Report warns of China's soft loans

A recent report by Lowly Institute of International policy warns that, increase in soft loans to the pacific countries by China, which carry a five-year interest-free period, could create a debt crisis in the future when the time to honour them comes.

It stated: "China appears to be reducing the grant component of its aid and increasing the soft loan proportion. This adds to the growing problem of debt burdening that will become increasingly pressing as Chinese loans accumulate and the five-year grace periods on the loans expire.

Lowy Institute for International Policy is a think-tank based in Sydney, its report is titled as "China in The Pacific: The New Banker in Town".

The report didn't offer any new insight or surprise, by mentioning that the race for diplomatic influence with Taiwan was the main reason for the generosity of loan. Beijing has claimed that Taiwan is a part its territory, since the end of the civil-war in 1949.

Some of the pacific nations chose to change allegiance between Taiwan and China in return for increased aid. This rivalry of aim was halted when Taiwan chose President Ma Ying-jeou in 2008 to lead the country, thus forming the China-friendly government.

The Lowly Institute is of the opinion that with the cooling of the diplomatic race, China has offered soft loans to prepare for the worst in case relations with Taiwan deteriorated.

The report stated that Chinese loans to Tonga accounts to an equivalent of 32% of the country's GDP, with 16% for Samoa and the Cook Islands.

However, it said, Chinese aid could play a positive role in helping build infrastructure in the Pacific if it increased transparency and was mindful of the potential debt burden facing recipient countries.

The Lowly Institute said that China regarded details of its foreign aid programme as a state secret and was sensitive to analysis of its intentions, meaning its activities were not as transparent as those operated by the Western governments.

Under the light of think-tank's focus to promote Australia's role in the world and to look for possible policy options for Australia's international policy, the reports bend and conclusions are not of much revelations.

OneIndia News