Chinese loans pose ‘clear risks’ to stability of Pacific nations, Australian think tank warns

In a new study, the influential Lowy Institute found that allegations China was engaging in ‘debt-trap’ diplomacy were overblown

But it warned that Pacific nations risk borrowing too much and leaving themselves dangerously exposed to demands from Beijing

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Chinese Premier Li Keqiang, right, with Papua New Guinea Prime Minister Peter O'Neill in Beijing in April. Photo: EPA

Published: 11:15am, 21 Oct 2019Updated: 11:16am, 21 Oct 2019

China’s financial largesse in the Pacific carries “clear risks” for stability if left unchecked, a Sydney think tank has warned, while saying allegations of “debt-trap” diplomacy are so far overblown.

In a study released on Monday, the influential Lowy Institute warned that fragile Pacific nations risked borrowing too much and leaving themselves exposed to demands from Beijing.

China has repeatedly been accused of offering lucrative but unserviceable loans to gain leverage or snap up strategically vital assets like ports, airports, or electricity providers.

While Lowy said allegations that China was engaged in “debt-trap” diplomacy in the Pacific were overblown, the trend was not positive and countries like Papua New Guinea and Vanuatu were dangerously exposed.

Between 2011 and 2018, China committed loans to the region worth US$6 billion – around 21 per cent of regional GDP.