The substantial volume of planned Chinese lending under the BRI has raised concerns about potential debt sustainability issues in developing countries worldwide. There are accusations of “debt trap” diplomacy, which assert that China intentionally pushes countries into debt problems to gain geopolitical concessions. The case of the Hambantota Port in Sri Lanka serves as an example that has raised alarm among geostrategic analysts. In this case, a state-owned Chinese firm acquired a majority equity stake in the strategically located port after Sri Lanka faced difficulties in repaying its debts.
These concerns have now extended to the Pacific region, where there are apprehensions that similar scenarios could unfold. The worry is that Chinese lending could lead Pacific countries into unsustainable debt burdens, potentially compromising their sovereignty and allowing China to gain strategic advantages in the region.
The combination of the large volume of Chinese lending under the BRI and the focus on loans rather than grants has intensified apprehensions about debt sustainability in developing countries. It is argued that this lending approach, coupled with the pursuit of geopolitical interests, raises the risk of countries falling into debt traps and becoming dependent on or selling out to China.
The Pacific region has become a focal point for major powers, including China, seeking to provide loans and extend their influence. China, through its Belt and Road Initiative (BRI), has become a significant financier in the Pacific, raising concerns about debt sustainability and accusations of ‘debt trap’ diplomacy. In response, the Australian government has implemented its own debt-financing initiatives as part of its Pacific engagement strategy.
While debt can be beneficial for development, the scale and nature of China’s lending activities under the BRI have raised concerns about debt sustainability, particularly for small and vulnerable Pacific countries. Some Pacific states are already heavily indebted to China. Consequently, the issue of debt sustainability in the Pacific is crucial in the broader context of the BRI.
The policy discourse surrounding China’s lending activities in the Pacific has lacked objective economic analysis. Some analysts dismiss the notion of a China debt trap, while others warn of predatory lending practices.
According to Rajah et al,. (2019), it was suggested that China has not engaged in problematic debt practices in the Pacific to justify accusations of debt trap diplomacy, at least not thus far. However, the significant scale of Chinese lending and the lack of strong institutional mechanisms to protect borrowing countries’ debt sustainability pose risks. China would need to restructure its approach significantly to address the debt trap allegations and maintain its position as a major player in the Pacific.
There have been indications of greater caution from both China and Pacific Island governments. President Xi Jinping emphasized debt sustainability during the Second Belt and Road Forum in 2019, and Pacific leaders have become more cautious about taking on additional Chinese debt. However, ongoing vigilance and proactive measures are necessary to address potential risks and ensure sustainable lending practices in the region.
The issue of China’s impact on debt sustainability in the Pacific is expected to become increasingly significant based on several indicators. Firstly, there are a number of large loan-financed projects in the pipeline in Papua New Guinea and Vanuatu, signalling a potential increase in Chinese lending in the region. These projects have the potential to further exacerbate debt levels and raise concerns about the long-term sustainability of these loans.
Secondly, all six Pacific governments currently indebted to China have officially joined the Belt and Road Initiative (BRI) by late 2018, aligning themselves with the over 130 countries that are part of the initiative. This demonstrates their continued interest in seeking financing from China and indicates a willingness to engage further with Chinese lending.
Moreover, as more Pacific governments seek external financing options, Chinese lending may expand to additional countries in the region. This is exemplified by recent diplomatic shifts, where both Solomon Islands and Kiribati have switched their diplomatic relations from Taiwan to China. This move suggests a desire to access increased financial resources and support from China.
These developments imply that the issue of China’s impact on debt sustainability in the Pacific will continue to be a matter of growing importance. It underscores the need for careful assessment and management of borrowing and lending practices to ensure that the Pacific countries do not fall into unsustainable debt burdens. It also emphasizes the significance of transparency, accountability, and the establishment of strong institutional frameworks to safeguard the long-term economic stability and sovereignty of the Pacific nations (Rajah et al,. 2019).
AUNA MELO 