Ties That Bind Source: U.S. Air Force

Ties That Bind

Debunking myths about China’s ‘malicious’ development intentions in the Pacific

Since 2006, China has rapidly expanded its role in the development landscape in the Pacific, which contains several of the most aid-dependent countries in the world. This development has not gone unnoticed as China’s foreign aid policy – with ‘no strings attached’ – has received criticism from academics, journalists, and policy-makers alike. The debate on China’s engagement with the Pacific Island States (PICs) centers around, among others, (1) the increasing indebtedness of the PICs to Beijing, as a result of Chinese concessional loans, which, in effect, leaves open the possibility of Chinese political economic leverage of recipient PICs; and (2) the existence of a ‘market for votes’; where the PICs sell one of their most highly valued assets, their seat at the United Nations General Assembly, in exchange for foreign assistance offered by donor countries such as China. As Beijing continues to increase its development footprint, concern among established powers in the region, such as Australia, New Zealand, and the United States, about their waning influence over the small island nations is growing. However, to what extent is their concern justified?

‘Debt-trap diplomacy’

When one speaks of China’s aid efforts, the Hambantota port in Sri Lanka is often referred to as being indicative of China’s ‘devious’ development intentions. Sri Lanka, so the narrative goes, was unable to service the loans obtained from China, and therefore had no other choice than to hand over assets of national and strategic importance to Beijing. This mirrors a phenomenon known as ‘debt-trap diplomacy’ in which Beijing converts economic loss into geopolitical gain. Concern is mounting that the PICs are being drowned in Chinese debt as a result of the burgeoning scale of China’s lending and the institutional weakness within the PICs.

Yet, besides anecdotal evidence as presented above, there is no hard data that supports the claim that China is purportedly engaged in practices of aggressive lending to the insolvent PICs. Research recently conducted by the Institute of Security and Global Affairs of Leiden University has indicated the lack of influence of the PICs’ level of indebtedness on either the aggregate value and number of China’s development projects or its disaggregated parts (e.g. loans and grants). Furthermore, Rohan Fox and Matthew Dornan (2018) have indicated that while debt is a significant problem in the Pacific region, the PICs’ debt distress is not the result of Chinese loans. Although China is the largest bilateral lender in the Pacific, Beijing holds around 12% of the total debt owed by the PICs. In other words, the ‘debt-trap diplomacy’ narrative seems to be a far stretch.

"the ‘debt-trap diplomacy’ narrative seems to be a far stretch"

‘Market for votes’

Beijing’s foreign aid policy is a ‘lightning rod of criticism’. Besides supposedly entrapping the PICs with predatory loan practices, China is also believed to resort to aid packages as a means to influence voting behaviour in the United Nations General Assembly (UNGA). The Pacific has been described as an ‘aid market’, or ‘market for votes’; where the PICs sell the service of voting in exchange for monetary assistance offered by donor countries. Characterized by their remoteness, small populations, and lack of economic resources, the PICs are believed to utilize their own recognized sovereignty within the international system of states in exchange for aid and other benefits. Their leverage is based on the fact that the PICs account for approximately 6 % of the vote in the UNGA despite containing only 0.12 % of the world’s population.

Although anecdotal evidence suggests that indeed a market has been created in the Pacific, there is little evidence that confirms the existence of a marketplace where the PICs sell a surplus of votes to the highest bidder. While it is widely known that Chinese development assistance is tied to its ‘One-China policy’, with those recognizing Taiwan being punished in terms of the likelihood of and extent to which development finance is provided, recent research shows that Beijing neither rewards nor punishes PICs based on their voting behaviour.

Beijing’s foreign aid policy is a ‘lightning rod of criticism’

In spite of repeated criticism voiced against China’s foreign aid policy, concerns about the allocation of Chinese development financing to the PICs seem to be misplaced. Chinese development efforts, which are argued to be part of a grand strategy of gaining leverage over indebted recipients and are used as bargaining chips to influence the PICs’ voting behaviour in the United Nations, do not seem to have any malicious intent. Nonetheless, as China massively increases its aid and development presence in the Pacific region, growing concern among the established powers in the region has led to skewed debates on Chinese development activities in the region and has fostered misunderstandings of the motivations and determinants for its foreign aid.