Tiny Pacific nations cash in on U.S.-China aid rivalry

Reuters News
Posted: Sep 03, 2012 4:54 AM
Tiny Pacific nations cash in on U.S.-China aid rivalry

By James Grubel

CANBERRA (Reuters) - Small South Pacific island nations are cashing in on new aid rivalry between China and the United States as both powers vie to boost their influence in a vast region of mostly micro-nations.

The recent visit to the tiny Cook Islands by United States Secretary of State Hillary Clinton highlighted the growing significance of the region as the United States continues its "pivot" to the Asia-Pacific, analysts said.

The Clinton visit also underlined a growing Chinese influence as it steps up its aid programmes to enhance its standing among the smaller nations.

"It is very significant. It just confirms that the Pacific is becoming of greater importance, not less," Stephen Howes, professor of development policy at the Australian National University, told Reuters.

China's aid programme is difficult to measure, although a report by the Lowy Institute think tank in 2011 found China's aid was worth around $200 million a year, with a heavy reliance on soft loans to finance public works.

In recent years, China's aid and soft loans have helped build sports stadiums in Papua New Guinea and the Cook Islands, a swimming complex in Samoa, a new port in Tonga, as well as extensions to the Royal Palace in the Tongan capital Nuku'alofa.

China has also funded a new police station and court buildings in the Cook Islands capital Raratonga, and boosted aid to Fiji as western nations shunned its military government after the 2006 military coup.

During her visit to the Cook Islands, Clinton announced an extra $32 million in U.S. aid programmes for the Pacific, ensuring the U.S. maintains its role as the second-largest aid donor to the region behind Australia.

Clinton also said the United States could work with China in the Pacific, and played down any new China-U.S. rivalry.

The United States spends about $300 million a year on Pacific nations, including round $100 million a year on military assistance, compared to around $1.2 billion a year from Australia.

China says it is merely seeking to help the poor and remote nations in the region develop.

"We are willing to make a contribution, along with all other parties, to help with sustainable development in the South Pacific. We are looking for cooperation, not competition," Chinese Foreign Ministry spokesman Hong Lei told reporters.


In the past, China's aid flows into the Pacific have been designed to head off potential spending from Taiwan and to try to prevent tiny nations giving official recognition to Taiwan, which China considers a breakaway province to be united with the mainland eventually, and by force if necessary.

But in the past three years, China and Taiwan have agreed to stop trying to poach Pacific nations to their side.

"At the moment, it is more to do with the United States than it is with Taiwan," Lowy Institute South Pacific analyst Annemaree O'Keeffe told Reuters.

She said China's aid programmes had undergone significant changes as it recognised deeper problems with its traditional monument projects, where China might construct a major building but then leave a country struggling to maintain it.

"It can work against them. You can have a wonderful sports stadium, but if it starts to fall down, you'll remember that the Chinese built it," O'Keeffe said.

She said China had begun to work more closely with other countries and the Organisation for Economic Cooperation and Development on the effectiveness of its aid programmes.

That was evident at the Pacific Islands Forum in Raratonga, where China and New Zealand announced a joint aid programme to improve water supplies in the Cook Islands. New Zealand will provide $12 million and China will provide a $26 million loan.

The ANU's Howes said China's growing aid influence in the Pacific was simply a reflection of its rising global influence and as more countries, including Indonesia and Brazil, start to spend more on aid.

"It is a global phenomenon of China reaching out," he said. "More broadly, it is China asserting itself as a global power and expanding its aid and investment from state-owned companies."

He said China was keen to project a positive image, which is why China's aid focused on high-profile projects, although China could do more to ensure its aid programmes were transparent.

The downside, however, is that countries might struggle to repay China's soft loans, leaving them worse off in the long run, he said.

Australia, a close U.S. ally which counts China as its top trading partner, has welcomed China's interest in the Pacific, and said China's aid programme was no cause for concern.

"I don't think Chinese influence in the South Pacific is anything to alarm us," Australian Foreign Minister Bob Carr told reporters in Perth in last week.

"The fact is, China's rise to being a great power - China's economic growth - will see that it develops relations around the world more vigorously than it ever has in the past and we Australians have just got to get used to it.

"The Chinese will learn that a heavy-handed aid programme doesn't get them the kudos that a better targeted more professional aid programme does."

(Additional reporting by Ben Blanchard in BEIJING; Editing by Nick Macfie)