China Banking on Pacific Islands
Image Credit: Sarah Kelemen

China Banking on Pacific Islands

 
 

An interesting report has been released today by the Sydney-based Lowy Institute for Public Policy on China’s aid programme to the Pacific.

Entitled ‘China in the Pacific: The New Banker in Town,’ the report looks at China’s foreign assistance efforts, and notes an increasing tendency to offer soft loans rather than grants as a way of increasing influence over Pacific nations.

As noted by Balaji Chandramohan writing for The Diplomat late last year, a number of countries including India and China are actively courting Pacific island nations as part of efforts to secure the right to station military bases there or to help develop their natural resources.

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But according to the Lowy report, there has been one motivation quite specific to China, namely diplomatic competition with Taiwan. Although it notes the improved ties with the mainland since Taiwanese President Ma Ying-jeou took office, it quotes a Taiwanese official as stating that countries always prepare for the worst.

‘China would be mindful that it needs to remain actively engaged so it is ready to restart the diplomatic tussle with Taiwan should the warming in cross-strait relations break down, for example, through the return of an independence-oriented Democratic Progressive Party President in Taiwan,’ the report notes.

The danger to islands accepting these soft loans is that they are going to end up being burdened by loan repayments they can’t afford. As the report noted, Chinese loans to Tonga now make up the equivalent of 32 percent of the country's GDP, while the figure for Samoa and the Cook Islands was 16 percent. Combine this with a lack of transparency, and it’s easy to see why some Pacific island officials are concerned.

So what to do? The report suggests that Pacific governments report aid flows from all sources, including China, adding: ‘They should continue to urge China to improve the use of local labourers, contractors and, where possible, materials in its aid projects, and push it to coordinate its aid activities consistent with the Cairns Compact.’

You can download the full report here.

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