China funds Huawei’s Solomon Islands deal in sign of deepening ties

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China’s Huawei has signed a deal to build 161 telecoms towers across the Solomon Islands in a sign of strengthening ties between the Pacific nation and Beijing just months after they agreed a controversial security deal.

China signed a security and economic pact in April with the Solomon Islands that ratcheted up geopolitical tensions in the Pacific and triggered a stern reaction from the US and Australia in a bid to counter Beijing’s growing influence in the region.

The contract between the Solomon Islands and Huawei will be funded by the Export-Import Bank of China, which leads the country’s state investments overseas. The bank will loan almost Rmb450mn ($66mn) to the country over a 20-year period at a 1 per cent interest rate to fund the project.

“This proposal will be a historical financial partnership with the People’s Republic of China since the two countries established diplomatic ties in 2019 as the two countries work closely to ensure the successful implementation and operation of the project,” the Solomon Islands government said in a statement.

Telecom networks have become a focal point of friction in the Pacific. Australia agreed to fund a subsea cable to the Solomon Islands in 2018 to prevent Huawei from winning the contract. It then bankrolled Telstra’s acquisition of Digicel, the dominant telecoms company in the Pacific islands, this year to stop any potential sale to a Chinese operator.

Canberra is also funding the construction of six towers in the Solomon Islands.

Fergus Hanson, a director at the Australian Strategic Policy Institute think-tank, said that the Huawei agreement was a “slap in the face” for Australia’s prime minister Anthony Albanese, who was assured by his Solomon Islands counterpart Manasseh Sogavare last month that Canberra remained the country’s top partner.

“This is another blow to the credibility of Australian diplomacy in the region,” Hanson said, adding that the deal raised national security and debt diplomacy concerns.

Work will begin next year and 48 of the towers are due to be erected before the start of the Pacific Games in Honiara in November 2023. China is also funding the construction of a stadium for the event.

The Solomon Islands said that the tower build was a financially viable project. But one senior telecoms executive was sceptical that the government would generate enough money from the network to pay back the loan, given the size of the lending package, low population density outside Honiara and low average revenue per user levels across the Pacific.

Huawei’s 5G equipment has become the epicentre of the tensions between Washington and Beijing in recent years, as countries including Australia and the UK opted to ban the Chinese supplier and its domestic rival ZTE from building networks.