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China in the Pacific: Is China engaged in “debt-trap diplomacy”?

By Rohan Fox and Matthew Dornan

Recent media coverage has touted the rise of Chinese aid and lending as a threat to Pacific nations’ sovereignty and to the West’s influence in the Pacific. China, so the narrative goes, is aggressively lending to smaller nations who do not have the capacity to pay back the loans. Some commentators have even described such lending as “debt-trap diplomacy”, implying that lending forms part of an intentional strategy by the Chinese state to pressure Pacific island governments.

Political discussion in Australia seems to have shifted up a gear in response. As Foreign Minister, Julie Bishop made clear that she wanted Australia to continue to be the region’s “partner of choice”. And just last week, Labor leader Bill Shorten announced that a Labor government would set up an Australian Pacific infrastructure investment bank – an announcement he also framed in terms of Australia’s status as “partner of choice”.

But is it fair to claim that China is engaged in “debt-trap diplomacy” in the Pacific?

Most advocates of this argument have pointed to anecdotal evidence – high debt levels in Tonga, the case of the Hambantota port in Sri Lanka – rather than to hard data. In this piece, we look at international debt data to explore: (i) whether Pacific island countries are in debt distress, and (ii) whether this is the result of lending from China.

One issue we consider is whether Pacific island countries are at greater risk of debt distress than in the past. Using IMF and Asian Development Bank (ADB) risk ratings, we do see a rise in debt distress over the last five years (see Figure 1). We also see that over 40% of Pacific island countries are now classified as being at high risk …read more

From:: Development Policy Centre – DEVPOLICY Blog

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