Chinese aid spree may be ending

The battle for influence in the Pacific that has seen China dispense aid at a rate exceeded only by Australia may be ending through an unofficial truce with Taiwan.

A new paper by the Australian think-tank, the Lowy Institute for International Policy, says Beijing may now be rethinking a spending spree that has alarmed both Canberra and Wellington, and loaded tiny island states with frightening levels of debt.

Written by research fellow Fergus Hanson, the paper also points to "miscalculation" by Beijing in pumping money into Fiji's post-coup interim Government, and a secretive, incoherent strategy through the rest of the region driven mainly by efforts to counter Taiwan.

The paper says that since last year's election of Taiwan's new President, Ma Ying Jeou, there has been a warming of relations between Beijing and Taipei, including the publication of a Taiwanese aid white paper rejecting the approach to dollar diplomacy.

In response, China appears to be applying the brakes to increasingly successful efforts to swing diplomatic recognition away from Taipei to Beijing in a truce that extends from Latin America to the Pacific.

The big test in the Pacific will come with next year's elections in the Solomon Islands, the "jewel in Taiwan's Pacific crown", the paper says.

The paper says it is unclear what concessions China expects from Taiwan, and warns the truce could unravel if Beijing's expectations exceed Ma's capacity to deliver.

In the meantime, China has continued to pump money into Papua New Guinea and the island states.

Hanson says new information from within the region puts China's aid last year at US$206 million ($314 million), including grants and soft interest-only loans at 2 per cent a year over 20 years.

Australia, the region's biggest donor, will contribute about A$1.1 billion ($1.3 billion) this year, and about half of New Zealand's total 2008-09 development budget of $471.3 million was spent in the Pacific.

Other donors include the European Union, Japan and the United States.

But, driven by Taiwan and its own priorities, Chinese aid has been unpredictable and short term, opportunistic and poorly designed, the paper says.

Chinese aid built a US$12.9 million swimming complex in Samoa beyond the nation's ability to maintain, and extended loans to the Cook Islands that the country's chamber of commerce warned would mortgage its future.

Cook Islands' Deputy Prime Minister Sir Terapai Maotae told ABC radio his Government hoped New Zealand would help pay the loan back.

The paper says Chinese aid fails to provide flow-on benefits to local economies, insists China provides at least half of the inputs, and reflects the commercial nature of a programme administered not by an aid agency, but by its Ministry of Commerce.

The paper says the most striking example of Beijing's short-term approach to the region was its support for Fiji's interim Government.

"If past coups in Fiji are any indicator of likely future outcomes, [Commodore Frank] Bainimarama's leadership is not a guaranteed long-term proposition," the paper says.

"Despite this, China has ploughed ahead with an ambitious engagement strategy with the interim regime."