Australia vastly outspends China on Pacific aid. But there’s a catch

The perception China is pumping vast sums of development assistance into the Pacific compared with other nations is not borne out by the evidence, with Australia spending significantly more on aid, infrastructure funding and loans in the region than any other nation.

However, Beijing has focused on maximising the pay-off of its spending by funding smaller but highly visible projects such as school upgrades, sports stadiums and medical clinics.

Chinese state-owned enterprises are also the dominant construction contractors for Pacific infrastructure, leaving Australian companies lagging far behind.

Australia spent a total of $2.15 billion on aid to the Pacific in 2024, the most recent year with full data available, according to the Lowy Institute’s latest Pacific Aid Map, a detailed report on overseas development assistance in the region.

Australia accounted for 37 per cent of all development finance to the region, three times more than the next biggest aid contributor – New Zealand – and far ahead of China on 6 per cent.

The release of the new database came as Chinese ambassador Xiao Qian bid farewell to associates at a ceremony in Canberra on Tuesday following an eventful 4½-year posting in the country.

He will be replaced by Liu Jinsong, a seasoned diplomat who currently serves as the head of the Chinese foreign ministry’s department for Asian affairs.

Xiao’s tenure was marked by friendlier relations, especially on trade, after China put Australia in the diplomatic deep freezer, but there were still moments of acrimony during his posting.

This included a fiery recent opinion piece Xiao wrote for this masthead accusing ASIO and other Western intelligence agencies of overhyping spying claims against China.

Xiao told an audience at the Chinese embassy – including Department of Foreign Affairs and Trade deputy secretary Elly Lawson and Prime Minister Anthony Albanese’s top international adviser Rod Hilton – that the China-Australia relationship had “emerged from a low point and regained stability”, achieving a “comprehensive turnaround” from the days of outright hostility.

The Lowy report shows the web of diplomatic arrangements the Albanese government has struck since it came to office is translating into dollars, with Papua New Guinea a particularly notable recipient of recent Australian funds.

Australia struck a new military alliance and sweeping economic agreement with Fiji earlier this month, following similar previous deals with PNG, Vanuatu, Nauru and Tuvalu.

China test-fired a missile from a nuclear-powered submarine into the Pacific, landing near the Solomon Islands, on the same day Australia struck the Fiji agreements, drawing complaints from many Pacific nations.

Australia has also signed $3.4 billion in new loan agreements since 2021, making it the region’s largest source of new lending over that period.

This is a major change from much of the 2010s when China was the dominant lender to the Pacific, drawing claims of being involved in “debt trap diplomacy”.

“As other donors retreat and repeated economic shocks hit the region, Australia’s large and sustained support has been a stabilising factor for Pacific economies,” the report’s lead author, Riley Duke, said.

“Australia’s push into infrastructure, particularly strategic infrastructure, is reshaping the regional aid picture.”

From 2010 to 2019, China signed about $5.2 billion in loans to Pacific countries, more than one-third of all lending deals in the region.

Since 2020, China has committed just $558 million in new loan deals, falling well behind Australia.

Despite this, the most recent Lowy Poll has found that 39 per cent of Australians believe China is the most influential country in the Pacific, ahead of Australia on 33 per cent.

The United States spends little on aid in the region outside its three “compact of association” states – the Federated States of Micronesia, the Marshall Islands, and Palau – and US President Donald Trump has gutted foreign aid spending since returning to office.

As for Chinese aid in the Pacific, Duke said it “is highly reactive to diplomatic developments, functioning as a strategic lever Beijing can pull”.

“When a country switches diplomatic recognition from Taipei to Beijing, or opens strategic negotiations with Australia, Chinese aid flows react,” he said.

For example, since Nauru switched diplomatic recognition from Taiwan to China in 2024, Beijing has funded its national sports stadium, as well as solar streetlights, schoolbag and computer donations, a medical clinic and a press conference room for the Ministry of Media.

In Vanuatu, China has provided police with motorcycles, drones, riot equipment and training programs, as well as ongoing medical equipment donations and scholarship and training programs.

About 40 per cent of Pacific infrastructure projects involve a Chinese state-owned enterprise, even as China’s direct investment has declined.

“As a result, they play a dominant and highly visible role in infrastructure across the region, one that extends well beyond China’s own bilateral financing,” the report finds.

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