Coronavirus assistance major part of Chinese aid: expert

An expert on Chinese foreign aid says China’s COVID-19 assistance to Pacific island nations will form a major component of its foreign aid programme.

Australian National University [A.N.U.] Research Fellow, Dr. Denghua Zhang, said in an interview with the Samoa Observer that the Chinese government is providing an increasing amount of COVID-19 related assistance to island nations to combat the virus.

He said there are different forms of Chinese COVID-19 related aid such as grant aid and the donation of medical equipment with private and state-owned Chinese companies also in the mix.

"In terms of Chinese foreign aid, they have three main types. First is grant aid, the second is interest-free loans and the third type is concessional or soft loans," he said.

"Concessional loans have been the major type of Chinese foreign aid and normally they will have an interest rate of two per cent to three per cent and they need to be repaid."

There are concerns within the region that concessional loans may contribute to the rising debts of some Pacific Island countries such as the Kingdom of Tonga, Dr. Zhang explained that COVID-19 aid is different as it is grant aid.

“Donors, whether China or the traditional partners of the Pacific island countries such as the US, Australia, and New Zealand have been providing assistance to the Pacific island countries in the fight against the COVID-19,” he added.

“This is also taking place in the context of growing geopolitical competition between China and traditional powers.”

Dr. Zhang further explained that prior to the outbreak of COVID-19, China has been providing large amounts of aid or development assistance to Pacific nations since April 2006, when the Chinese Premier made a first visit to the region and inaugurated the China-Pacific islands Development Cooperation Forum.

"We have already seen that China has become one of the principal development partners of the region. But after the outbreak of the virus, providing assistance to pacific partner countries to combat COVID-19 has become a new priority in the Chinese aid programme. This is in part related to China's efforts to project a positive image as a responsible growing superpower," he said.

Asked if he thought China is the Pacific’s best development partner, he said it is fair to say that both China and the traditional partners are important to the Pacific Island countries.

Asked about the capability of Island countries to pay back the loans, Dr. Zhang said: "I do not think China has deliberately created this issue in the first place."

"Before they provide loans to the region, they have their own procedure and mechanism of approval in place, including feasibility studies to see whether the recipient countries have the ability to repay these loans and whether these loan projects will produce good economic benefits.”

"But the thing is that many of the recipients in the Pacific are small and their repaying capacity could be limited. This is now the dilemma for some of the small Pacific island countries.”

Dr. Zhang further emphasised that it is also important to discuss what would happen if the recipient countries cannot repay the loans.

And based on his research, it is more possible for China to extend the repayment rather than write-off these concessional loans.

Dr. Zhang explained that while interest-free loans can sometimes be written-off, it is difficult for concessional loans and pointed to Tonga’s case, where it is easier for the Chinese government to extend the terms of the repayment.

"I think Tonga is a good example because Tonga has borrowed large amounts of concessional loans from China to fund the rebuilding of the central business district in the capital city which was burned down in a riot in November 2006," he said.

"Then in 2013 China provided a five-year extension for the repayment. This is the first five-year extension and then in 2018 China agreed to provide a second five-year extension for the repayment of the Chinese loans.

"This example just shows that it is more possible to extend or postpone the repayment rather than to write-off the concessional loans owed by the pacific island countries."

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