China’s aid to the South Pacific is increasingly targeted toward its political allies as appetite for Chinese credit falls and competition grows with the US for influence, an independent Australian think tank reported yesterday.
China’s overall economic influence among the 14 aid-dependent island nations in the region is losing ground because of better loan deals being offered by US allies, especially Australia, the Sydney-based Lowy Institute said in its annual analysis of aid to the region.
Focus on the strategic competition in the South Pacific has heightened since China struck a security pact with the Solomon Islands last year that raised the prospect of a Chinese naval foothold in the region.
Photo: Reuters
China has increased aid to the Solomons and Kiribati since they switched diplomatic allegiances to China from Taiwan in 2019, the report said.
The US has sought to counter Chinese influence in the region with additional diplomatic and economic engagement. US President Joe Biden recently hosted Pacific Island leaders at the White House.
China’s overall aid to the island states in 2021 — the latest year for which the international policy think tank has comprehensive data — was US$241 million.
The year continued a downward trend in Chinese grants and loans to some of the world’s most aid-dependent countries since China’s US$384 million peak in 2016, the institute reported.
The latest report revises previous Chinese annual contributions based on additional data, but maintains the downward trend.
“It reflects a strategic shift to reduce risk, cement political ties and enhance capital returns,” the report said.
China’s US$3.9 billion aid to the Pacific since 2008 was primarily directed to countries with which it has diplomatic ties, including Cook Islands, Fiji, Micronesia, Niue, Papua New Guinea and Samoa.
“Because China only provides ODF [official development finance] to a subset of Pacific countries, it can play an outsized role in these countries that belies its moderate role share of total regional financing,” the report said.
China was the third-biggest aid contributor to Pacific after Australia, which provides 40 percent, then the Asian Development Bank, the report said.
The fall in Chinese aid has been driven mainly by a lack of Pacific government interest in Chinese loans that have left Pacific states, including Tonga, heavily in debt.
The US has warned that Chinese finance is a debt trap for poor countries that threatens their sovereignty.
“What is very clear is that the interest from Pacific governments in Chinese loans, specifically infrastructure loans, has declined,” Lowry researcher Riley Duke said. “It’s just being outcompeted.”
China held a third share of the infrastructure investment in the Pacific market two decades ago, but that proportion had since halved, the report said.
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