Lowy Institute: «China Cannot Remain a Major Lender»
Australian think tank Lowy Institute urges significant deceleration in Chinese lending to South Pacific economies due to the unsustainable scale and lack of institutional protection.
«The sheer scale of China’s lending and its lack of strong institutional mechanisms to protect the debt sustainability of borrowing countries poses clear risks,» the Lowy Institute said in a recent report. «China cannot remain a major lender in the Pacific at the same scale as in the past without fueling significant [dangers].»
According to Lowy, South Pacific governments which are debtors to China include Fiji, Papua New Guinea, Samoa, Tonga and Vanuatu. Loan commitments to such economies have totaled 21 percent of regional GDP, or about $6 billion, between 2011 and 2018 with institutions like the Asian Development Bank and World Bank representing the majority of the balance.
Debt-Trap Diplomacy?
Although the Lowy report underlines that there was no evidence to suggest that China was engaging in deliberate «debt-trap diplomacy» in the South Pacific, it notes that adjustments to the «scale, nature and opacity» of lending in the region will be required to withstand accusations.
«If China wants to remain a major development financier in the Pacific without fulfilling the debt-trap accusations of its critics, it will need to substantially restructure its approach, including adopting formal lending rules similar to those of the multilateral development banks,» the report said.
Last November, U.S. vice president Mike Pence criticized President Xi Jinping’s Belt and Road Initiative, claiming that American administrations do not «drown [their] partners in a sea of debt» nor «offer a constricting belt or a one-way road».
