welcome. They present an alternative way out for many of our infrastructure challenges.

There are certain nuances about us that act as a protective shield just in case things go wrong. Our complex land ownership and control system being one.

I learnt in a conversation with the emerging PNG and Australian leaders at the Lowy Institute in 2015 that the Ramu mine in Madang tops Chinese discussions in China about what not to do in PNG.

The pushback from landowners in Madang before the commencement of that mine had taught the Chinese some valuable lessons.

The recent spill at Basamuk and the ongoing conversations and actions around this event is also teaching them further lessons.

China is learning and is evolving and refining its approach to the global community as it makes its way up.

There is nothing to fear about China.

They are welcome but we must hold them to certain minimum standards of behaviour...as we would any other person.

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