Chinese Government offers to help Government of Nauru repay $77 million loan to General Electric (Linked to Project ID#37645)

On July 21, 2002, Nauru's Acting President Remy Namaduk and the Chinese Assistant Foreign Minister Zhou Wenzhong signed a joint communiqué, establishing diplomatic relations between the Government of the People's Republic of China and the Government of the Republic of Nauru. The Chinese Government also reportedly agreed to provide $60 million of grant assistance (captured via Project ID#37645) and help the Government of Nauru resolve a $77 million outstanding debt to General Electric Capital Corporation in exchange for the Government of the Republic of Nauru cutting ties with Taiwan and recognizing Beijing's One China Policy. However, there is no evidence that the Chinese Government ultimately followed through on its debt relief commitment. In 1999, the government-owned Nauru Phosphate Royalties Trust (NPRT) raised a $99 million loan from General Electric Capital Corporation to pay dividends to landowners, and to refinance and restructure the investments of NPRT, the Nauru Finance Corporation, and the Nauru Superannuation Board. NPRT subsequently defaulted on the loan and General Electric Capital Corporation sought to recover the overdue debt via judicial enforcement (i.e. commencement of receivership proceedings). This led to a public debt crisis and the Government of the Republic of Nauru faced the seizure of its assets if it failed to honor its repayment obligations. On April 23, 2004, four opposition MPs, prevented President René Harris' plane from taking off from Nauru's airport. Harris was due to visit China in order to strike a deal to refinance Nauru's outstanding debt to General Electric Capital Corporation. All four MPs were subsequently charged with sedition, riot, riotous behavior, and disturbing the peace. Prior to his scheduled visit to China, Harris signed a memorandum of understanding with an ‘Asian property group’ to refinance its debt but the deal had not been formalized. Then, in May 2005, Nauru and Taiwan re-established diplomatic ties, which apparently brought an end to China’s efforts to help Nauru resolve its outstanding obligations to General Electric Capital Corporation.

Additional details

On July 21, 2002, then President René Harris of Nauru signed a joint communiqué in Hong Kong to establish diplomatic relations with the People's Republic of China (PRC). In the document, the Government of the Republic of Nauru recognized that "there is but one China in the world, that the Government of the People's Republic of China is the sole legal government representing the whole of China and that Taiwan is an inalienable part of Chinese territory." The declaration also contained an undertaking by Nauru to close its embassy in Taipei within one month, despite the fact Nauru had never had a diplomatic mission in Taiwan. This move followed the PRC's promise to provide a large aid package. That same day, the Republic of China (ROC or Taiwanese) government issued an ultimatum, demanding that the communiqué be withdrawn within 24 hours or it would take the initiative and sever diplomatic ties. There was much dissension within the Nauruan government over the move by Harris, which the President was alleged to have made on his own initiative. In the confusion, the Nauruan government did not respond to the ultimatum, which was extended an additional 24 hours, and the ROC followed through with its threat on July 23, 2002, breaking diplomatic ties that had existed since 1980. Then, in 2003, the Government of Nauru closed its embassy in Beijing, prompting speculation of an imminent resumption of ties with the ROC. The Government of Nauru ultimately re-established diplomatic ties with the ROC in May 2005. Consequently, many of the PRC-backed development projects that were announced or initiated in 2003 and 2004 were never fully implemented.

Number of official sources

4

Number of total sources

20