China flexes it financial muscles in the South Pacific

China’s lending program to the island nations of the South Pacific has gone from zero to more than $1.3 billion over a decade. The relatively high cost of debt-servicing in these tiny economies have stoked fears that the entire region risks falling into financial distress and becoming more susceptible to economic and diplomatic pressure from Beijing.

On Thursday, Tonga’s Prime Minister ‘Akilisi Pōhiva stated, Pacific island nations have grown increasingly nervous regarding their mounting debts to China which could potentially result in Beijing starting to seize strategic assets.

Tonga is one of the 8 island nations located in the South Pacific. It is scheduled to begin repaying its huge loans to China from September 2018 onwards. It had borrowed heavily following a series of deadly riots in 2006 that destroyed large parts of its capital.

Tonga’s nervousness about its debt to China follows Beijing’s seizing a port in Sri Lanka after Colombo struggle to finance its spiraling debt.

“If it happens in Sri Lanka, it can happen in the Pacific – so it is entirely an option for China to consider,” said Pōhiva while not specifically identifying any particular assets at risk of being seized.

China has been accused of creating unserviceable debt which it has categorically refused saying there was no evidence of such accusations and that it has retained good relations with Tonga.

In April 2018, media reports had suggested that China wanted to build a military base in the Pacific island nation of Vanuatu after funding a wharf big enough to handle warships.

Both China and Vanuatu denied the reports.

Pōhiva, who came to power after Tonga accumulated the bulk of it’s $115 million debt to China, wants the entire South Pacific bloc to negotiate in one voice.

“It is no longer an issue for individual countries because there are small countries who borrowed from China and we have problems with that and the option is to collectively work together to find a way out,” said Pōhiva.

Regional leaders are scheduled to meet in the island nation of Nauru where Pōhiva said they will progress plans to ask for their debt to be forgiven.

Australia and New Zealand, which have traditionally been the main powers in the South Pacific, have both raised concerns regarding China’s growing clout in the region.

“This whole issue with Tonga has gone through the Pacific like a dose of salts, and understandably, because the money they now need to repay their loan means they have less money for health and education,” said Australia’s Minister for International Development and the Pacific, Concetta Fierravanti-Wells.

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