Concessional loans account for more than half of Chinese foreign aid (China State Council 2014) and are currently in the spotlight. The Trump Administration’s Indo-Pacific strategy targets infrastructure projects funded by Chinese concessional loans in developing countries and pledges to compete with China by providing high-standard infrastructure that is ‘physically secure, financially viable and socially responsible’ (Pompeo 2018). On the eve of the Forty-ninth Pacific Islands Forum, Tongan Prime Minister ‘Akilisi Pohiva intended to urge Pacific nations to band together and press Beijing to forgive debts associated with Chinese concessional loans, although he backed down at the last minute. Chinese loan schemes have also sparked intense debates on debt risks and the Belt and Road Initiative.
Against this backdrop, the nature and ramifications of Chinese loans schemes are examined in this two‑part series. Part 1 outlines the nature of Chinese concessional loan schemes and identifies three common misperceptions. Part 2 investigates Pacific indebtedness: the possibility of debt-forequity deals.