China becomes the Pacific’s ‘banker’

offering “soft loans” that many nations will struggle to repay, a foreign policy thinktank said yesterday.
The loans amounted to a significant amount of gross domestic product (GDP) in countries such as Tonga, Samoa and the Cook Islands, giving Beijing powerful diplomatic leverage, said the Lowy Institute for International Policy.
In a report entitled “China in the Pacific: The New Banker in Town”, the Sydney-based thinktank warned the soft loans, which come with a five-year interest-free period, could create a debt crisis when they fall due.
“China has pledged over US$600 million to the Pacific since 2005 and debt burdening will become increasingly pressing as Chinese loans accumulate and the five-year grace periods expire,” it said.
The report said China’s interest in the Pacific stemmed mainly from a race for diplomatic influence with Taiwan, which Beijing has claimed as part of its territory since the end of a civil war in 1949.
The rivalry saw some Pacific nations constantly change allegiance between Taipei and Beijing in return for increased aid, until Taiwan elected the China-friendly government of President Ma Ying-jeou in 2008. – AFP.