Payment due: Pacific islands in the red as debts to China mount
S E E D E D C O N T E N T
WELLINGTON/SYDNEY (Reuters) - Just over a decade ago, deadly riots in the capital of Tonga, Nuku’alofa, destroyed much of the small Pacific nation’s central business and government districts.
Out of the rubble, the government hatched a plan to rebuild the city, including constructing a new cruise ship wharf and renovating the Royal Palace – all bankrolled by a new lender, China.
The initial roughly $65 million in Chinese lending now exceeds $115 million - almost one-third of Tonga’s annual gross domestic product - as interest mounted and the government took out a second loan for road development across the country.
An onerous principal repayment schedule starts in September that will double Tonga’s debt financing bill has left the government scrambling.
Tonga’s precarious position is indicative of a wider debt-fueled hangover hitting small Pacific economies, stoking fears the region risks falling into financial distress and becoming more susceptible to diplomatic pressure from Beijing.
In particular, the loans give Beijing a lever in one of the most contested areas in the world over recognition of Taiwan, which has strong diplomatic ties to the region.
Reuters’ analysis of the financial books of 11 South Pacific island nations shows China’s lending programs have gone from almost zero to over $1.3 billion currently outstanding in a decade.
The documents show China is now the region’s biggest bilateral lender, although Australia’s significant aid programs mean it remains the largest financial backer in the South Pacific.
Chinese loans accounts for more than 60 percent of Tonga’s total external debt burden, and almost half the external debt of Vanuatu. In dollar figures, Papua New Guinea has the biggest debt to China, at almost $590 million, representing about one-quarter of its total external debt.
“Given the vulnerabilities of their economies, given the very few sources of revenues they have, they tend to be in many cases at high risk of debt distress,” World Bank director for the Pacific, Michel Kerf, told Reuters in a phone interview.
“Their debt is reaching the limit of what would be considered sustainable.”
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China has turned the debt owed to them by Sri Lanka into a 99 year lease on their port facility. Which gives China a port that can be used for military use if they chose to.
This just might be what befalls the Island nations in the Pacific.
The reason that the U.S. has America Samoa as a territory is because it has the best natural harbor in the South Pacific.
Well played by China. If the world was smart, they would all chip in and pay off the loans owned by strategic countries. in the long run, there is much more to worry about China, and their control of the Pacific, than say the money we waste in the M/E, Pakistan and Turkey.
Ahhhh, now Pakistan is on the hook to China for billions and the US is pissing there pants that the IMF will grant it loans that will be used to pay back China.
I would not include Israel in that statement, if for no other reason than what a top-ranking American military officer once said, that Israel is like America having its biggest fully equipped aircraft carrier lodged in the Middle East without requiring one American on board.
So China will basically own these places?
I guess if they default on the debt China will find others ways of repayment.
Yeah, ways that will benefit a long term plan as the world power.
Learn you dialects now.
Sri Lanka settle it's debt with China by granting them a 99 year lease on the port...Excellent investment for the Chinese since they can also use it as a military port or have their navy call there. Expect to see much more of that as a lot of these nations can't replay the debt to the Chinese.
How many dominoes do they have setup at this point?
Wonder what India thinks about this first arrangement?
Here is an interesting graphic of ports financed by China. This doesn't tell us what is in the queue though.
There is additional information about the deal and greater map detail found at the link.
Interesting map dave. In addition to that there are 3 in Panama, 2 in Brazil and 1 in Ecuador.
The number in Africa is really interesting and also Africa is where the first China foreign military base.
This graphic does not render well. These countries are listed as debt relative to their GDP. Djibouti is at about 80% and Montenegro looks to be around 10%
Here are more countries in China's financial dept trap:
Eight countries threatened by Belt & Road debt
Good link, thanks.
Those ports you mentioned sound both globally strategic and significantly close to us.
Do you know if any of these ports have militarization clauses in their agreements?
Once enough any kind of dependency is established I doubt China would have much of a problem pushing for a militarization clause in they "need" it in the future.
That is the benefits of long term planning verses what we do, fight with each other.
What you say stands to reason.
The port in Sri Lanka has no exclusion clause for military. The other's I don't know but if they wanted to use them for military use I don't think that they would have a problem. But it remains to be seen.
A hell of a lot dave. South America and some of the former iron curtain countries will end up in the same situation as Tonga and Sri Lanka.
Perrie's idea might be a good idea if China's growth is to be curtailed.
I'm sure that India isn't very happy about it. India and Chinese are in a battle over the airport there as well..
It is not like India and China are always the best of buddies either.
This may seem like a theme question, but again, I wonder if there is a militarization clause in the Chinese attempt to gain control of the airport?
I have no idea about the airport and military use dave.
My daughter is fluent in Mandarin as are a couple of the grand kids. The other speak SE Asian language. Indonesian, Malay and Thai for sure.
So they are ahead of Perrie's learning curve.
I guess nobody's taking Polonius's advice to his son Horatio:
"Neither a borrower nor a lender be, For loan oft loses both itself and friend, And borrowing dulls the edge of husbandry." (Shakespeare's Hamlet)
LOL, exactly Buzz.