China’s Predatory Debt-Trap Diplomacy Threatens the South Pacific

China’s President Xi Jinping (right) and Kiribati’s President Taneti Maamau walk at a welcoming ceremony at the Great Hall of the People in Beijing, January 6, 2020. (Jason Lee/Reuters)
Beijing has made no secret of its ambition to dominate the strategically vital region. The U.S. can’t let that happen.

NRPLUS MEMBER ARTICLE O ver the July 4 weekend, China’s navy conducted military exercises in the South China Sea, near disputed islands over which Beijing has claimed economic sovereignty. The United States, which, like almost every other country on Earth, rejects China’s claim to the islands, responded with a show of force of its own, sending two aircraft-carrier battle groups to the area.

The world tends to focus most intensely on visible military manifestations of China’s aggressive regional strategy such as last weekend’s standoff. But the economic underpinnings of the strategy are just as important. The Chinese Communist Party has taken a rapacious, neo-colonial stance toward impoverished South Pacific countries, and the U.S. and its regional allies are starting to wake up to the dangers this stance poses.

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President Xi’s Jingping’s regime uses debt and related pressure to trap a range of low-income countries into doing its bidding. The main vehicle for this tactic is Xi’s Belt and Road Initiative, a trillion-dollar program meant to project Chinese influence through a string of investments abroad. The basic idea is to invest loads of Chinese cash in countries that can’t afford to turn it down, and then leverage the resulting debt to secure control of strategically important infrastructure in those countries. It has worked swimmingly in Sri Lanka, where China now controls a major strategic port, and in Djibouti, where it now controls a port and a military installation.

The People’s Republic of China (PRC) is currently attempting to repeat the same pattern in the South Pacific. Take Tonga, a Polynesian nation of 106,000 that spans an archipelago of nearly 170 islands in the South Pacific, only one in five of which is populated. In 2018, the country’s GDP was about $450 million, or roughly what Texas A&M spent to renovate its football stadium a few years ago. It is a tiny, impoverished nation. It is also one of several countries caught in the PRC’s diplomatic debt trap: It owes China about $125 million, a little over a quarter of that GDP total.

Tonga’s plight is instructive. In 2006, anti-government, pro-democracy riots nearly destroyed the capital, Nuku‘alofa. The riots capped years of internal frustration with the Tongan royal family and its crony-capitalist government. After the unrest died down, Beijing stepped in to “help.” Between refinancing and interest, an initial $65 million loan had nearly doubled in cost by 2018, when Prime Minister Akilisi Pohiva organized several other South Pacific nations to seek debt relief from Beijing. By then, eight South Pacific nations had accumulated more than a billion dollars in debt to China over the prior decade.

At the time, Pohiva expressed concerns that debt forgiveness would come at the cost of strategic assets, as it had in Sri Lanka and elsewhere. Yet he had no choice: Tonga ended up joining the Belt and Road Initiative in exchange for a five-year deferment of the debt. China has its hooks in his country, and there’s no telling what concessions it could extract in the future.

The story has been similar in Kiribati, another remote South Pacific island chain. Kiribati occupies 32 atolls that straddle the equator and the international date line, roughly half the distance between Australia and Hawaii. Kiribati’s average elevation is just two meters above sea level, and it’s thought to be in danger of vanishing into the ocean as a result of climate change. It reportedly sought loans from Taiwan to purchase commercial aircraft to facilitate inter-atoll travel and the development of Kiritimati, the largest coral atoll in the world, as a tourist destination. In September 2019, after Taiwan declined, the country walked into China’s arms, ending its diplomatic recognition of Taiwan. And in January of this year, its prime minister, Taneti Maamau, signed on to the Belt and Road Initiative, in an agreement that would give China access to key deepwater ports off Kiritimati.

The same month that Kiribati ended its diplomatic recognition of Taiwan and recognized the PRC, the Solomon Islands, a small nation northeast of Australia, chose to do so, as well. Shortly afterward, Chinese investors purchased rights in perpetuity to the Solomon Islands’ Gold Ridge Mining facility for $865 million. A few months later, in early 2020, Reuters reported that the nation’s government was seeking $100 billion in loans — 66 times its $1.5 billion GDP — from “Chinese interests” in Beijing.

Another egregious case is Vanuatu, an island chain just to the south and east of the Solomon Islands. While Vanuatu has strong economic and cultural ties with Australia, New Zealand, and the EU, its future seems increasingly dependent on loans from Beijing. More than half of its $440 million national debt is owed to China. China has financed the construction of the largest port facility in the South Pacific at Luganville, the island chain’s second-largest city. Though the facility is ostensibly meant as a future port of call for tourists, the head of a local stevedore company stated the obvious to the Sydney Morning Herald in 2018: “There’s not much here to really excite passengers getting off the ship to wander around.” The installation is, however, large enough to accommodate an aircraft carrier, and the Australian government has raised concerns about the possibility of a future Chinese naval base.

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The twin purposes of China’s debt-trap diplomacy in the region are obvious. First, as an instrument of raw power, debt allows Beijing to bully its tiny neighbors into ceasing their recognition of Taiwan. Second, it allows Beijing to build up its maritime strength as it continues to invest in a blue-water navy, so that it is confident of its position in the event of an armed conflict with the U.S.

While it will be a long while before Beijing has sufficient strength to win such a conflict, the PRC can certainly make the U.S.’s defense of its interests in the region more expensive and difficult. It can also make America’s regional allies more vulnerable.

At the same time as it has unleashed its debt-colonialism strategy abroad, Bejing has undertaken a high-profile series of massive land-reclamation projects in disputed regions of the South China Sea, in many cases building man-made atolls that it then claims as its own and outfits with military installations. The aim is clear: By expanding its presence in the Pacific, China hopes to create additional pressure on the U.S., raising the cost of defending Taiwan, the absorption of which is Beijing’s main priority, while establishing control of key commercial shipping routes.

The good news is that the world is slowly waking up to the threat China’s aggression poses. Beijing’s heavy-handed treatment of Hong Kong and its opaque, shifty handling of the coronavirus pandemic have opened eyes around the globe, and Western leaders are starting to demand answers. The pandemic has put pressure on emerging markets, forcing the PRC to renegotiate prior debt commitments. It has also prompted a domestic backlash in China, where ballooning business and personal debt is driving isolationist sentiment and a sense that the government must fix its many domestic problems instead of moving forward with its ambitious, predatory adventures abroad.

To protect its historically democratic allies in the South Pacific, the U.S. must now take the opposite tack: Rather than retreating into our own problems, we should rally the world’s institutions and freedom-loving countries everywhere around a firm commitment to oppose China’s attempts at military and economic domination of the region.

China’s has made its intentions clear. The time has come for the U.S. to do the same.

Therese Shaheen is a businesswoman and CEO of US Asia International. She was the chairman of the State Department’s American Institute in Taiwan from 2002 to 2004.

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