Pacific Debt Pushback

Concerns about Chinese lending practices in the Pacific continue to be a source of much contention and intrigue throughout the region. In mid-August Tongan Prime Minister ʻAkilisi Pohiva, in an interview with the Samoa Observer, made the statement that Beijing should write off debts owed by Pacific Island countries. Pohiva claimed that current debts are too burdensome for the small nations to finance. Tonga’s current debt to China is estimated at over $100 million – a huge sum for a nation of only 100,000 people with a (nominal) GDP per capita of little over $3,700 (as of 2016).

Pohiva expressed his concern that Beijing would seize the assets of Pacific Island countries if they were unable to meet their repayment schedules. He cited the example of Sri Lanka handing over control the Hambantota port to China on a 99-year lease as a precedent of what could happen to Pacific Island countries. In order to prevent this from occurring, Pohiva stated that he would raise the issue at September’s Pacific Island Forum (PIF) meeting in Nauru, and the PIF would formulate a submission to Beijing asking the Chinese to forgive their debts.

Samoan Prime Minister Tuilaepa Sailele Malielegaoi rejected the idea, believing it to have consequences that would cause long-term difficulty for Pacific Island countries’ relations with donor countries, as well as making making them look incompetent. He stated: “....the problem with raising this issue continuously is the bigger countries become reluctant to give loans with low interests because this is what will happen, a loan is granted on a low interest rate yet in five years’ time a request is made to write it off. That is embarrassing.”

The issue has became a major topic of discussion throughout the region. Despite the Samoan prime minister’s noble approach, concerns remains that China has been inducing Pacific states into a form of “debt bondage,” and using this as leverage for their diplomatic designs.

Yet, just as it seemed like the subject would gain the momentum to make the formal agenda of the PIF meeting in Nauru, Pohiva had an about-face. The Tongan prime minister subsequently said that a unified position created at the PIF would not be workable, expressing that instead “each Pacific Island country has its particular national conditions and different needs for foreign loan, and it’s up to each government to independently seek solutions through bilateral channels."

Pohiva’s use of the phrase “through bilateral channels” is interesting and potentially revealing. Beijing has a noted preference for bilateral negotiations, suspicious that multilateralism will induce blocs of states into holding firm together against the Chinese. The idea of pursuing debt relief through the PIF would be disconcerting to China. Beijing would not want the annual PIF meeting to be dominated by attempts to formulate a position against China.

Pohiva added that he was “extremely grateful” for Chinese development assistance, and that loans from China were “crucial for the Kingdom's economic recovery and maintenance of social stability.” It seems fairly obvious that the Chinese had spoken to Pohiva and asked him to clarify his position.

While this incident may have induced Beijing to offer more favorable repayment terms to Tonga, it should also have led the Chinese to question whether the structure of its development loans programs are sustainable. With the high costs of delivering necessities and services throughout their widespread territories, and limited domestic capabilities to do so, Pacific Island countries rely greatly on good faith cooperation with larger, more capable states. It remains questionable whether Beijing has fully internalized this reality or whether the nature of the regime is even able to.

How China utilizes its increasing reach into the Pacific will be a test of its burgeoning power: whether that power can be implemented with grace and understanding, or whether Beijing will only understand the use of more coercive measures. As the Samoan prime minister demonstrated, Pacific Island countries aren’t without pride and honor, and wish to operate as responsible actors; yet, if conditions become too burdensome for these states to facilitate, then regional leaders like the Tongan prime minister will draw them into the light. Beijing has subdued this particular issue for now, but unless the Chinese change their approach the issue of “debt bondage” will return.