PNG asks China to refinance $8bn public debt

Papua New Guinea has asked Beijing to refinance its $8 billion debt, in a request likely to rile Australia and the US as they try to maintain their influence in the Pacific in the face of a rising China.

Beijing has been strengthening ties with PNG and other Pacific nations by increasing engagement and offering loans for infrastructure, prompting both the US and Australia to launch their own charm offensives in the region to keep traditional allies on side.

Less than two weeks after travelling to Australia on his first trip abroad as leader, PNG Prime Minister James Marape announced on Tuesday that he had asked China's ambassador for help in refinancing the country's 27-billion-kina public debt during a meeting in Port Moresby.

"He stated that a formal letter would be forwarded to the ambassador to convey to Beijing on this request," Marape's office said in a statement.

"He suggested that both the Bank of PNG and the PRC People's Bank will take the lead with the Department of Treasury in ensuring that consultations are under way."

Since becoming prime minister, Marape has vowed to combat endemic corruption at home and rebalance the country's relationships with allies and multinational companies exploiting PNG's rich mineral resources.

According to the statement, Marape urged Beijing to enter into a free-trade agreement with Pacific island nations and suggested that China boost its investment in PNG's forestry, fisheries and resources sectors.

Chinese ambassador Xue Bing raised concerns over the upcoming Pacific Islands Forum leaders' meeting being held in Tuvalu -- which has diplomatic relations with Taiwan -- and invited Marape to visit China, the statement said.

Lowy Institute Pacific programme director Jonathan Pryke told AFP the request to Beijing, coming just after Australia rolled out the red carpet for Marape, would likely "ruffle feathers" in both Canberra and Washington as they seek to counter China's influence in the Pacific.

"If (China) were to restructure all of PNG's debt they would become the single largest creditor to PNG and that would give them a huge amount of leverage over PNG," he said.

"We've got no indication that China would be willing to do this, but if they did, I expect they would ask for some pretty firm concessions."

Asked about the refinancing request, Australia's foreign affairs department said it "welcomes support for the development needs of our Pacific partners," but added "provided it is transparent, upholds international standards, meets genuine need and avoids unsustainable debt burdens".

China has been accused of engaging in so-called debt-trap diplomacy by handing out onerous loans for infrastructure projects that poorer nations are unable to repay.

Pryke pointed out that China had not previously bought up another country's entire public debt, raising the possibility that PNG was using a calculated strategy to attract Australia's attention.

"A way to get more interest, more engagement from Australia is to say 'China is willing to have this conversation with us'," he said.

Cash-strapped PNG faces "significant economic challenges", Pryke said, with interest repayments on the public debt, which stands at about 33 percent of GDP, making up 15 percent of the government's annual expenditure.

Loans from China make up just over 7 percent of PNG's total debt, he said.

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