China loans to Pacific ‘debt traps’

US ambassador accuses Beijing of putting undue pressure on tiny nations

China is using “pay-day loan diplomacy” to exert influence in the Pacific, the new US ambassador to Australia said on Wednesday, comments that threaten to inflame regional tensions.

The United States and its regional allies have been battling China for greater influence in the Pacific – a region that has votes at international forums like the United Nations and controls vast swathes of a resource-rich ocean.

The geopolitical competition has seen both sides increase foreign aid to the region in recent months, which the West says is needed to prevent the Pacific falling into financial distress and becoming susceptible to diplomatic pressure from Beijing.

Late in 2018, US Vice President Mike Pence accused China of ensnaring tiny island nations in foreign aid “debt traps”.

New US ambassador to Australia Arthur Culvahouse said Pence’s criticism was not strong enough.

“I would use stronger language – I would use pay-day loan diplomacy,” Culvahouse told reporters in Canberra after presenting his diplomatic credentials to Australia’s governorgeneral.

“The money looks attractive and easy upfront, but you better read the fine print,” he said.

Lenders of pay-day loans typically charge a higher interest rate.

Speaking in Beijing, Chinese foreign ministry spokesperson Lu Kang said China’s co-operation with Pacific island countries was good for both parties and broadly welcomed by these countries.

Some US officials have not been pleased to see such cooperation, and China hopes the US can do more to benefit these countries’ development and not “keep making trouble out of nothing”, he added.

In 2018, China’s ambassador to Australia said Beijing did not place undue debt on the region.

The Pacific is also a venue for diplomatic competition between China and self-ruled Taiwan, claimed by Beijing as sacred Chinese territory.

Taiwan’s president will visit three of its diplomatic allies in the Pacific next week.

The arrival of Culvahouse, the first US ambassador to Australia in more than two years, comes at time of bilateral tensions between Canberra and Beijing.

In 2017, then Australian prime minister Malcolm Turnbull accused China of meddling in domestic affairs.

In 2018, Canberra banned foreign-government linked companies from investing in a nascent 5G network, blocking China’s Huawei Technologies.

China denied the allegations and has called on Australia to shed its “Cold War” mentality.