China’s Pacific aid push backfiring, Aus officials believe

SENIOR Australian officials believe Pacific Island and Asian nations are reassessing the value of receiving Chinese foreign aid after seeing Beijing’s heavy-handed treatment of them when they seek debt relief.

As a new independent report presented to the US State Department, as revealed by The Australian Financial Review, warns China is creating a ‘debt trap’ for smaller nations in a bid to upend the strategic balance of power, officials in Canberra hope that greater public exposure of Beijing’s tactics will shame the Chinese into changing its predatory practices and ultimately forgive the loans.

Regional leaders had their eyes opened after Tonga’s experience following Cyclone Gita this year. While China has lent or gifted hundreds of millions of dollars to Tonga in recent years, Tonga’s request to have some of the debt forgiven to help it rebuild following the devastation of the cyclone was knocked back. Instead the loan period was extended at a less favourable interest rate.

Colombo gave a 99-year lease to the Hambantota port to China over a debt of US$8 billion.
Colombo gave a 99-year lease to the Hambantota port to China over a debt of US$8 billion.

The experience of Sri Lanka has also made a mark on leaders. Last year Colombo gave a 99-year lease to the Hambantota port, which has access to the Indian Ocean, to China after Sri Lanka was unable to repay US$8 billion worth of loans for infrastructure.

The Financial Review has been told regional finance ministers had become more wary of the strings China attaches to loans, in particular debt-for-equity arrangements, while the public was also unhappy to learn of the cosy arrangements between local politicians and Beijing.

“Pacific Island countries are starting to understand. There are politicians very worried about this. China has been caught out,” one source said.

The Harvard University analysis presented to the State Department follows the outgoing head of the US Pacific Command, Admiral Harry Harris’ warning to Congress that China was using its One Belt, One Road infrastructure program to displace the US and its allies in the region.

Australia’s International Development Minister Concetta Fierravanti-Wells attracted Beijing’s ire in January when she criticised China for building roads to nowhere and saddling countries with oppressive debts.

Australia is the Pacific’s biggest provider of foreign aid, worth $1.3 billion (US$978 million) in 2018-19, and wants donors to abide by best practice when making contributions to impoverished nations.

“No single country can meet the significant long-term development challenges in the Pacific,” Foreign Minister Julie Bishop said on Monday in response to the US analysis.

“The Australian government welcomes investment in developing nations in the Pacific that supports sustainable economic growth, but does not impose onerous debt burdens on regional governments.

“Australia works with a wide range of development partners, including China, in pursuit of the goal of eliminating poverty and driving sustainable economic growth.”

But Opposition foreign affairs spokeswoman Penny Wong said the Turnbull government needed to show greater leadership in the Pacific, criticising $11 billion (US$8.2 billion) in budget aid cuts since the Coalition came to power in 2013.

“Pacific island states have felt the impact of these cuts, and other nations have been able to fill the gap and play an increasing role in the region,” Senator Wong said.

“Of course development assistance should be spent sensibly, on responsible projects that benefit the people in those countries, and doesn’t lumber them with more debt, and unaffordable running costs.”

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