Are Chinese White Elephants Drowning the Pacific Islands in Debt?

Despite concerns, China's footprint in the Pacific region is growing. Chinese President Xi Jinping (center) attends a meeting with Vanuatu Prime Minister Charlot Salwai (not pictured) at the Great Hall of the People in Beijing on May 28, 2019.

Source FLORENCE LO/AFP via Getty

Why you should care

Debt could make certain Pacific islands beholden to China.

When China gifted Vanuatu a gigantic $28.5 million national conference center in 2016, it became a potent symbol of how Beijing uses development aid to strengthen its diplomatic ties throughout the Pacific.

But just three years after completion, critics say the 1,000-seat concrete facility has become a “white elephant” that highlights the risks posed by poor planning as well as an intensifying geopolitical battle aimed at winning influence in the region. 

The building, which towers over the neighboring Australian High Commission in Port Vila, has failed to attract many events and is expensive to run. Vanuatu recently handed back maintenance to a Chinese company and has requested extra aid from Beijing to retrofit the building. 

“We didn’t do enough assessment of what our exact needs were, and we weren’t involved enough in the process of design,” says Ralph Regenvanu, Vanuatu’s minister for foreign affairs. 

Tonga, Vanuatu and Samoa are already among the countries most heavily indebted to China.

Over the past decade, Beijing has become one of the biggest aid donors in the Pacific, funneling $6 billion in grants and concessional loans into roads, ports and other projects linked to its Belt and Road Initiative, China’s global development plan to build trade and infrastructure links.

Beijing’s success has alarmed the U.S., U.K. and Australia, which are stepping up their own aid and boosting diplomatic representation to Pacific island nations. 

“The Pacific islands have always been important, most obviously in the Second World War, as strategic stepping stones,” says Euan Graham, a defense expert at La Trobe University in Melbourne. “Major power maneuvering for position has lately resumed, albeit in peacetime, as China scouts islands in the region for operating locations — a move that would complicate defense planning for America and its allies on the far side of the Pacific.” 

Analysts warn the scale of Chinese lending and poor scrutiny of financial sustainability could trap the island nations in debt. They cite the case of Hambantota, a $1.3 billion port that Sri Lanka handed over to Beijing on a 99-year lease in 2017 after its government was unable to repay loans advanced by China to develop the project. 

Tonga, Vanuatu and Samoa are already among the countries most heavily indebted to China, according to a Lowy Institute report.

Western defense analysts warn a $90 million Beijing-funded wharf project in Luganville, Vanuatu, could become the future site of a Chinese military base if the government defaults on repayments. 

CHINA-TONGA-DIPLOMACY-ROYALS

King Tupou VI (second left) of Tonga meets with Chinese Premier Li Keqiang (third right) at the Great Hall of the People in Beijing.

Source LINTAO ZHANG/AFP via Getty

Not all Chinese aid projects prove to be problematic for recipient countries. On Tanna, one of 82 islands that make up Vanuatu, locals are slashing through dense foliage as they clear a path for the island’s first tar-sealed road. The Export-Import Bank of China is lending almost $100 million for a project that is opening up inaccessible parts of the island. 

“The road helps people get their products to the port for export to Port Vila. More tourists are coming to Tanna, and it has created jobs,” says Malcolm Saman, administrator for Tafea Co-operative Association, a local business group. 

Small communities and businesses selling yams and other agricultural goods have already cropped up along the roadside. China Civil Engineering Construction Corporation, the Chinese state-owned company that is building the road, is employing dozens of local people and training them in construction skills. 

“On the whole, the flow of Chinese aid has benefited the Pacific and provided greater leverage for regional leaders to attract funds from traditional benefactors,” says Graeme Smith, an expert on Pacific aid at Australian National University. 

However, a lack of transparency and the potential for corruption is a concern, he adds. 

CCECC, which declined to comment, has won numerous contracts across the Pacific, where it has become so ubiquitous locals have nicknamed it “China China Everywhere China China.” The company’s success has raised question marks, particularly about its close relationship with numerous governments, and it’s fed anti-Chinese sentiment among some locals. 

This month, the Vanuatu Builders Construction and Allied Industries Association accused the government’s Central Tenders Board of neglecting local companies by awarding a $1 million contract for the development of a public building in Luganville to CCECC. It claimed several local companies made lower bids than the Chinese company — an allegation that prompted the tenders board to issue a statement saying it operated “without fear or favor.”

Landowners also recently rebuffed a proposal by CCECC to build the nation’s first five-star hotel on Tanna. 

Regenvanu, however, insists that Australia is being unnecessarily alarmist about the relationship with China. “We are one of the countries closest to China in the Pacific,” he says. “But we’re still closer to Australia than we are to China in pretty much every term you can think of.”

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By Jamie Smyth

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