China's increasing economic influence in various regions does not fail to encompass Small Developing Island States (SIDS). These small island states, often faced with small market size, are vulnerable to natural disasters and geographic isolation and prone to economic complexity. Thus, the search for financial options grows and often ends in China's 'Debt Trap Policy.' 

This Idea of powerful countries to influence and dominate the smaller countries is yet to spare Tonga. China has shown immense interest in assisting Tonga in its development, leading to contributions in sectors like infrastructure development and providing expertise to its government. The country's 106,000 people owe around 108 million to China's import and export bank, equivalent to 25% of GDP. However, none of this development aid comes in the form of goodwill rather than a hidden agenda to achieve China's strategic interest.

Tonga's political and economic context

Initially, Tonga was a monarchical kingdom, but later, in 1875, it adopted the constitutional monarchical form of government. Tonga joined the Commonwealth of Nations in 1999 and became a member of the United Nations after gaining independence in 1970 from the protectorship agreement with the British Empire. Democratic reforms took place in Tonga in 2010 to balance the powers between the monarchy and the elected representatives. The general election of November 2021 witnessed 75 candidates, proving no significant restrictions in political competition in Tonga.

Tonga follows a mixed economic system, where the agricultural sector contributes 30% to the country's GDP, the manufacturing sector contributes only about 3%, and the industrial sector contributes 10%. The government also emphasizes growing the private sector by strengthening its industries, improving communications and transportation, enhancing agricultural productivity, and developing tourism. Tonga introduced its first commercial trading bank, i.e., The Bank Of Tonga, in 1974. However, the country also heavily relies on external help and support to balance its trade deficit.

Understanding Chinese 'Debt Trap' 

After the 2006 pro-democracy riots, the Nuku'alofa core business center had to be rebuilt. China EXIM Bank offered a loan with a 15-year payback period. This loan exceeded the International Monetary Fund's sustainability requirement of 30%. This burden became apparent when many Tongan officials doubted the government's ability to repay the debt. However, talks for a prolonged debt grace period were held in 2013, 2018, and 2020, With Tonga potentially owing more than $120 million.

Through these loans and the Memorandum of Understanding's (MOUs) opaque contracting and procurement mechanisms, China imports labor and materials from China and uses Chinese contracts. They are frequently rife with widespread corruption. This maneuver places local, national, and international Chinese businesses in competition with domestic companies, often resulting in foreign businesses winning contracts. As a result, both Tonga's fundamental sovereignty and employability are deemed.

Given the circumstances, various initiatives have been taken by the Tonga government to break away from the debt with policies like the 'Sinking Fund' intended to pay back the Chinese debt. The region is prone to frequent climatic disasters that disturb and affect the GDP as a whole. For instance, the Tonga-Hunga Ha'apai volcanic eruption led to damages equivalent to 36% of GDP. These numerous issues consequently left them with no choice but to seek assistance from China.

Geopolitical Implications

For decades, the South Pacific region was considered the sleepy backyard of Australia, New Zealand, and the United States. Since the Second World War, the area has not had major economic competition. However, due to the increasing activities of China, the sovereignty of Western allies in the region are being threatened and they have started to respond.

Teisina Fuko, former parliament member, assumes that Tonga could be a potential strategic window to the Western side as it makes it easy for China to look into Australia and New Zealand.

Similarly, Rory Medcalf assumes that the area could provide a security bridgehead for China's navy, which must sail through the US-friendly islands of Japan, Taiwan, and the Philippines to get to the Pacific. Other possible expansions in China's interest in the region could be the exploitation of the region's natural resources. On the other hand, it could also be China's ongoing effort to lure away the few remaining countries that recognize Taiwan instead of China - several Pacific Island nations.

After the devastating effect of Cyclone Gita which destroyed Tonga's historic parliament house building last year, the government expected China to fund the reconstruction. However, surprisingly, Australia and New Zealand stepped forward and are considering funding the reconstruction project.

These incidents have led Australia to look into developing its Papua New Guinea naval base. New Zealand has also announced it will spend an extra 500 million on overseas aid over four years, with most of it directed at South Pacific nations. This instance signifies the geopolitical implications of developing the region.

At a time when government spending should be targeting support for households affected by recent shocks, the country is instead diverting funds to accommodate a mountain of debt repayments. This indicates a significant need for regulation, sustainable policies, and advanced relations with other States.

Curtailing Chinese influence

In the way forward, different approaches could be undertaken, some of them are:

First, the state of affairs concerns Tonga's cooperation with its longstanding allies, Australia and New Zealand. As things stand, Tonga's debt repayment relies on Australia providing an extra $30 million in budget help. On the other hand, Australia is assisting Tonga in maintaining essential public spending on health, education, and other key development priorities since China is unhappy with Australia providing loans to Tonga. Thus, this indicates a need for an advanced bilateral cooperation policy with Australia to curb China's pressure on Australia.

Second, by diversifying economic partnerships, Tonga can reduce dependence on China by building stronger economic ties with other countries and regions, including Regional partners like neighbors like Australia and New Zealand for trade, investment, and development assistance.

Third, multilateral organizations should engage more deeply with institutions such as the Pacific Islands Forum, the Asian Development Bank, and alternative funding sources from the United Nations. Private sector investments should be encouraged, and FDI from diverse countries should stimulate sectors like tourism.

And last, Chinese immigrants already operate most of the grocery stores on the islands of Tonga, selling imported goods, according to AP. Tongans now worry that the Chinese will expand into farming and construction, limiting the few options locals have for earning money to survive and diluting Tongan culture. This imperative could be sustained by regulating the import policies of Tonga while seeking international pressure on China to curtail its growing influence on Tonga's domestic market.

Need for diversification

The debt problem facing Tonga sheds light on the intricate nature of economic reliance and the broader geopolitical landscape in the South Pacific. Concerns regarding geopolitical control in a strategically significant region and the sustainability of debt have been highlighted by China's growing influence, not just in the region but beyond stretching to South Asia. One important factor contributing to Tonga's prosperity was the Western allies' counteroffensive against China, particularly by Australia and New Zealand. 

Tonga must diversify its economic alliances and strengthen its cooperation with multilateral organizations and traditional friends to lessen its debt trap. Given its continued worldwide attention, there is  strong implication that the geopolitical equilibrium in the South Pacific is at risk for Tonga and the region as a whole.

(The authors are post-graduate students at the Department of Politics and International Studies, Pondicherry University. Views are personal. They can be contacted at praneshselvaraj@outlook.com )