Chinese Paranoia

Inside China’s ‘tantrum diplomacy’ at APEC

By Josh Rogin 

Chinese and Papua New Guinea flags line a street in front of the parliament building in Port Moresby, Papua New Guinea, host of the Asia Pacific Economic Cooperation summit. 

PORT MORESBY, PAPUA NEW GUINEA — For the first time in its 20-year history, the Asia-Pacific Economic Cooperation summit ended in disarray Sunday when the 21 member countries could not reach consensus on a joint statement because of objections by one member — China. 

When the summit failed, to the disgust of the other diplomats, Chinese officials broke out in applause.
But that was only the final incident in a week during which China’s official delegation staged a series of aggressive, bullying, paranoid and weird stunts to try to exert dominance and pressure the host nation and everyone else into succumbing to its demands.
“This is becoming a bit of a routine in China’s official relations: tantrum diplomacy,” a senior U.S. official involved in the negotiations told me. 

“Them walking around like they own the place and trying to get what they want through bullying.”
Even before the summit started, and continuing right up to its end, Chinese officials used every opportunity to strong-arm or undermine the host nation government of Papua New Guinea (PNG) and the other summit members. 

Chinese tactics included being thuggish with the international media, busting into government buildings uninvited, papering the capital city of Port Moresby with pro-Beijing propaganda and using cyberattacks to stifle the message of Vice President Pence, the U.S. delegation leader.
I was traveling with Mr Pence, and the APEC summit was his last stop in a week-long Asia tour, which included visits to Japan, Australia and Singapore, where the Association of Southeast Asian Nations (ASEAN) summit was held. 

The PNG stop was a showdown of sorts between Mr Pence and Chinese dictator Xi Jinping, who had been in Port Moresby for several days prior for an official state visit.
China’s attempted “charm offensive” was visible everywhere. 

The Chinese delegation had filled the streets of Port Moresby with Chinese flags for Xi’s state visit. The PNG government demanded that they be taken down before the APEC summit.

The Chinese officials eventually complied, but then replaced them with solid red flags — almost identical to the official Chinese flags, but without the yellow stars.
A huge banner along a major thoroughfare touted China’s One Belt, One Road economic initiative as “not only a road of cooperation and win-win situation, but also a road of hope and peace!” 

In his speech at APEC, Vice President Pence called it “a constricting belt” and “a one-way road.”
China’s first outwardly intimidating move was to ban all international media from Xi’s meeting with the leaders of eight Pacific nations. 

Journalists had traveled from around the region to attend the event, and the PNG government gave them credentials. 

But Chinese officials barred them from entering the building and only allowed China’s state media to cover it. 

A U.S. official called it an “own goal” by China, because the journalists then could only write about China’s brutish behavior.
Things got worse from there. 

On Saturday, Xi and Vice President Pence were the final two official speakers at the public part of the summit. 

They gave their speeches on a cruise ship docked off the coast, while most journalists were stationed on shore in the International Media Center. 

But five minutes into Vice President Pence’s remarks, the Internet in the media center crashed for most of the reporters there, meaning they couldn’t hear or report on it in real time.

Just as Mr Pence was finishing his speech, the media center’s Internet mysteriously came back on. U.S. officials told me they were investigating what happened.
“Was there any trouble with the Internet for the speaker before Mr Pence?” another senior U.S. official asked me. (No.) “And who was that speaker again?” (Xi.)
Then things got even crazier. 

Behind the scenes, the member countries were furiously negotiating over the joint statement. 

Chinese officials, not happy with how they were faring inside the negotiations, demanded a meeting with the PNG foreign minister. 

He declined, not wanting to appear to violate PNG’s neutrality as summit chair.
The Chinese wouldn’t take no for an answer. 

They went to the foreign ministry and physically barged into his office, demanding he meet with them. 

He called the local police to get them out of the building. 

Every diplomat I talked to in PNG was stunned by China’s actions. 

But that’s not the end of it.
The negotiations continued into Sunday, and the Chinese delegation’s bad behavior continued apace. According to U.S. officials, Chinese were getting so paranoid about the statement that they began pushing into the meetings of smaller groups of countries on the summit’s sidelines. 

Inside the official sessions, Chinese yelled about countries “scheming” against China. 

Nobody else in the room was yelling, the U.S. officials said.
All 20 countries except China finally agreed to the joint statement, except for China.

The Chinese delegation objected primarily to one line that read: “We agree to fight protectionism including all unfair trade practices.” 

They perceived that as singling out and targeting China.
The Chinese filibustered inside the session, giving long monologues, knowing that time was short and the world leaders had planes waiting to take them home. 

When the time ran out and therefore the summit had officially failed, the Chinese delegation stationed in a room near the main session broke out in applause.
There are three conclusions we can take away from this tragicomedy of errors put on by the Chinese government. 

First, they are behaving in an increasingly brazen and coercive way. 

This is especially true with the small Indo-Pacific countries — such as Papua New Guinea — that they are flooding with development projects and saddling with massive debt.
Second, the paranoid and oversensitive nature of China’s behavior is a clear indication that the government feels under threat from the United States and its allies. 

Lastly, the fact that Beijing is acting in a way that actually alienates other countries — which is clearly against China’s own interests — shows that Chinese official action is controlled from the top down in ways that often prevent good decision-making. 

Even when the Chinese delegation saw its tactics were backfiring, they didn’t have the authority to change course.
This is what the Chinese government is today: pushy, insecure, out of control and with no desire to pretend anymore they will play by the rules the international community has been operating under for decades. 

How to deal with that reality is the debate the rest of the world must now begin in earnest.

Trade War

Vice President Mike Pence vows no end to tariffs until China bows

Reuters

U.S. Vice President Mike Pence speaks during the APEC CEO Summit 2018 at Port Moresby, Papua New Guinea, 17 November 2018. 

PORT MORESBY -- The United States will not back down from its trade dispute with China, and might even double its tariffs, unless Beijing bows to U.S. demands, Vice President Mike Pence said on Saturday.
In a bluntly worded speech at an Asia Pacific Economic Co-operation (APEC) summit in Papua New Guinea, Pence threw down the gauntlet to China on trade and security in the region.
“We have taken decisive action to address our imbalance with China,” Pence declared. 

“We put tariffs on $250 billion in Chinese goods, and we could more than double that number.”
“The United States, though, will not change course until China changes its ways.”
U.S. President Donald Trump, who is not attending the APEC meeting, is due to meet Chinese dictator Xi Jinping in Argentina.
President Trump has imposed tariffs on $250 billion worth of Chinese imports to force concessions on a list of demands that would change the terms of trade between the two countries. 

China has responded with import tariffs on U.S. goods.
Washington is demanding Beijing improve market access and intellectual property protections for U.S. companies, cut industrial subsidies and slash a $375 billion trade gap.
There was no hint of compromise from Pence.
“China has taken advantage of the United States for many years. Those days are over,” he told delegates gathered on a cruise liner docked in Port Moresby’s Fairfax Harbour.
He also took aim at China’s territorial ambitions in the Pacific and, particularly, Xi’s Belt and Road Initiative to expand land and sea links between Asia, Africa and Europe with billions of dollars in infrastructure investment.
“We don’t offer constricting belts or a one-way road,” said Pence.
While not referring directly to Chinese claims over various disputed waters in the region, Pence said the United States would work to help protect maritime rights.
“We will continue to fly and sail where ever international law allows and our interests demand. Harassment will only strengthen our resolve.”

Axis of Evil

China and Russia’s awkward romance
By Jonathan Hillman

Oriental despots: Xi Jinping hosted Vladimir Putin in Beijing to discuss increasing economic and military cooperation between their two countries. June 25, 2016. 

This week, Chinese dictator Xi Jinping and Russian President Vladimir Putin are capitalizing on President Trump’s absence from two major summits. 

Putin met with the Association of Southeast Asian Nations (ASEAN) in Singapore, and Xi will attend the Asia-Pacific Economic Cooperation (APEC) summit in Papua New Guinea. 

In Asia, where economics is strategy, Xi and Putin are not only showing up but claiming to champion a new approach to globalization.
Lately, Xi and Putin like calling for openness and inclusivity, appropriating Western language to fuel resentment in many of the places that have benefited from globalization the most. 

They even pledged to link their signature economic visions in 2015, a political act kept alive by endless joint statements and signing ceremonies, including those last week. 

China’s Belt and Road Initiative promises $1 trillion of new infrastructure, trade deals and stronger cultural ties with over 80 countries. 

The Eurasian Economic Union puts Russia at the center of a single market for goods, services, capital and labor.
The problem is not American ignorance of this threat but the absence of a coherent strategy in meeting it. 

“Moscow and Beijing share a common interest in weakening U.S. global influence and are actively cooperating in that regard,” the U.S. Defense Intelligence Agency concluded in a 2017 report. 

But unintentionally, the cumulative effect of U.S. sanctions against Russia and tariffs against China could hasten the very threat Washington seeks to avoid: an anti-Western authoritarian partnership between the world’s largest nuclear power and second-largest economy.
That nightmare can still be avoided. 

Thankfully, the Sino-Russian partnership still has an artificial flavor, supported more by leaders-on-high than organic developments on the ground. 

After each round of ceremonial signings and partnership promises, China still towers above Russia in economic and demographic terms. 

With a long history of invasions, Russia’s paranoia about foreign powers approaching its borders will not vanish overnight.
But Russian policymakers must be persuaded to take China’s economic power as seriously as the West’s military power. 

China’s grand ambitions run through Russia and its neighbors, but its investments and infrastructure projects have not yet triggered alarms in Moscow. 

Russia is the gatekeeper for China’s overland push westward, but Xi now holds the keys in the form of investment and respect that Putin, economically and diplomatically isolated from the West, craves.
Washington should highlight the risks of China’s Belt and Road in Russia’s backyard. 

Three of the eight countries with the highest debt risk from Chinese lending are Russia’s close neighbors: Tajikistan, Kyrgyzstan and Mongolia. 

China can exploit the weakness of small economies that borrow big, as it did when it wrote off a portion of Tajikistan’s debt in exchange for disputed territory in 2011. 

Inevitably, as China’s economic footprint grows, so will its security footprint. 

Sightings of Chinese military vehicles and construction in Afghanistan’s Wakhan Corridor suggest this expansion is already underway.
To take the air out of Xi and Putin’s globalization tale, Trump’s trade policy must be updated. Yesterday, a memorandum of understanding was signed to boost trade between ASEAN and the Eurasian Economic Union. 

China is backing the Regional Comprehensive Economic Partnership, a regional deal that gained momentum when Trump withdrew from the 12-nation Trans-Pacific Partnership. 

Easier said than done, but the United States urgently needs to get back into the game of offering regional alternatives rather than bilateral ultimatums.
Finally, a bit of old-fashioned diplomacy would go a long way. 

For now, the United States does not need to choose between Russia and China, as President Richard Nixon famously did over four decades ago. 

It would be wiser to work selectively with both sides, toning down the “with us or against us” rhetoric and noting areas of existing cooperation. 

Before reflexively approving the next round of sanctions, American policymakers should carefully evaluate their longer-term consequences, such as encouraging the rise of alternative payment systems, harm to the dollar, and pushing U.S. competitors closer.
With restraint and patience, the United States could reestablish itself as a natural wedge between Russia and China. 

At the very least, it must avoid becoming a bridge that unites them.

China's boulevard to nowhere: The battle for influence in APEC's Pacific host

By Jonathan Barrett, Colin Packham

A general view shows the APEC Haus building in Port Moresby, Papua New Guinea, August 10, 2018, in this picture obtained by Reuters on October 25, 2018 from social media. 

SYDNEY -- Workers are putting the finishing touches on a Beijing-funded boulevard designed to showcase Papua New Guinea’s (PNG) capital to visiting world leaders at this month’s Asia-Pacific Economic Cooperation forum.
Critics say the six-lane road -- complete with wide, illuminated footpaths -- is emblematic of a regional power play whereby donor countries vie for influence with show-stopper gifts, even as deeper problems plague the Pacific nation.
Australia, PNG’s traditional partner and a close Washington ally, is lifting aid and has plowed more than A$120 million ($86.5 million) into APEC, seeking to keep its sway over its neighbor.
Allan Bird, a parliamentarian and governor of PNG’s second largest province, said the boulevard outside parliament house had little practical benefit.
“Whatever the Chinese government spent on it, it could have been better spent somewhere else, buying medicine or building a school,” Bird told Reuters.
Bird said such gifts put pressure on traditional partners such as Australia to place less restrictions around donated funds and refrain from criticizing PNG’s own spending, which controversially includes buying 40 Maseratis and three Bentleys for APEC.
“There is no transparency around the use of public finances,” Bird said.
“The government can turn to other donors and tell them to ‘toe the line or else we’ll be quite happy to take Chinese money’. They use it as leverage.”
The PNG government did not respond to questions on funding for the boulevard project or other aspects of APEC. 

PNG has previously thanked China for its infrastructure funding and aid, and denied Beijing had asserted any diplomatic pressure.
Chinese Foreign Ministry spokesman Lu Kang said people should be supportive of the PNG government’s efforts to promote regional economic integration by hosting the summit.
Speaking in Port Moresby on Wednesday, the Chinese government’s top diplomat, State Councillor Wang Yi, said in recent years his country had helped build more than 100 projects in PNG and other Pacific island nations, including schools and hospitals, which these countries had greatly appreciated.

AIDING AND INDEBTING
If the region -- pivotal in the Pacific battles of World War II -- is a strategic treasure, PNG is one of its jewels.
It controls large swaths of ocean, is rich in mineral resources and is close to both U.S. military bases on the island of Guam and to Australia.
Formerly administered by Canberra, PNG has in recent years turned increasingly to China for financing as Beijing becomes a bigger player in the region.
PNG has the largest debt to China in the South Pacific, at almost $590 million, representing about one-quarter of its total external debt.
When world leaders arrive in the capital of Port Moresby for APEC, the contributions of donors will be obvious.
Australia will provide security personnel, naval patrol boats and a helicopter-docking ship; and the city will have an upgraded sewerage system care of the Japanese government.
Beijing has refurbished the show-piece convention center and gifted coaches, mini-buses and fire-engines.
China also rebuilt city’s main highway, which according to Moresby-based think tank the Institute of National Affairs, didn’t really need an upgrade.
The institute’s executive director, Paul Barker, said the resurfaced streets and new boulevard had little public benefit.
“It’s hard to imagine the boulevard will have any use other than marches or grand displays from time to time,” he said.
“It’s not really a road that goes from anywhere to anywhere.”
While the exact cost of each project is unclear, a Reuters analysis of PNG government announcements shows China’s total bill would be several tens of millions of dollars.
Australia’s A$120 million contribution to the event represents nearly a third of what Canberra spent when hosting world leaders for G20 in 2014.
Australian foreign aid to PNG is budgeted to hit a record A$572 million this year as Canberra diverts more capital to the Pacific at the expense of other regions.
On Thursday, Australia announced it would help fund a PNG navy base that China had expressed an interest in funding.
“Over the last year, we have seen Australia and New Zealand aggressively expand their focus on the Pacific, which is something we are very pleased about,” said a senior U.S. official, who spoke on condition of anonymity.
Australia’s Minister for Foreign Affairs Marise Payne declined to comment on Canberra’s funding for APEC. 

Australia has previously said it was “partnering” with PNG to showcase trade, tourism and investment opportunities.

THE FAST AND THE FURIOUS
“(PNG Prime Minister) Peter O’Neill sees APEC as putting PNG on the world stage,” a British official told Reuters. 

“If a donor wants to win favor with O’Neill, assisting with APEC is the way to do it.”
Yet, while gifts pour in, parts of PNG are still struggling to recover after a massive earthquake in February killed more than 100 people, destroying crops and infrastructure.
Polio, a potentially deadly and highly infectious viral disease almost eradicated globally, also re-emerged in PNG in recent weeks.
Faced with such challenges, the purchase by the PNG government of a fleet of luxury vehicles has sparked public protests.
Retailing in Australia at more than A$200,000 ($141,560), a Maserati is well beyond the reach of a typical PNG local, who earns on average $2,400 each year, according to U.N. data.
PNG’s government has said it has agreements in place to sell the cars immediately after APEC and taxpayers will bear no financial loss.
Diplomatic sources told Reuters nearly all leaders attending the event would travel in special armored vehicles, making it unclear what the sports cars will be used for.
Donors have so far largely refrained from public comment.
“Some are worried about rocking the boat and don’t want to threaten bilateral relations by publicly criticizing O’Neill for buying luxury cars,” said the senior British diplomatic source.

China almost has Australia surrounded. But its debt-trap diplomacy has been exposed

Beijing’s island-grabbing campaign is getting close to home. It’s muscling in on tiny nations from the Indian to the Pacific Oceans.
By Jamie Seidel

CHINA’s island-grabbing campaign is getting close to home. 

It’s muscling in on tiny nations from the Indian to the Pacific Oceans. 

But Australia’s begun pushing back.
Ceylon. Savo Island. Coral Sea. Guadalcanal. Gilbert and Marshall Islands. Tarawa. Truk. Guam.
These were names plucked from obscurity by bloody battles against Japan during World War II. 

They were battles fought because these seemingly insignificant islands — some little more than coral atolls and volcanic outcrops — are important. 

They are remote outposts, rare landfalls in vast oceans. 

They sit astride shipping lanes that carry the lifeblood of South-East Asia’s and Oceania’s economies.
Those controlling these specks on the map potentially have an impact on world affairs seemingly out of all proportion.
Not since the darkest days of World War II has Australia begun to feel the pressure of isolation and constraint. 

Germany did little more than harass our shipping in the Indian Ocean, carrying troops and equipment to the Middle East and vital resources in return. 

But Japan’s overwhelming raids on Darwin and Ceylon (Sri Lanka) in 1942 brutally demonstrated just how vulnerable we were. 

And once the Pacific Islands began to fall, the links between Australia and the United States began to look tenuous as well.

A snapshot of shipping flowing to and from Australia, and through the region, from www.shipmap.org.

That encirclement of Australia was with steel ships, aluminium aircraft and the blood and sweat of tens of thousands of troops.
It’s an encirclement some analysts fear we are experiencing again.
But in place of warships and tanks, China is steamrolling across our region with promises of grand works of infrastructure — and weaponised loans.
Debt-trap diplomacy is behind a new land grab. 

It’s the lure of loans pushed on poor countries that cannot afford to repay them.
Now new regional names are registering on Australia’s radar as they teeter and fall.
Male. Manus. Luganville. Wewak.
China has showered small nations such as Vanuatu, Tonga and the Solomon Islands with concessional loans. 

The Lowy Institute think-tank estimates Beijing pushed more than $2.3 billion into to the region between 2006 and 2016.
The fates of these far-flung places could be a bellwether of our own.

The new runway of Velana International Airport in Male, Maldives. 

ISLANDS IN CHAINS
Last week, the scattering of tiny islands that is the Maldives Archipelago in the Indian Ocean opened an enormous new runway.
Velana International Airport is on the island of Male. 

The broad new airstrip was built on land reclaimed from the sea by a Chinese state-backed company, using money from … Beijing.
It followed close on the heels of another controversial Maldives-China project.
“The nation celebrated the opening of the China-Maldives Friendship Bridge, hailed as the project of the century in the small Indian Ocean nation and a hallmark project of the China-proposed Belt and Road initiative (BRI),” the state-run Global Times reported in August.
“Although some said the Maldivian government will bear a heavy debt from the massive infrastructure co-operation with China, Maldivian officials said they appreciate China’s generosity.”
It was a pointed — if unconvincing — rebuttal of the ‘debt-trap’ narrative.
But Beijing is already in a position in the tiny strife-torn nation to seize both as collateral — and turn them towards military purposes.
Then there’s Manus.

The military base established on Manus Island during World War II has suddenly become of interest to both Beijing and Canberra. 

Once part of the British Admiralty Islands, it was seized from the Japanese by the United States for use as a major World War II naval staging post.
Now part of Papua New Guinea, it has once again returned to the world’s stage.
China has been showing interest.
Having airfield and port facilities there could boost its ‘Island Chain’ ambitions, and establish a prickly thorn between Australia and US facilities on the island of Guam.
But Australia has begun pushing back.
“The Pacific is a very high-priority area of strategic national security interest for Australia,” Prime Minister Scott Morrison said, refusing to confirm or deny reports Australian defence officials had visited the Lombrum Naval Base on Manus to assess its potential for expansion.
Details of any future jointly-operated, upgraded facility there will not be revealed before the Asia-Pacific Economic Cooperation summit in Port Moresby in November.
The Maldives and Manus are just the most recent in a rapid-pace series of international power plays in the Indian and Pacific Oceans.
Relations between Canberra and Beijing plunged to a new low earlier this year after we criticised China’s ‘debt-trap diplomacy’ and undue influence in the politics of countries throughout the region — including our own.
Beijing lashed back, using its state-run media to label Australia as an “arrogant overlord”.

Chinese dictator Xi Jinping looks on during bilateral talks at the Maldives President’s Office in the capital island Male, where he sought backing for a “21st century maritime silk road”. 

WAKING DRAGON
It’s about Xi Jinping’s grand vision.
He sees China’s influence extending far beyond its own borders.
In 2013, he detailed his grand scheme to revitalise the ancient Silk Road and sea spice routes.
It would ‘restore’ China’s position at the centre of a trade hub extending to Europe and Africa.
The Belt and Road Initiative — as it has become known — demands a networks of ports, airfields, roads and railways spanning the globe.
Chinese state-owned companies now control about 76 ports in 35 countries — including Darwin. 

And while Beijing openly insists it only wants to use these ports for commercial purposes, its warships and submarines have already been seen docked in several.
Now Xi wants another ‘Silk Road’ — this time extending into the Pacific.
Ministers from Tonga, Samoa, Vanuatu and Fiji were among those invited to Beijing in 2017 for the launch of the Belt and Road project. 

They were offered access to $55 billion in loans.
This sparked alarm in Australia, the US and Europe.
Beijing’s loans do not come cheap.
“Such indebtedness gives China significant leverage over Pacific Island countries and may see China place pressure on Pacific nations to convert loans into equity in infrastructure,” the Lowy Institute’s recent Safeguarding Australia’s Security Interests report warns.
“It’s not ‘win-win’ for China and the recipient, but simply ‘win’ for China, which not only gets access to local resources and new markets, and forward presence, but can coerce the recipient state to pay a ‘tribute’ to Beijing by ceding local assets when it can’t pay back its debts,” the Australian Strategic Policy Institute’s Dr Malcolm Davis notes.

Hambantota Port in Sri Lanka is an example of Beijing’s debt-trap diplomacy. China has won a 99-year-lease on the facility, and a 70pc controlling stake in its management.
An editorial published by the state-run Global Times says South Pacific nations had been ‘bewitched’ by Western countries including Australia and the US “who sought to gain political leverage in the region”.
“Unlike Western aid, which always comes with political and economic conditions, Chinese aid has been widely welcomed by South Pacific nations as it has no political conditions,” it quoted research fellow in Australian Studies Yu Lei as saying.
But China does not openly declare its international aid projects in the same way other nations such as Australia does. 

This has raised a degree of anxiety about exactly how much it is spending, where — and why.
Now, China’s taking a leaf out of the US playbook.
It wants strong military facilities spaced around its ‘sphere of influence’.
It calls that sphere the Second Island Chain — a rough line from Japan in the north to Papua New Guinea in the south.
But as Beijing’s dominance over the First Island Chain (including Taiwan, the Spratlys, and Paracels) of the South China Sea seems all but complete, a ‘Third Island Chain’ appears to be emerging — extending from the Maldives in the west to Fiji in the east.
“The most troubling implication for Australian interests is that a future naval or air base in Vanuatu would give China a foothold for operations to coerce Australia, outflank the US and its base on US territory at Guam, and collect intelligence in a regional security crisis,” Rory Medcalf, the head of the National Security College at the Australian National University, wrote in a recent Lowy Institute report.
It’s a similar story for the Maldives, potentially cutting Australia’s fuel supplies and trade links to Singapore, India and Europe.

United States, Indian and Japanese warships exercise together. Concern at Beijing’s expansive ambitions have drawn regional powers together. 
GAME OF THRONES
China’s rapid expansion has not gone unnoticed.
In a speech to Australia’s Parliament in 2011, then US President Barack Obama announced a ‘pivot’ back to the Asia-Pacific. 

Existing military facilities would be reinforced and strengthened. 

Forces would be based in Darwin.
It wasn’t all about troops.
Fresh efforts would be made on the diplomatic and economic fronts. 

Chief among these was the proposed (now abandoned) Trans-Pacific Partnership (TPP).
“This allowed Washington to counter Beijing’s concerns that the pivot was primarily a military move aimed at containing a rising China,” the Lowy Institute says. 

“However, the decision by the Trump administration to abandon the TPP has given US strategy in the Indo-Pacific more of a military character.”
President Trump’s attitude towards international agreements and treaties has unsettled South-East Asia. 

Will he be true to his nation’s word? 

Or would he pull the US out?
It’s a question that has prompted the region to look to strengthen its own relationships.
Generally, the Melanesian states have been seen as Australia’s area of responsibility while the US and New Zealand watch over the Polynesian islands.
In recent decades, that influence has weakened.
“Being the dominant traditional power has not always made Canberra popular in Pacific Island nations, despite being the region’s largest provider of aid,” the Lowy Institute notes. 

“However, failing to forge stronger regional partnerships now, in the hope that the current geostrategic dynamics will not change, contains significant risk.”
Things haven’t been getting better.

Australia has been ‘showing the flag’ in the Indo-Pacific, sending its new helicopter carrying assault ships on visits as a demonstration of its military — and disaster relief — capacity. 

The Pacific Islands have repeatedly expressed dismay at the deep state of denial Australian and US politicians are in over the looming global warming crisis.
After all, their low-lying islands are already falling victim to rising sea levels.
President Trump’s withdrawal from the Paris Agreement earlier this year was called “pretty selfish” by the former president of Kiribati. 

The Prime Minister of Tuvalu went further: “I think this is a very destructive, obstructive statement from a leader of perhaps the biggest polluter on earth and we are very disappointed as a small island country already suffering the effects of climate change.”
China, at least, pays lip-service to the international threat.
So, with this issue at least, it has stolen the moral upper ground.
And then there are the promises of Xi Jinping.
He’s been touting his ‘Chinese model’ as a “new option for other countries who want to speed up their development while preserving their independence.”
But his real purpose, says Dr Davis, is more ominous.
“Chinese ambitions don’t end at the reunification of Taiwan and China on Beijing’s terms or control of the South China Sea. China is clearly emerging as a hegemonic power, exploiting both soft-power inducements and hard-power threats to reassert itself as a new Middle Kingdom, and overturning what it sees to be a century of humiliation. Part of the ‘China Dream’ is ensuring that its periphery is secure through a belt of vassal states that accede to Beijing’s interests.”

A Chinese H6K takes off into a golden dawn. Beijing has been proudly boasting of its position as a new world power. 

DRAGONS AT THE GATES
The US Pentagon is alert — and alarmed.
“China is using its economic penalties, influence operations, and implied military threats to persuade other states to heed its political and security agenda,” the US National Security Strategy of December 2017 reads. 

“Chinese dominance risks diminishing the sovereignty of many states in the Indo-Pacific region”.
That includes Australia.
Beijing has been doing all it can to expand its status as a maritime power. 

It now has 43 attack submarines at its disposal — that’s more than the United States. 

It’s also been launching surface ships at an unprecedented rate, some 24 new destroyers and 31 new frigates since 2000 alone.
While formidable, it’s not likely to rival the US for another 20 years.
But it will be powerful enough to project significant power wherever it desires.
“China’s confidence on the international stage has been bolstered by its perceived successes in the South China Sea where it has occupied, and physically enhanced, a series of uninhabited reefs,” the Lowy Institute report warns.
Now China is pursuing a military and diplomatic strategy which “seeks Indo-Pacific regional hegemony in the near-term and displacement of the United States to achieve global pre-eminence in the future”, the US National Defense Strategy of 2018 states.
China’s actions are “undermining the international order from within the system by exploiting its benefits while simultaneously undercutting its principles.”

F-35B Lightning IIs with US Marine Fighter Attack Squadron 211 fly over Wake Island, one of a series of military bases retained after World War II. China wants its own ‘buffer zone’ of islands in the Pacific and Indian Ocean to protect its interests. 

And that brings it head-to-head with the US along the ‘Second Island Chain’.
At its heart is the island of Guam. 

It is a US territory and major defence facility.
The free compact states of Palau, the Marshall Islands and the Federated States of Micronesia all operate under a post-war agreement with the US, allowing a base on the Marshall Islands and the veto over any military access by any other nation. 

From the outset, this was intended to provide the US with a Pacific ‘buffer zone’ between itself and Asia.
Now China wants a ‘buffer zone’ between itself and the US.
At the bottom of the ‘Second Island Chain’ is Papua New Guinea, and the island of Manus.
Australia’s moves to thwart Beijing’s ‘Belt and Road’ projects are a sign of growing ‘push-back’ from the West.
But Beijing is determined — and persistent.
“Powerful drivers are converging in a way that is reshaping the international order and challenging Australia’s interests. The United States has been the dominant power in our region throughout Australia’s post-second world history. China is challenging America’s position,” Australia’s 2017 Foreign Policy White Paper reads.

The Royal Australian Navy Anzac Class Frigate HMAS Stuart is observed through periscope on board the RAN Collins Class Submarine HMAS Sheean. While isolated, Australia is highly dependent on its shipping lanes to the northeast and northwest. 

LOOK TO YOUR MOAT
The 2016 Defence White Paper made the situation pretty clear: “Australia cannot be secure if our immediate neighbourhood including Papua New Guinea, Timor-Leste and Pacific Island Countries becomes a source of threat to Australia. This includes the threat of a foreign military power seeking influence in ways that could challenge the security of our maritime approaches or transnational crime targeting Australian interests …”
Three of Australia’s five main maritime trade routes pass through the Pacific. 

The two largest are in the Indian Ocean.
Our trade with the US passes near New Caledonia and Fiji. 

Those to and from Japan, Taiwan — and China — largely go past New Britain and Papua New Guinea, or through the Solomon Islands, Bougainville and New Britain.
In the west, our trade funnels past Sri Lanka, the Maldives and Indonesia.
If there is trouble in the Pacific, trade will have to divert through the Torres Strait to Indonesia’s Suda and Lombok Straits.
If there is trouble in the Indian Ocean, exports from Western Australia — such as gas and iron ore — would have to take a long detour through the Tasman Sea.

HMAS Adelaide berthed at the Port of Suva in June. 

“Australia’s reliance on maritime trade with and through South East Asia, including energy supplies, means the security of our maritime approaches and trade routes within South East Asia must be protected, as must freedom of navigation, which provides for the free flow of maritime trade in international waters,” the Defence White Paper notes.
“The Government will work with Pacific Island Countries to strengthen their ability to manage internal, transnational and border security challenges … This includes working to limit the influence of any actor from outside the region with interests inimical to our own.”
Australia is gifting 19 new patrol boats to 12 Pacific Island Nations. 

The project, which includes maintenance and support and costs $2 billion over 30 years, has seen the first boats delivered this year. 

They are part of a co-ordinated project including RAAF surveillance and visits by RAN warships.
The Solomon Islands has recently signed a security treaty with Australia. 

Security partnership understandings have been negotiated with Tuvalu and Nauru. 

Kiribati is in talks.
Australia has also been showing the flag.
One of our new helicopter-carrying assault ships, HMS Adelaide, joined three other warships on a 13 week Indo-Pacific Endeavour exercise.
Just in case our Pacific partners had forgotten.
Restoring Australia’s place in its region will take considerably more effort, the Lowy Institute warns. We must offer government services, access to labour markets, and assist with defence “in return for an undertaking that foreign military forces or installations would not be allowed in these countries. This would mitigate the risk of China gaining access to dual-use facilities in these nations in return for debt reduction, while safeguarding the sovereignty of these independent nations.”

A Chinese H6K strategic bomber flies over disputed coral reefs in the South China Sea. Beijing is looking for similar island bases in the Indian and Pacific Oceans. 

ISLAND CHESSBOARD
PACIFIC OCEAN
While not having ‘traditional’ trade links to justify its interest in the region, China has aggressively stepped forward with the promise of cheap loans into a region somewhat disillusioned by Australia and the US.

1. FIJI: After a 2006 military coup, Australia — among others — imposed sanctions on Fiji until it returned to democratic rule. China places no value in such systems of government. So it stepped in, offering loans for infrastructure projects built by Chinese labourers. While not entirely welcomed by the populace, it gave Beijing powerful influence among Fiji’s leaders.
2. PAPUA NEW GUINEA: Its military officers have also been invited to China to attend training courses.
3. SAMOA: Beijing is increasingly pressuring this island nation to repay its debts. Like many others.
4. SOLOMON ISLANDS: Earlier this year, Prime Minister Turnbull promised the Solomons (and Papua New Guinea) that Australia would pay for a new undersea internet cable in order to brush aside the state-controlled Chinese telco giant Huawei, as well as relieve the island nations of the financial burden.
5. TONGA: In 2013, 64 per cent of Tonga’s foreign debt was owed to China. That amounted to 43 per cent of its annual GDP. Previously, Tonga has said it may have to seek a write-off of this burden by allowing Beijing to establish a naval base on the island.
6. VANUATU: Vanuatu owes Beijing some $US1.7 billion. Earlier this year, reports that China was seeking a ‘permanent military presence’ on the island sparked dismay in Australia. Both Vanuatu and China denied any such proposal had been made. But Prime Minister Turnbull sounded unconvinced: “We would view with great concern the establishment of any foreign military bases in those Pacific island countries and neighbours of ours,” he said. The country’s newly built $85 million Luganville wharf, which was funded by China and seems more suited to navy vessels than cruise ships.

INDIAN OCEAN
Beijing is already well advanced in its moves to establish a network of naval and air bases in the Indian Ocean. 

The number of ships and submarines it has stationed there has been steadily growing. 

But China needs more. 

Chief on its shopping list are major airfields capable of supporting its long-range reconnaissance aircraft and bombers. 

It also needs submarine support facilities and logistics infrastructure extending from the northeastern Indian Ocean to the west.

1. DJIBOUTI: In 2017, Beijing opened its first overseas military facility. This is in Djibouti on the shores of the troubled Red Sea. It’s already been openly tussling with a neighbouring US facility, allegedly blinding its pilots with lasers.
2. MALDIVES: This archipelago in the central Indian Ocean underwent a coup earlier this year, installing Abdulla Yameen -- who has been implicated in several corruption scandals and is seen as a close friend of Beijing -- as president. But elections this week has seen him deposed. How the Maldives will pay for a major Chinese-funded and built airstrip, and an equally ambitious bridge project, is yet to be seen. And there’s an abandoned British naval facility ripe for the pickings on the island of Gan.
3. MYANMAR: A naval base on the Indian Ocean side of the chokepoint Malacca Strait would give China the ability to project power across the region and the Bay of Bengal. Beijing has built a new port at Kyaukpyu — and taken a 70 per cent controlling stake in it after Myanmar defaulted on repayments.
4. PAKISTAN: China is in advanced talks with Pakistan to build a base on the Arabian Sea, near the city of Gwadar.
5. SRI LANKA: An inability to repay $6 billion in debt to China has already given Beijing a windfall in Sri Lanka. A controlling 70 per cent stake, along with a 99-year-lease, in the port of Hambantota has been given to a state-run Chinese company in an effort to pay-down the burden. This port sits close to the major Indian Ocean sea lanes.
6. THAILAND: China is pushing Thailand for the construction of a 100km canal on the scale of Panama, linking the South China Sea with the Bay of Bengal and bypassing the crowded Strait of Malacca. India fears the economically unviable Kra Canal will quickly fall under the control of Beijing, dramatically improving its ability to influence the balance of power in the Indian Ocean. Thailand, under pressure from all sides, is yet to accept — or reject — the project.

The story China went to furious lengths to stop from airing

China's Canberra embassy issued a fierce diktat over a story they didn’t want Aussies to know. Here’s what happened.
By Gavin Fernando and Charis Chang

FIVE days before 60 Minutes aired a program about China’s quest for global dominance, the team received a furious phone call.
“Take this down and take it to your leaders!” the voice on the other end was yelling.
On the line was Saxian Cao, the Head of Media Affairs at the Chinese Embassy in Canberra, and she was laying into the program’s Executive Producer Kirsty Thomson.
“You will listen! There must be no more misconduct in the future!” Cao shouted into the phone.
According to Nine News, Cao accused the network of filming the exteriors of the Chinese Embassy in Vanuatu illegally — a claim Ms Thomson refuted.
Cao also claimed a drone was used to fly over the embassy in a potential safety hazard, which was also disputed.
The report claimed the phone did not end amicably, with Cao shouting: “You will not use that footage!”
It highlighted the lengths to which the Chinese government will go to silence voices it doesn’t agree with — even within Australia, amid an ongoing national debate over foreign interference laws.
The offending 60 Minutes episode — which aired earlier this week — covered the ongoing issue of Chinese encroachment in the Pacific, including the country’s Belt and Road Initiative, a Chinese-built wharf in Vanuatu, and the wider issue of foreign interference in Australia.
So what was the Chinese Communist Party so keen to hide?

CHINA’S RISING INFLUENCE IN THE PACIFIC
Papua New Guinea will soon be the second country in the Pacific to sign on to China’s Belt and Road Initiative.
“When in China, we’ll be signing the ‘One Belt, One Road’ initiative,” PNG Prime Minister Peter O’Neill said earlier this week, according to local media.
“That is a great potential for Papua New Guinea, which means that this will help integrate our own economy to the global economy … The rest of the world is making business with China and we cannot simply sit back and allow these opportunities to go by.”
The PNG leader is currently in Beijing for a week-long visit.
The move will no doubt raise alarm bells in Canberra, with fears China is increasing its presence in the Pacific region.
In April, Fairfax Media reported Beijing was negotiating a military base less than 2000 kilometres from our border.
China and Vanuatu have both denied the report, which claimed Beijing was eyeing a military base in the island nation, with global ramifications.
“No one in the Vanuatu government has ever talked about a Chinese military base in Vanuatu of any sort,” Foreign Minister Ralph Regenvanu said. 

“We are a non-aligned country. We are not interested in militarisation.”
The move prompted fears in Australia over Beijing’s aims for greater military influence in the South Pacific region.

The Conflict Islands in Papua New Guinea.
But Beijing’s economic influence in Vanuatu remains undeniable, with China responsible for almost half of the island nation’s foreign debt.
In places like Sri Lanka and the African nation of Djibouti, China has been granted control over ports after the countries defaulted on massive loans taken out to build the ambitious projects.
There are now fears the same pattern will play out in Vanuatu where China has loaned the country $114 million to build a wharf at Luganville — the site of America’s second largest base in the Pacific during World War II.

CHINA’S DEBT-TRAP STRATEGY
China’s debt-trap game goes something like this: they offer the honey of cheap infrastructure loans, then attack with default when these poorer economies aren’t able to pay their interest down.
At the heart of this sits the Belt and Road Initiative, a trillion-dollar project that seeks to connect countries across continents on trade, with China at its centre.
The ambitious plan involves creating a 6000km sea route connecting China to South East Asia, Oceania and North Africa (the “Road”), as well as through building railway and road infrastructure to connect China with Central and West Asia, the Middle East and Europe (the “Belt”).

This map details China's Belt and Road Initiative.

In the interview with 60 Minutes, Dr Malcolm Davis, senior analyst in defence strategy and capability at the Australian Strategic Policy Institute, said China is mainly targeting poorer countries and employing a “debt-trap strategy”.
He said the trillion-dollar project basically forces other countries to align themselves with it.
“It gets countries — particularly poorer countries — hooked on debts they can’t pay back,” he said. “When they can’t pay it back, China basically grabs ports, facilities or territory. It’s a debt-trap strategy.
“It services their need in terms of accessing resources, sustaining contacts and national development, and maintaining that ‘China Dream’. It’s really vital for the Communist Party to maintain prosperity if they want to maintain power.”

WHY THE PACIFIC IS CRUCIAL
Why is the Pacific so important to China? 

From the rising superpower’s perspective, Papua New Guinea, Vanuatu, the Solomon Islands and Fiji are the most crucial, as they have the most minerals and natural resources.
But while the strategic aspects of China’s interest in the region have been highlighted recently, experts believe they have been over-hyped.
“I don’t think (the region) is enormously important to China,” Australian National University’s Development Policy Centre deputy director Matthew Dornan told news.com.au.
“The amounts of aid they provide are still not huge. Australia provides a lot more.”
According to the Lowy Institute, China spent $2.2 million on 218 projects in the Pacific between 2006 and 2016. 

This is a lot less than the $10 million Australia contributed.
“I don’t think the Pacific tops its list in terms of strategic importance, even if it does for Australia,” Dr Dornan said.

Australia will no doubt be keeping an eye on China’s strategic moves in the Pacific region.

While the Pacific may not be high on China’s agenda, Australia appears to have woken up to the importance of the region to its own interests.
Foreign Minister Julie Bishop recently returned from a bipartisan trip to some Pacific nations with Labor shadow minister Penny Wong. 

They visited Palau, the Federated States of Micronesia and the Marshall Islands.
Ms Bishop has denied that the trip was aimed at countering Chinese influence but in an interview with Fairfax Media, acknowledged that China’s construction of roads, ports, airports and other infrastructure in the region had triggered concern that small Pacific nations may be saddled with unsustainable debts.
“We want to be the natural partner of choice,” Ms Bishop told Fairfax earlier this week.
“We want to ensure that they retain their sovereignty, that they have sustainable economies and that they are not trapped into unsustainable debt outcomes.
“The trap can then be a debt-for-equity swap and they have lost their sovereignty.”

China's Pacific Islands Push Has the U.S. Worried

The latest frontier in Beijing’s bid for global influence is a collection of tiny island nations.
By Jason Scott

In the gritty, steamy streets of Papua New Guinea’s capital Port Moresby, signs of China’s push into the Pacific island nation are inescapable.
A Chinese worker stencils a logo for China Railway Group outside the new national courthouse it’s building; China Harbor Engineering Group laborers tar roads under the searing midday sun.
“Little by little they are taking slices of our businesses,” said Martyn Namorong, who campaigns to protect local jobs and communities as China ramps up infrastructure spending in the resource-rich nation, bringing its own workforce.

“My people feel we can’t compete.”
The nation of 8 million people is the latest frontier in Beijing’s bid for global influence that’s included building artificial reefs in the South China Sea, a military base in Africa and an ambitious trade-and-infrastructure plan spanning three continents.

Advertisement for China Construction Bank outside the airport in Port Moresby.

China’s thrust into the Pacific islands region, a collection of more than a dozen tiny nations including Fiji, Niue and Timor Leste scattered across thousands of miles of ocean, has the U.S. and its close ally Australia worried. 

The region played a key role in World War II and remains strategically important as Western powers seek to maintain open sea lines and stability. 

For Beijing, it offers raw materials, from gas to timber, and a clutch of countries who could voice support for its territorial claims.
“We’ve seen a huge surge in China’s state-directed economic investment and mobilization of an enormous amount of capital in the Pacific which clearly has a strategic intent,” said Eric B. Brown, a senior fellow in Asian affairs at Washington-based think tank the Hudson Institute. 

“The sovereignty of these nations could be compromised by these predatory economic methods. And that could create a military threat to countries such as Australia and effect the ability of the U.S. Navy and its allies to maintain freedom and order in the Pacific.”

Debt Trap
China’s lending practices related to the Belt and Road Initiative have raised concerns among the International Monetary Fund and the Trump administration that poorer countries wouldn’t be able to repay heavy debts. 

Sri Lanka is considered an example of what could go wrong for developing nations: China received a 99-year lease for a strategic port after the government in Colombo couldn’t repay loans.
Indeed China has overtaken Japan as Papua New Guinea’s largest bilateral creditor and by the end of the year PNG will owe it about $1.9 billion in concessional loans — almost a quarter of its total debt burden. 

Standard & Poor’s in April lowered the nation’s sovereign credit rating to B from B+, citing rising costs of servicing debt that’s climbed above 30 percent of gross domestic product and is expected to reach about 40 percent by 2021.

The IMF warns that other recipients of Chinese money in the region — tiny nations such as Samoa, Tonga and Vanuatu — have moderate to high risks of debt distress.
While the largess flowing into the Pacific from Beijing is a fraction of the $350 billion of Chinese aid distributed globally since 2000, it’s still big money for the nations, most with populations under 1 million. 

In April, the French Polynesian government approved construction of a $320 million Chinese fish farm.

Military Presence
Hugh White, a professor of strategic studies at the Australian National University in Canberra, says “there’s no doubt” China could seek to establish a military presence in the Pacific in the future, cashing in its influence with “one of these small, vulnerable states.”
“It intends to become the primary power in east Asia and the western Pacific,” White said.
Governments in the region have sought to strike a balance between accepting China’s cash and resisting moves that would raise concern among Western military powers. 

Vanuatu in April denied media reports that China had approached it to build a permanent military base in one of its harbors.

Peter O'Neill and Xi Jinping in July 2016.

The office of PNG’s Prime Minister Peter O’Neill, who’s due to meet Xi Jinping in China later this week, didn’t reply to repeated requests for comment. 

When O’Neill visited Beijing in 2016, he pledged support for China’s military build up in the South China Sea. 

In December, a month after China promised to construct $3.5 billion of roads, O’Neill said PNG will continue to be a “staunch partner.”
Beijing’s push into the Pacific islands risks further straining ties with key trading partner Australia — which views the region as its own diplomatic backyard and has been increasingly critical of China’s economic and military muscle-flexing.
During a visit to the region this month, Foreign Minister Julie Bishop said “we want to continue to be the partner of choice for nations in the Pacific.” 

Her government on June 13 signed an agreement to build a new undersea telecommunications cable to the Solomon Islands, squeezing out a bid by China’s Huawei Technologies Ltd.
Papua New Guinea has traditionally looked to Australia — from which it won independence in 1975 — for a helping hand. 

Outside of the capital, the nation’s woeful roads network has helped push prices of food staples beyond what many can afford.

It’s also struggling with an illiteracy rate of 35 percent, poor tax collection and endemic corruption.

Australia is still its largest donor, contributing more than three-quarters of total aid and loans compared to China’s 14 percent. 

Yet the majority is directed to improving corporate governance, while Beijing has focused on infrastructure and major works.

‘Red Carpet’
Nursing a cool drink at a sports club in Port Moresby, British-born business adviser Paul Barker said China was stepping into a vacuum left by the west.
“The government in Beijing has rolled out the red carpet and our leaders seem to be a bit intoxicated by the experience,” said Barker, who’s lived in his adopted nation for more than four decades.
Australia’s assistant trade minister Mark Coulton acknowledged the merits of China’s investment as he sat in one of Port Moresby’s few five-star hotels near the Beijing-gifted convention center where APEC leaders will meet in November.
“You can’t deny your neighbor if someone is looking to build something they really need,” he said. “Our role is to give the PNG government and people the ability” to “handle influxes of foreign aid like those that are now occurring.”
China’s foreign ministry, which didn’t respond to a request for comment, in April said Pacific island nations weren’t in the “sphere of influence of any country” and called on Australia not to interfere.

China Railway Group signage at the construction site of the new national courthouse.

China is in the region to stay, said Jonathan Pryke of the Lowy Institute, a Sydney-based think tank.
“China has entered the Pacific in a significant way,” said Pryke.

“It’s upended the status quo and caused anxiety, because no-one knows what its end-game is."

Warning sounded over China's 'debtbook diplomacy'

Academics identify 16 countries loaned billions that they can’t afford to repay
By Helen Davidson
Sri Lankan monks take pictures at the opening of an airport built with Chinese money in Hambantota.

China’s “debtbook diplomacy” uses strategic debts to gain political leverage with economically vulnerable countries across the Asia-Pacific region, the US state department has been warned in an independent report.

The academic report, from graduate students of the Harvard Kennedy school of policy analysis, was independently prepared for the state department to view and assessed the impact of China’s strategy on the influence of the US in the region.
The paper identifies 16 “targets” of China’s tactic of extending hundreds of billions of dollars in loans to countries that can’t afford to pay them, and then strategically leveraging the debt.
It said while Chinese infrastructure investment in developing countries wasn’t “inherently” against US or global interests, it became problematic when China’s use of its leverage ran counter to US interests, or if the US had strategic interests in a country which had its domestic stability undermined by unsustainable debt.
The academics identified the most concerning countries, naming Pakistan and Sri Lanka as states where the process was “advanced”, with deepening debt and where the government had already ceded a key port or military base, as well places including Papua New Guinea and Thailand, where China had not yet used its amassed debt leverage.
Papua New Guinea, which “has historically been in Australia’s orbit”, was also accepting unaffordable Chinese loans. 

While this wasn’t a significant concern yet, the report said, the country offered a “strategic location” for China, as well as large resource deposits.
While there was a lack of “individual diplomatic clout” in Cambodia, Laos and the Philippines, Chinese debt could give China a “proxy veto” in Asean, the academics said.

They also warned that the 2023 expiration of the compact of free association between Micronesia, Palau and the Marshall Islands could “threaten the unfettered basing access and right of strategic denial the US has enjoyed since world war two, and help the Chinese navy extend its reach past the first island chain into the blue-water Pacific”, it said.
China’s methods were “remarkably consistent”, the report said, beginning with infrastructure investments under its $1tn belt and road initiative, and offering longer term loans with extended grace periods, which was appealing to countries with weaker economies and governance.
Construction projects, which the report said had a reputation for running over budget and yielding underwhelming returns, make debt repayments for the host nations more difficult.
“The final phase is debt collection,” it said. 

“When countries prove unable to pay back their debts, China has already and is likely to continue to offer debt-forgiveness in exchange for both political influence and strategic equities.”
As a case study, the report cited specific concerns about Sri Lanka granting China an 85% stake in a 99-year lease on a major port in Hambantota.
The deal, which the report described as “opaque and contentious”, came after a decade of deepening debt ties with China. 

In 2007 China offered financing for the $361m port at a time when other entities were concerned about human rights and commercial viability, and then loaned a further $1.9bn for upgrades and an airport.
By 2017, when the port deal was signed, Sri Lanka owed more than $8bn to Chinese-controlled firms. 

The port, which was yet to generate a profit, became a “debt trap”.
“Once Sri Lanka made the initial commitment, the sunk cost and need to generate profit to pay off the original loans drove it to take out additional loans, a cycle that repeated itself until it was finally cornered into giving up the port in a debt-for-equity swap,” it said.
“This has sparked fears that Hambantota could one day become a Chinese naval hub, and sent a worrying signal to other debt-strapped developing nations.”
China has invested in or financed infrastructure developments across the Asian and Pacific regions, including large-scale projects representing sizeable portions of host nations’ GDP. 

The loans often require that Chinese companies build the projects, and complaints that locals are overlooked for a fly-in Chinese workforce are frequent.
It has also sought to expand its military presence, prompting warnings for nearby countries including Australia. 

Australia’s major parties have also voiced concern about the country’s diminishing influence in the Pacific.
The report recommended that the US target and streamline its investments, strengthen alliances and manage debt burdens, including through bolstering India’s role as a regional leader.
Last year India warned against China’s expanding BRI and urged financial responsibility with projects that didn’t create “unsustainable debt burden for communities”.

The Xi Jinping Trap

Warning sounded over China's 'debtbook diplomacy'

Academics identify 16 countries loaned billions that they can’t afford to repay
By Helen Davidson

Sri Lankan monks take pictures at the opening of an airport built with Chinese money in Hambantota.

China’s “debtbook diplomacy” uses strategic debts to gain political leverage with economically vulnerable countries across the Asia-Pacific region, the US state department has been warned in an independent report.
The academic report, from graduate students of the Harvard Kennedy school of policy analysis, was independently prepared for the state department to view and assessed the impact of China’s strategy on the influence of the US in the region.
The paper identifies 16 “targets” of China’s tactic of extending hundreds of billions of dollars in loans to countries that can’t afford to pay them, and then strategically leveraging the debt.
It said while Chinese infrastructure investment in developing countries wasn’t “inherently” against US or global interests, it became problematic when China’s use of its leverage ran counter to US interests, or if the US had strategic interests in a country which had its domestic stability undermined by unsustainable debt.
The academics identified the most concerning countries, naming Pakistan and Sri Lanka as states where the process was “advanced”, with deepening debt and where the government had already ceded a key port or military base, as well places including Papua New Guinea and Thailand, where China had not yet used its amassed debt leverage.
Papua New Guinea, which “has historically been in Australia’s orbit”, was also accepting unaffordable Chinese loans. 

While this wasn’t a significant concern yet, the country offered a “strategic location” for China, as well as large resource deposits.
While there was a lack of “individual diplomatic clout” in Cambodia, Laos and the Philippines, Chinese debt could give China a “proxy veto” in Asean, the academics said.

They also warned that the 2023 expiration of the compact of free association between Micronesia, Palau and the Marshall Islands could “threaten the unfettered basing access and right of strategic denial the US has enjoyed since world war two, and help the Chinese navy extend its reach past the first island chain into the blue-water Pacific”, it said.
China’s methods were “remarkably consistent”, the report said, beginning with infrastructure investments under its $1tn belt and road initiative, and offering longer term loans with extended grace periods, which was appealing to countries with weaker economies and governance.
Construction projects, which the report said had a reputation for running over budget and yielding underwhelming returns, make debt repayments for the host nations more difficult.
“The final phase is debt collection,” it said. 

“When countries prove unable to pay back their debts, China has already and is likely to continue to offer debt-forgiveness in exchange for both political influence and strategic equities.”
As a case study, the report cited specific concerns about Sri Lanka granting China an 85% stake in a 99-year lease on a major port in Hambantota.
The deal, which the report described as “opaque and contentious”, came after a decade of deepening debt ties with China. 

In 2007 China offered financing for the $361m port at a time when other entities were concerned about human rights and commercial viability, and then loaned a further $1.9bn for upgrades and an airport.
By 2017, when the port deal was signed, Sri Lanka owed more than $8bn to Chinese-controlled firms. 

The port, which was yet to generate a profit, became a “debt trap”.
“Once Sri Lanka made the initial commitment, the sunk cost and need to generate profit to pay off the original loans drove it to take out additional loans, a cycle that repeated itself until it was finally cornered into giving up the port in a debt-for-equity swap,” it said.
“This has sparked fears that Hambantota could one day become a Chinese naval hub, and sent a worrying signal to other debt-strapped developing nations.”
China has invested in or financed infrastructure developments across the Asian and Pacific regions, including large-scale projects representing sizeable portions of host nations’ GDP. 

The loans often require that Chinese companies build the projects, and complaints that locals are overlooked for a fly-in Chinese workforce are frequent.

It has also sought to expand its military presence, prompting warnings for nearby countries including Australia. 

Australia’s major parties have also voiced concern about the country’s diminishing influence in the Pacific.
The report recommended that the US target and streamline its investments, strengthen alliances and manage debt burdens, including through bolstering India’s role as a regional leader.
Last year India warned against China’s expanding BRI and urged financial responsibility with projects that didn’t create “unsustainable debt burden for communities”.