China and the South Pacific

from w
I am not surprised by the story I listened to this morning on the ABC Asia Pacific program.

Loans to Pacific give China leverage: report
China: new banker to the Pacific
Created: Mon, 04 Apr 2011 06:58:44 GMT+1000
Jemima Garrett
Last Updated: 9 hours 43 minutes ago

A new report warns China is gaining political leverage as it rapidly expands its loans to Pacific Island governments. The report, to be released by the Lowy Institute on Tuesday, says China has pledged over $US600 million to the Pacific since 2005. China is the biggest lender to Tonga with loans worth 32 per cent of Tongan Gross Domestic Product.

Samoa and the Cook Islands have loans worth 16 per cent.

The author of the Lowy report, Fergus Hanson, says those funds are increasingly in the form of soft loans rather than grants. He has told Radio Australia that maintaining the support of Pacific nations for China's sovereignty claim over Taiwan may explain the trend.

"One possibility is that they're trying to build up leverage with Pacific island countries in the event that there is a return to dollar diplomacy and diplomatic competition with Taiwan," he said. "There's a need to exert pressure on them to maintain relations with China."

The report says debt burdening and aid co-ordination with China are pressing issues for the Pacific governments, Australia and multilateral aid donors.
Debt distress

In some countries, Chinese debt is threatening to overwhelm.

Tonga's former Finance Minister, Josh 'Utoikamanu, says it is possible that health and education services in Tonga may need to be cut to pay back loans to China. Last week the International Monetary Fund warned Tonga is at risk of debt distress.

Mr 'Utoikamanu told Radio Australia it is very likely that Tonga won't be able to service its debts in future.Tonga's debt servicing commitments are expected to grow between 70 and 100 percent in the next 5 years. Mr 'Utoikamanu warned that if Tonga goes into debt distress it will have to scale back spending on government services to meet its loan repayments.

More story details can be found on Australia Network and Radio Australia websites.