In a recent report by an Australian think tank, it has been pointed out that Beijing’s large-scale loans to the Pacific region are continuously decreasing. At the same time, the Australian government has been investing billions of Australian dollars through aid, concessional loans, and infrastructure financing, gradually becoming the largest official development finance provider in the Pacific region and playing an increasingly important role in regional infrastructure investment.
The strategic competition between the United States and China is not only unfolding on a global scale but also extending to the South Pacific region. For years, Australia, New Zealand, and the United States have maintained close relationships with Pacific island countries, while Beijing has been steadily expanding its diplomatic, economic, and security influence in the region over the past two decades.
Since the 2000s, China has increased its presence in Pacific island countries through aid, concessional loans, and infrastructure financing, and further expanded related projects following the introduction of the Belt and Road Initiative. However, recent data indicates a significant decrease in China’s development finance in the Pacific region, especially in large-scale infrastructure loan projects.
According to the latest “Pacific Aid Map” released by the Lowy Institute, an Australian foreign policy think tank, Australia remains the largest official development finance provider to Pacific island countries.
Based on data from 2024, Australia’s official development finance accounted for approximately 37% of the total annual funding flow in the Pacific region.
Australia’s share is significantly higher than other major aid providers, with New Zealand accounting for about 11%, the United States about 8%, China about 6%, and Japan about 3%.
The report highlights a noticeable shift in China’s loans to the Pacific region, indicating a continuous decrease in recent years, leading to significant changes.
The analysis suggests that China’s recent reduction in loans to the Pacific region is not only a result of adjustments in its diplomatic strategy but also related to China’s economic slowdown and changes in its foreign investment strategy.
The Lowy Institute’s analysis published in 2023 indicates that while China’s aid and loans to the Pacific region have not disappeared, they have significantly decreased from previous levels. Following a peak around 2016, China’s development finance in the Pacific region has continued to decline, particularly with a significant decrease in new large loan projects post the COVID-19 pandemic.
The reasons for this decrease mainly stem from both supply and demand aspects.
On the supply side, China’s economic growth has slowed, the real estate market remains sluggish, local government debts are high, and official attitudes towards fiscal expenditure have become more conservative. The Belt and Road Initiative has also shifted from early large-scale infrastructure investments to risk control and reducing new loans, leading to a decreased willingness to invest in large financing projects overseas.
On the demand side, many Pacific island countries have become more cautious towards Chinese loans. Some countries have faced heavy debt pressure due to Chinese loans, with countries like Tonga struggling to repay debts over the years. As a result, more Pacific countries are turning to funds provided by Australia, Japan, and multilateral development banks rather than accepting new Chinese loans.
The Lowy Institute points out that Beijing has not withdrawn from the Pacific but has altered its approach to investment. Instead of relying on large concessional loans for infrastructure projects such as roads and ports, Beijing is now focusing more on aiding countries like the Solomon Islands and Kiribati with which it has diplomatic ties through lower-cost and more targeted methods such as police cooperation, training exchanges, and community aid to maintain its influence in the Pacific region.
Over the past two decades, China has expanded its law enforcement “assistance” to foreign countries, with Pacific island countries increasingly becoming targets for its policing interventions. Initially limited to support and training actions, these efforts have developed into more substantial operational cooperation relationships in several countries.
A report released on April 7 by the Global Initiative Against Transnational Organized Crime, titled “Policing Partnerships in the Pacific,” examines China’s law enforcement cooperation scale and nature in the South Pacific region within the broader strategic objectives of China.
The report highlights that China continues to expand its law enforcement presence in traditionally U.S.-allied Pacific island countries, reshaping local security dynamics in ways that appear beneficial yet also disconcerting, which is a part of Beijing’s global security strategy.
The primary authors of the report, Virginia Comolli and Martin Thorley, point out that the Chinese Ministry of Public Security’s law enforcement activities currently cover around a dozen countries in the Pacific region.
As China’s loan investments decrease, Australia is gradually expanding its infrastructure financing in the Pacific region. The report mentions that since the establishment of the Australian Infrastructure Financing Facility for the Pacific (AIFFP) in 2019, the Australian government has committed to providing over 1 billion Australian dollars in loans and more than 850 million Australian dollars in grants to support transportation, energy, telecommunications, and other infrastructure projects in Pacific island countries.
Moreover, since 2021, the Australian government has signed new loan agreements totaling 3.44 billion Australian dollars, putting an end to Beijing’s long-standing position as the largest lender in the Pacific region.
This signifies a significant decline in China’s dominance in large-scale infrastructure lending, with Australia reshaping its regional influence through loans, aid, and long-term cooperation.
The report also notes that a few Pacific countries, especially Tonga, have long struggled to cope with the financial impacts of Chinese loans, which has been a longstanding political issue.
Duke noted, “So, it seems that Australia is replacing China in this field, and that’s significant.”