China's aid to Pacific tops $800m

China's secretive aid programme to Pacific nations over five years totals just over $800 million, according to the latest Lowy Institute report on assistance from the communist state.

And the institute's estimate for 2009, the most recent review, is that China pledged almost $270 million in loans and aid grants to Pacific nations that year.

In lieu of China publishing its own data on foreign aid, the Sydney-based Lowy Institute surveys Pacific states for a breakdown of the aid and loans they have received from China.

Vanuatu refused to co-operate for the current report and Fiji gave incomplete data.

The report said that for the first time since the institute began gathering data in 2005, China made a substantial aid pledge of $156 million to Papua New Guinea.

In 2009, the aid to PNG accounted for 58 per cent of China's total assistance to the region.

"It is still too early to tell whether this jump in aid to PNG represents a shift in Chinese policy towards a more interests-based approach or is just an anomaly," the report said.

China had tended over the previous five years to select one or two countries each year to give the bulk of its aid to.

"The spike in aid to PNG in 2009 could fit into this pattern."

Its $156 million pledge to PNG in 2009 compared with $13 million in 2008, $13.7 million in 2007, $18 million in 2006 and $4 million in 2005.

The report says the bulk of China's aid is through soft loans for infrastructure projects.

In 2009 it pledged three large loans: $30 million to the Cook Islands to upgrade its water supply and roads; about $150 million to PNG mostly for the construction of 10 tuna canneries; and $54 million to Tonga for roads.

However, it expresses concern at the level of debt some of the poor Pacific states, especially Tonga, are accumulating.

Its debt to China is 32 per cent of its GDP - and the institute noted China was not the only lender in the Pacific.

The Asia Development Bank reported a total of public and private loans to the region of $2.8 billion in 2009.

"There is anecdotal evidence some island countries are taking on Chinese loans with the expectation that China will forgive the debts after an appropriate time has elapsed and if requested.

"While there is evidence of China's forgiving some loans (in 2006, for example, China extinguished US$11.5 million in debt owed by Samoa), one multinational donor knew of two cases where Governments had asked for a loan to be forgiven and this request was turned down by China, with the explanation that the time was not appropriate (leaving open the prospect of future forgiveness)."

The report was authored by Fergus Hanson, a research fellow at the Lowy Institute, and Mary Fifita of SBS.

They argue that the primary driver of China's engagement in the Pacific used to be its competition with Taiwan for diplomatic recognition, but that an unofficial truce has been in operation since the election of President Ma Ying-Jeou in 2008.

No country has switched its diplomatic recognition since Costa Rica switched from Taiwan to China in 2007.

"The truce has also affected the tone of China's engagement in the region," they say.

In April 2006, Premier Wen Jiabao attended the first China-Pacific Island Countries Economic Development and Co-operation Forum in Fiji where he announced $480 million in preferential loans over three years.