FLIRTING WITH CHINA FOR ECONOMIC “BOOST”?

 Dr. Tarcisius Kabutaulaka

Last week’s Sarere Tok Stori on the proposed switch in diplomatic relation from Taiwan to China engendered productive conversations. Commentators expressed both support and opposition to the proposal.

Hon. Danny Phillip chimed in. That was valuable because it gave us an insight into some MPs’ thinking, their rationales and thoughts – or lack thereof – on the implications for Solomon Islands.

Despite the letter allegedly written by 16 government MPs expressing support for Taiwan, it seems that many MPs favor recognizing Beijing.

Here, we continue that conversation. First, it is important to repeat what was stated last week: China is a global power and Solomon Islands has and will continue to engage with it, whether or not there is diplomatic relation.

Engagements with China could potentially benefit Solomon Islands, or it could create financial and other burdens. This depends on how Honiara manages the relationship.

The fundamental question is: Does Solomon Islands have the governance mechanisms, capacity and political discipline needed to effectively manage a relationship that is likely to increase debt, natural resource extractions, environmental challenges, and assertive diplomacy?

If Solomon Islands were to switch diplomatic relation, there is a need for those in positions of power to fully understand how Beijing operates and what needs to be done to ensure our country benefits.

Here, I focus on the argument that diplomatic relation with China will “boost” Solomon Islands’ economy. This is premised on the assumption that Beijing will come with large financial assistance, unlike the “dribs-and-drabs” that has arguably characterized Taiwanese assistance.

But, is it true that China will “boost” the economy?

I have analyzed data on GDP growth from 2006–2018 for six Pacific Island countries that have diplomatic relation with China: PNG, Fiji, Vanuatu, Samoa, Tonga and FSM. Solomon Islands is the Taiwan variable.

2006 is chosen as the starting point because that was when the first China-Pacific Islands Development Cooperation Forum was held. Chinese Premier Wen Jiabao attended and announced Beijing’s US$492 million assistance to Pacific Island countries, mostly in the form of concessional loans.

The data shows no correlation between diplomatic relation with China and economic growth, and there is no significant difference between those that have diplomatic relation with China and Solomon Islands. This is illustrated in the graphs below.

In fact, Solomon Islands’ average GDP growth rate in the 13-year period was 4.5%, which was higher than Fiji (2.7%), FSM (0.3%), Tonga (1.3%), Vanuatu (3.3%) and Samoa (1.7%).

The significant surges in growth during that period were for PNG in 2007, 2010 and 2014 and Solomon Islands in 2011. These had little to do with China.

There is, however, a correlation between diplomatic relation with China and increasing debt. For example, between 2003 and 2018, Solomon Islands debt-to-GDP declined from 70% to 11%. All the countries that have diplomatic relation with China witnessed an increase in total debt as well as debt-to-GDP ratio. However, not all of it is owed to China.

The reasons and nuances underlying these economic dynamics are complex. We don’t have the space to examine them in detail here.

But, these findings dispel the argument that diplomatic relation with China will “boost” economic growth.

Apart from PNG and Fiji where there are Chinese investments in income-generating industries such as mining, investments in the other Pacific Island countries have focused largely on infrastructure development. One could expect to see economic growth during the construction because of capital injections, and perhaps years later, if infrastructures were connected to broader economic development initiatives.

For politicians, infrastructure development is valuable political capital. When seeking re-election, they could use them as, “see what I did so re-elect me.”

Another claim was that, “China and not Taiwan is the current principal importer of our logs and fish, copra and cocoa and other marine products.” This is misleading. While China is the destination for 80% of log exports, the other products go to various destinations, including EU countries, Australia, Thailand, Philippines, etc.

I am not against diplomatic relation with China. What I am against is making uninformed and misinformed decisions. China could be a great economic partner. That however depends on how prepared Solomon Islands is for this proposed “marriage.”

At this point, I am not convinced that the country has the institutional mechanisms, the capacity and political discipline needed for this relationship. This concern is underscored by the fact that the motivation for most MPs is to access concessional loans without examining the country’s capacity to repay.

I have long been fascinated with Chinese histories, civilizations and its contemporary re-emergence. But, I have been less impressed with the wisdom of political decision-making in our country.

Next week’s Sarere Tok Stori will focus on something more light-hearted, but equally important: histories and historiographies in our societies.

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* This article was published in the ISLAND SUN, Sarere Tok Stori column, 31 August 2019.