Tonga defends China aid

PRIME MINISTER: Tongan leader Lord Tu'ivakano: "If China can provide that for us, I wouldn't say no."
PRIME MINISTER: Tongan leader Lord Tu'ivakano: "If China can provide that for us, I wouldn't say no."

Tonga's Prime Minister has sent a blunt message to those critical of his government borrowing from Beijing - no one else will offer such cheap interest rates.

New Zealand Prime Minister John Key's Pacific mission this week has highlighted how reliant the small island states have become on China's aid and investment compared with the comparatively small amounts provided by New Zealand and Australia.

Speaking in Samoa this week before flying to Tonga, Key said he had warned small Pacific states to be wary of borrowing and to go instead for grants because grants don't have to be repaid.

He had told them New Zealand "doesn't bail out loans that you might take from another nationality".

"As long as you are comfortable with that and as long as your lenders are comfortable then that's fine," he said.

China has used its financial muscle to build influence in the region through aid and low-interest loans but in Tonga there is public disquiet about the loans and the size of the government's debt.

On one estimate as much as 60 per cent of Tonga's total overseas liabilities are owed to a single bank - the state-owned Export-Import Bank of China.

One of the first sights that greeted the New Zealand delegation when it arrived in Tonga was a bus emblazoned with a China Aid sign.

Chinese investors also own many retail outlets in the capital Nuku'alofa and cash from China has funded many new buildings.

Samoa has also borrowed from China and is in talks about a $200 million port development.

However, Tonga Prime Minister Lord Tu'ivakano said he was not worried about China, saying it was "like the new guy around the block".

Countries were still finding a way to work with it and small island states needed help to develop.

China offered low-interest loans while the two commercial banks in Tonga charged 10-15 per cent.

"Nobody in Tonga would loan from the bank, because there are other costs affecting them," he said.

"If China can provide that for us, I wouldn't say no."

He did not have a problem with Chinese running small shops either.

Tongans might not have skills in book-keeping, he said, but Chinese "have been in business for centuries - if we can learn from them I think it is a good thing for us".

New Zealand's annual aid budget is $30m each for Samoa and Tonga but is focused on tourism, disaster recovery, small infrastructure and education projects.

Key pointed out that on one building site in Samoa he saw mainly Chinese workers. New Zealand preferred to train local workers.

But he stopped short of criticising China and said it played a genuine role in the region and had worked with New Zealand projects, including on a water reticulation scheme in the Cook Islands.

However, New Zealand has also come in for criticism in Tonga over its warning to travellers about flying on a MA60 plane given to Real Tongan Airlines by China in 2013.

Key said it would need to be properly certified as safe before that changed, and a World Bank report was pending.

Aid had been diverted from tourism to other projects in the meantime.