Chinese loans stoke competition for the Pacific

The country’s charm offensive draws responses across the region

Bahauddin Foizee

Belt and Road, Development, Economics and finance, Government and governance, International relations, National security | Australia, Asia, East Asia, South Asia, The Pacific, The World

12 June 2019

As competition rises amongst major powers of the Indo-Pacific, so do concerns around China’s increasing involvement in small Pacific nations and their economies, Bahauddin Foizee writes.

The Indo-Pacific is permeated by adversarial relations between China and India, Japan, and the US. This was the reason these three countries, along with Australia, formed the Quad – a security co-operation framework built to strategically link major democracies in the region. In order to counter China’s growing influence in the Indo-Pacific, their governments saw it as a necessary step.

Until recently, Australia has had a limited role to play in this emergent Indo-Pacific network. But intensifying conflicts of interest between Australia and China in the South Pacific have spurred change.

A substantial part of the resource-rich Pacific Ocean – particularly the South Pacific – falls within the control of the small but numerous Pacific island nations. Given China’s recent lending habits and financial vulnerability these small island nations experience, Australia has reason to fear that these island nations might be entangled in a Chinese debt trap.

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It is worth noting that China is already a major donor to the region, second only to Australia. Since 2011, China has provided concessionary loans and gifts to nations in the South Pacific worth over $1 billion, a significant amount of money for these small economies.

Though further away, countries can learn from the situation in Sri Lanka. Sri Lanka had to handover a deep seaport in Hambantota to Chinese control for 99 years because of its inability to pay off debts. Since the start of its operation in 2010, the Chinese-built Sri Lankan seaport, worth US $1.5 billion, was incurring losses because of a lack of commercial activity.

China is showering many countries with loans for projects such as this, many of which are alleged to have no financial viability. Lending funds for financially non-viable projects could make the host countries economically and politically beholden. Australia fears that with the current inflow of Chinese loans, Pacific nations may meet the same fate as Sri Lanka.

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The superpower’s influence in the region seems to only deepen. Some regional countries, including Papua New Guinea, have even shown interest in the ‘Belt and Road Initiative’ – the foreign policy venture designed to link China to strategic resources across Asia and Europe.

Amidst heightening concerns, Australia has decided to increase its focus on the region. It has been increasing its engagements with Pacific island nations to counter what it perceives as a growing threat.

Late last year at a military base in Queensland, Australian Prime Minister Scott Morrison spoke about the importance of the Pacific region to Australia. In his speech, he sent a clear message to China to check its growing involvement in the region, which Australia perceives as its own backyard.

Morrison recently offered to provide South Pacific countries with infrastructure loans and grants of over $2 billion in an attempt to counter Chinese investment on Australia’s doorstep.

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He is also expected to offer an extra $1 billion to Efic, Australia’s export credit agency, in order to help Australian companies invest and expand overseas, particularly in Pacific island nations.

In that same speech, Morrison also said that Australia would post diplomatic staff to the region, including Palau, the Marshall Islands, French Polynesia, Niue, and the Cook Islands in order to expand its regional presence.

Further, Australia is seeking to strengthen its defence ties with the Pacific island nations. Joint military drills, as well as military training, are on the cards. Morrison announced in November 2018 that Australia has established a defence force in order to train the Pacific island nations in infantry fighting, peacekeeping, and disaster response.

The Australian Navy is even expected to conduct more missions to the Pacific for training and exercises, and Australia is set to donate several new patrol boats to regional countries.

Although Australia and China are adversarial stakeholders in the South Pacific, the relations between these two countries cannot be viewed merely from what happens in the South Pacific region alone.

Instead, a combination with developing geopolitical factors in the Indo-Pacific will impact their bilateral relations. The geopolitics in this mega-region – the South Pacific included – will dictate the relations between the two. And at present, the South Pacific seems to be leaning towards rivalry rather than cooperation.

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