"Read Fine Print": US Says China Uses "Pay-Day Loan Diplomacy" In Pacific

China's is using "pay-day loan diplomacy" to exert influence in the Pacific, the new U.S. ambassador to Australia said on Wednesday, comments that threaten to inflame regional tensions.

The United States and its regional allies have been battling China for greater influence in the Pacific - a region that has votes at international forums like the United Nations and controls vast swathes of a resource-rich ocean.

The geopolitical competition has seen both sides increase foreign aid to the region in recent months, which the West says is needed to prevent the Pacific falling into financial distress and becoming susceptible to diplomatic pressure from Beijing.

Late last year U.S. Vice President Mike Pence accused China of ensnaring tiny island nations in foreign aid "debt traps".

New U.S. Ambassador to Australia Arthur Culvahouse said Pence's criticism was not strong enough.

"I would use stronger language - I would use payday loan diplomacy," Culvahouse told reporters in Canberra after presenting his diplomatic credentials to Australia's Governor-General.

"The money looks attractive and easy upfront, but you better read the fine print," he said.

Lenders of pay-day loans typically charge a higher interest rate.

China's embassy in Australia did not immediately respond to requests for comment, but China's Ambassador to Australia last year said Beijing does not place undue debt on the region.

The arrival of Culvahouse, the first U.S. ambassador to Australia in more than two years, comes at time of bilateral tensions between Canberra and Beijing.

In 2017, then Australian prime minister Malcolm Turnbull accused China of meddling in domestic affairs. In 2018 Canberra banned foreign-government linked companies from investing in a nascent 5G network, effectively blocking China's Huawei Technologies.

China denied the allegations and has called on Australia to shed its "Cold War" mentality.

Analysts believe Beijing may now be using trade to punish Canberra for its criticism.

Sources at Chinese ports told Reuters last month that Australian coal imports are facing longer waiting times to clear customs than other supplies, and the northern port of Dalian was halting Australian coal shipments.