Vanuatu presidential palace funded by China stirs debt fears

Perched atop Port Vila, Vanuatu’s seaside capital, sits a gleaming red and white building, gifted to the Pacific country by China last month. The new presidential palace has a coveted position in town, high on a hill and overlooking the prime minister’s office, a building which was similarly renovated thanks to a hefty Chinese donation almost a decade ago.

The multimillion dollar complex is the latest in a long line of gifts and infrastructure projects offered to Vanuatu by Beijing, transforming several towns and villages in the small island nation of just over 300,000 people.

They include a suite of new government ministry buildings, the country’s parliament house, road construction projects on several islands, the rebuilding of a sports stadium, a new wharf, and the donation of a massive convention centre that often sits empty in the middle of town.

Vanuatu’s financial minister, John Salong, whose new Chinese-built ministerial building was handed over to his government with the palace last month, says the projects have been a boon for the developing country, which often struggles to pay for building works itself.

The Lowy Institute estimates the presidential palace and new government buildings cost $20m.

“We use diplomacy as a means for us to leverage the resources we have so that we can build institutions that we need,” Salong says.

These large constructions have become visible monuments to China’s deepening influence in the region, not only as a development partner but also as an emerging political player. Major Chinese-funded works have taken place in almost every Pacific Island country, coinciding with an expansion of China’s security and policing deals in the region and the strengthening of diplomatic ties between Beijing and Pacific governments.

Days after Vanuatu’s prime minister, Charlot Salwai, attended the opening of the new presidential palace, he flew to China with a delegation of officials to meet with president Xi Jinping.

In a joint statement released after the talks, China said it welcomed Vanuatu’s “active participation” in its belt and road initiative, Beijing’s multi-billion dollar project to connect the world through a series of infrastructure builds.

“China has provided assistance to Vanuatu with no political strings attached,” China’s ambassador to Vanuatu, Li Minggang, said in an address broadcast by Chinese state media shortly after the handover of the new palace. The Chinese embassy in Vanuatu did not respond to a request for comment.

Yet, some Pacific Islanders have voiced criticism over the proliferation of Chinese-backed infrastructure projects in their countries.

Jean Pascal Wahe, a community leader from the island of Tanna in Vanuatu, says though a Chinese-funded road network has given his people critical access to markets, health services and the local airport, he is also concerned about the more than decade-long presence of the China Civil Engineering Construction Corporation (CCECC) on his island. CCECC is wholly owned by the Chinese government.

Wahe says the CCECC “has now won every other sub-contract for roadworks that weren’t even part of the original road project.”

China’s aid expenditure in the Pacific is dwarfed by other countries, estimated to make up only 9% of total development spending in the region according to the Lowy Institute’s Aid Map.

In contrast, the aid expenditure by Australia, who remains the region’s biggest spender by a significant margin, makes up 40% of total Pacific development income – equivalent to around $15bn as of 2021.

But Beijing’s investment in prominent infrastructure builds, often unveiled to Pacific governments through lavish ceremonies, has skewed public opinion over the size of China’s contributions.

“Australia gives four times as much aid in the Pacific,” says Graeme Smith, a senior fellow from the Australian National University who has investigated Chinese aid and infrastructure development throughout the Pacific.

“But the perception in the Pacific, when you do these attitude surveys, people think that China is the main donor, because you have these physical symbols of their gifts.”

‘Scared about these loans’

Of further concern is the heavy economic burden some of China’s infrastructure projects have placed on developing Pacific countries. China is the region’s largest lender, and though many of the Pacific’s government buildings have been donated as gifts, the majority of its infrastructure builds are made possible by sizeable loans from its Exim Bank.

“I’m scared about these loans and have doubts about how we’ll pay it back,” says Wahe, who knows the government has taken on a major loan from China to finance the works on his island.

“The project is good, but I keep reminding our leaders that in this world, there’s no such thing as a free lunch.”

Tonga has this year begun the difficult process of paying back its giant $119m loan to China, while there are concerns Vanuatu will face debt distress as it struggles to repay China for its extensive road and other infrastructure projects.

“It may be that our debt sustainability will go from moderate to high debt distress,” Salong says.

“We have to check ourselves and make sure that it’s not just infrastructure for the sake of infrastructure, it’s infrastructure that’s going to be helping expand the economic base so that we can continue to manage the country.”

As Chinese investment continues to change the landscape in many Pacific countries, other development partners are also ramping up assistance in the region. A couple of weeks after Vanuatu’s Chinese-built palace was unveiled, the US opened its embassy in Port Vila. The US recently announced $10m in additional funding to the region through its Pacific Islands Infrastructure Initiative.

Salong says such assistance is welcome, but his government will ultimately decide what projects will be approved.

“We make our own decisions, and we know we decide our own priorities,” he says.

- The Guardian

Ben Bohane: China? No, let’s face the elephant in the Pacific room

BRIEFING: By Ben Bohane in Port Vila

Source: https://asiapacificreport.nz/

China … China … China …

All the talk is of increasing Chinese influence in our region. But this is to wilfully see past the elephant in the room.

Contrary to most commentary, the biggest destabilising player in Melanesia over the past five years is not China but Indonesia, which through its “look east” policy has deliberately paralysed the Melanesian Spearhead Group (MSG) while financing local MPs and political parties across the Pacific to try and stop snowballing regional support for West Papuan independence.

Indonesia already has Peter O’Neill onside in PNG, and Voreqe Bainimarama in Fiji, and is busy trying to neutralise Vanuatu, the Solomons and FLNKS (Kanak Socialist National Liberation Front) leaders in New Caledonia, who are resisting Indonesian influence.

READ MORE: The Vanuatu Daily Post and the photo censored by Facebook
THE BANNED PHOTO and other Ben Bohane images in his The Black Islands photoessay at Pacific Journalism Review.

The reason Vanuatu and other Melanesian nations may be turning to China is because they are more worried about Indonesia, which has directly threatened Vanuatu over its strong diplomatic support for the West Papuans.

Vanuatu might be pulling some “muscle” into its corner, feeling it can’t rely on Australia because Canberra continues in its supine support of Indonesia whatever they do – even as Jakarta directly undermines Australian and Pacific island interests.

The accumulative “strategic failure” being talked of by Labour’s Richard Marles and others, is not because Australia has failed to check Chinese influence in Melanesia, but a result of Australia’s failure to check Indonesian interference in these nations that were supposed to be “our patch”.

For decades, islanders thought their “big brothers” Australia and America would defend Pacific peoples as they did in WWII. Instead, it appears Australia has outsourced its security of Melanesia to Indonesia, giving them free reign.

‘Melanesian nation’

Despite being a Melanesian nation itself through its own Torres Strait and South Sea Islander communities, strangely Australia has not sought to join the main political grouping of its own neighbourhood, the Melanesian Spearhead Group (MSG), which has now been hijacked by Indonesia with help from Fiji in particular; more blow-back from Canberra’s misguided attempts to isolate Fiji after the coup.

It is not lost on the region that while the Turnball government is warning about Chinese influence, senior members of his own party have been taking Chinese coin, from former Foreign Minister Alexander Downer spruiking for Huwei to recent Trade Minister Andrew Robb now working for the same Chinese company that controversially bought Darwin’s port.

Still, as examples like Sri Lanka demonstrate, Australia is right to flag concerns about strategic vulnerability that comes with excessive debt to China.

From a Melanesian perspective, the two biggest security issues they face are climate change and Indonesia’s increasing political interference across the Melanesian archipelago, rooted in its desire to hold onto West Papua.

Despite the mantra from Foreign Minister Julie Bishop that Australia remains the “strategic partner of choice” for Vanuatu and the region, the fact is that Canberra is not listening to Melanesia’s own security concerns, but telling them what they should be concerned about, ie China.

This is not going down well and Melanesian nations are forging their own security arrangements with or without Australia, who they see as compromised when it comes to climate change and Indonesia.

In the past few months we have witnessed something of a “pincer movement”. In late December, RAAF jets were suddenly scrambled from Tindal air base near Darwin after a number of nuclear-capable Russian Tu 95 “Bear” bombers flew from Biak in West Papua, flying between Papua and Australia’s north for intelligence gathering purposes.

Russian bombers

It’s the first time Russian bombers have operated like this in the South Pacific and suggests Jakarta wanted to warn Australia and the US forces parked in Darwin that it too could bring some “muscle” into the neighbourhood. That message was likely aimed at China as much as Australia and the US.

Then last week, at the other end of Melanesia we have revelations about a potential Chinese military base in Vanuatu. The first thing to say is that it’s highly unlikely China would have asked for a military base – they are far too subtle to do that.

More likely is that they may be angling for something dressed up as a civilian project but with military applications, like the “space station” speculation floated in the Chinese press last week.

They have already built a lot of dual-use infrastructure in Vanuatu such as the big Santo wharf, so step by step, like their “salami-slicing” strategy in the South China Sea, they will move incrementally without wanting to frighten the horses.

Both of these pincer moves have their origin in West Papua’s situation. In some ways it reflects Paul Dibb’s reworking of Australian defence policy in the late 1980s to get beyond its Euro-centricity. Dibb offered a map with concentric circles emanating out from Darwin. The first circles cover East Timor and West Papua.

There are strategic consequences to Australia’s 50-year policy of not just turning a blind eye to Indonesia’s “slow-motion genocide” in West Papua, but active involvement through its Densus 88 anti-terror unit, which many Papuans accuse of not just targetting Islamic militants, but Papuan nationalists too.

At a time when Canberra is battling jihadis in the Middle East and the Philippines, it appears unconcerned by jihadi activity and Indonesian military collusion right on its doorstep, or a possible Prabowo government elected next year, backed by Islamist groups.

Bloody proxy militias
Those of us who witnessed Indonesia’s bloody use of proxy militias in East Timor have watched the same apparatus move to West Papua, with the same man – General Wiranto – still in charge.

It wasn’t always like this.

There was a time when the Menzies government in Australia supported Dutch plans for West Papuan independence throughout the 1950s and early 1960s until the US twisted arms to accept Indonesian control because of Cold War politics.

There was a time when the Australian Defence Force (ADF) worked with the PNGDF to actively secure its 800km border with Indonesia. Today the border is wide open and sources within PNGDF intelligence continue to complain that the Indonesian military routinely violate PNG sovereignty with their patrols, up to a dozen times per year, sometimes even moving the border marking pegs.

How can Australia be perceived as PNG’s security guarantor when it doesn’t even help them secure their primary border, especially with the growing threat of jihadi infiltration?

Why has the AFP been given priority over the ADF in terms of security across Melanesia? With no more engineering battalions or ADF army advisors present in camp, China has walked right in. The last ADF army adviser to Vanuatu, Major Paul Prickett, left 10 years ago and wasn’t replaced.

Many years ago I spent some time with Dick Hagen, a legendary coffee plantation manager in the Highlands of PNG, who has been there since the 1950s. He told me how in the 1960s and 70s, he and many Australians living in PNG were given basic military training so they could be a first response “militia” should the Indonesians come over the border and invade PNG.

For decades the PNG-Indonesia border was regarded as Australia’s real frontline. It was another potential “Kokoda” which didn’t happen, but Indonesia has found other ways to extend its reach.

Mohammed Hatta, one of the founding fathers of Indonesia, warned his nation against taking West Papua, saying Indonesia might not stop until it got to Fiji. That is now coming to pass. But ironically, it is China that will likely contain Indonesia’s expansion in the region, not Australia.

Some sort of deal?
I have the sense that some sort of deal was struck between Canberra and Jakarta back in the 1970s; that Australia would turn a blind eye to everything west of the border while Indonesia would not interfere in PNG and anything east of the border.

Australia has naively kept its part of the deal while Indonesia clearly has not. As a result, in the social media age when all the Pacific is now aware of climate change and what Indonesia continues to do in West Papua and beyond with tacit Australian support, Australia and the US are losing the moral – and actual – leadership of the region.

China is the result.

But it is worth remembering that Australia does much to support Melanesia in other important areas, has been a generous neighbour and will always be there for the islands in tough times. To the keyboard warriors on social media always blaming Australia for what has happened in West Papua, they would do well to understand the history; that it was US and UN decisions that sealed West Papua’s fate.

Australia and Holland initially supported their independence. Why would Australia again risk war with Indonesia over West Papua when Melanesians themselves have not united to bring the West Papuans fully into their family?

It was the MSG which let the wolf into their house, not Australia. As someone who was there in the first weeks of East Timor’s bloody liberation, amidst the burning buildings and bodies, it was an Australian-led coalition which secured East Timor. I remember wondering where are the Melanesian forces to assist and show solidarity? No PNGDF, no VMF or Fijian forces during the critical phase.

Australia must now find a strategic balance among its “frenemies” Indonesia and China. That begins with deeper engagement with the islands, leadership on climate change and working with Melanesian leaders to address their security concerns as much as Australia’s.

Only by listening and closer co-operation with Melanesian leaders can Australia assist with a robust defence of the Melanesian archipelago from Timor to Fiji and be seen as Melanesia’s “security partner of choice”.

Ben Bohane is a photojournalist and television producer based in Vanuatu who has specialised in reporting war and religion for nearly 30 years across Asia and the Pacific. He has been a frequent contributor to the Pacific Media Centre over the years.

Vanuatu: flailing, not drowning

Source: https://www.lowyinstitute.org/

On Monday The Australian published an article titled “Pacific nations drowning in Chinese debt”. It suggests that a large number of recent “white elephant” projects are becoming an unsustainable burden on Pacific Islands countries.

Although this contains a kernel of truth, it’s not accurate to suggest that these nations’ problem is that they are “drowning in debt”.

In Vanuatu, at least, the issue is not overall debt load – not yet, anyway. The latest IMF debt assessment rates Vanuatu’s risk of default as “moderate”. Relative to other developing nations, its debt to GDP ratio is manageable.

Vanuatu’s immediate problem is cash flow. In 2012 a single sentence was changed in a key piece of legislation, with the result that new loans no longer required parliamentary approval. Projects could now be signed off at the ministerial level. Within months, new projects, and new loans, were being announced at an alarming rate.

Within a couple of years, Vanuatu had added hundreds of millions of dollars to the liability column. Happily, an Australian-funded governance program, coupled with a domestic commitment to avoid deficit spending, had built a financial regime that kept the government living well within its means. Vanuatu’s debt in 2013 was modest at just over 20% of GDP.

By 2020, however, Vanuatu’s debt service payments will have risen significantly. The nation now has to manage an impending cash flow crunch. The Department of Finance and Treasury has staffed a debt management unit and given it a place at the policy table. In late 2017, the Council of Ministers approved a rise in the Value Added Tax (VAT) rate from 12.5% to 15%, effective 1 January 2018.
VAT revenues should rise by approximately 20% above their normal growth rate by 2020. In addition, Vanuatu’s controversial passport sales programs have become its largest source of non-tax revenue, adding tens of millions of dollars annually to general revenues. Driven by this unanticipated windfall, revenues have run well ahead of expectations for past three years.

Debt is not the problem some people make it out to be. But that’s cold comfort when we look at the overall development picture.

The country has embarked on an ambitious gambit, using infrastructure investment to catalyse a transformation of the national economy. In the past few years, Vanuatu has either started or completed the construction of two large-scale wharf facilities and about half a dozen smaller ones; two major roads; the rehabilitation of another 100-plus kilometres of cyclone-damaged roadway; major repairs and upgrades to three airports; a new conference centre; a sports facility that recently hosted the 2017 Pacific Mini Games; the complete rehabilitation of its flagship secondary school; and an urban development project that has literally transformed the capital.

These are only the headlines. There are also private sector–driven plans to construct a brand new international air terminal, a new 400-room resort, and a massive new subdivision outside the capital, dubbed the “Emerald City”, aimed at Chinese citizens seeking rest, relaxation, and residence in the tropics.

The government’s gambit is that growth will come soon enough to meet Vanuatu’s spiralling debt service commitments; however, that is not assured. A single cyclone could throw plans off balance.
Some loans the nation has taken on are extremely concessional in nature. For example, the US$70 million Japanese-funded Port Vila wharf project features a 0.55% interest rate, a 10-year grace period, and a 40-year repayment window.

In contrast, a similar wharf in the northern port of Luganville, funded by the China EXIM Bank and built by the Shanghai Construction Group, cost about $15 million more, features a 2% interest rate, a 5-year grace period, and a 20-year repayment window.

Worse, concerns over the kind of bollard installed on the Luganville wharf led cruise lines to cancel dozens of visits, creating millions of dollars in opportunity costs and knocking the northern town’s plans to become a tourism hub into a cocked hat.

Efforts are underway to mitigate the problem and allay safety concerns. Just this week, the Voyager of the Seas, a 300-metre-long cruise ship, was able to berth safely during a test visit.

An ANU study published by the Development Policy Centre shows that successful infrastructure investment depends more on the recipient country’s capacity than on the source of funds. Not all projects are created equal, and few countries have grounds to brag about their performance.


The tit-for-tat rhetoric coming from both China and Australia does the issue injustice. It is not only inaccurate but also, more importantly, denies the agency of Pacific Islands nations themselves. Without a voice in this discussion, these nations are certain to be saddled with more failed infrastructure projects in the future.