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Australia reveals $1.5bn Pacific fund to counter China

Infrastructure aid meant to shore up Canberra's role as island benefactor

SYDNEY -- Australia will set up a 2 billion Australian dollar ($1.46 billion) infrastructure fund for projects in the Pacific, Prime Minister Scott Morrison announced on Nov. 8, as the country looks to curb China's rising influence across the strategically important islands.

"Australia will step up in the Pacific and take our engagement with the region to a new level," Morrison said. "While we have natural advantages in terms of history, proximity and shared values, Australia cannot take its influence in the Southwest Pacific for granted -- and sadly, I think, too often we have."

Australia is wary of China's prominent role in funding infrastructure in the South Pacific, and concerned that island nations are struggling under the burden of Chinese debt taken on to build ports, roads and buildings. China is now the second-largest donor in the region behind Australia, having poured in $1.26 billion of aid since 2011.

"The footprint of China in the Pacific is much more prevalent today than it has been in the past," said Jonathan Pryke, director of the Pacific Islands Program at the Lowy Institute, a think tank in Sydney. At the same time, he said, it is "no secret" that Australia's relationship with China has been chilly over the past year.

"So, Australia, we are pushing back," Pryke said.

"The threshold for us is we do not want China to establish a permanent military presence in the region, we do not want see China investing in critical infrastructure that is in some way connected to Australia. We are establishing a boundary of what we see as not interfering with our national interests."

Morrison said the Pacific is estimated to need $3.1 billion in investment every year to 2030. Australia's Pacific Infrastructure Financing Facility will help meet that need by issuing grants and loans to build essential infrastructure in energy, communications, transport and water resources. Aid from Australia, until now, has been centered on heath care, disaster support and public order.

The "refocus" of assistance to the Pacific will also fund additional diplomatic posts, the prime minister said, as well as closer security cooperation in the form of an annual Pacific Security Forces Summit and training programs.

China has forged close aid relationships with countries like Papua New Guinea -- where the APEC Forum will be held next week -- Vanuatu and Samoa. Unlike largely grant-based Australian aid, Chinese aid takes the form of debt, often with rigid repayment terms.

Critics fear this could allow China to repossess critical facilities like ports to use for its own security purposes. A deep-water port in Tonga, where China-held debt has ballooned, is of particular concern.

A Tonga port funded with Chinese loans has triggered alarm bells. (Photo by Fumi Matsumoto)

Sharing those misgivings, the U.S., Japan and Australia in July announced plans for a joint fund to build infrastructure in Pacific islands and "foster a free, open, inclusive and prosperous Indo-Pacific."

Australia has been moving in recent months to reassert its presence in the Pacific. Last week, the country struck an agreement with Papua New Guinea to redevelop and gain access to a naval base on the island. Earlier this year, Australia pledged around AU$200 million to build submarine internet cables there and in the Solomon Islands in an effort to sideline Chinese provider Huawei Marine.

The country itself is conflicted by what many consider an influence campaign by Beijing. In October, the state of Victoria signed an agreement to take part in China's Belt and Road Initiative, contrary to the policy of the federal government, which has remained skeptical. Prime Minister Morrison was "surprised" by the lack of consultation, he said, while the move was praised by Chinese state media.

Canberra's infrastructure and other announcements, Pryke said, are meant "to show that we finally fully recognize that sitting idle in the region will actually mean going backward," since China is "really ramping up their engagement and going full steam ahead."

Analysts wondered if the announcement could further complicate bilateral relations, which are slowly beginning to improve following a particularly tense period where scandals over Chinese campaign donations prompted Australia to introduce foreign interference laws. Australia's Foreign Minister Marise Payne met with her counterpart Wang Yi in Beijing on Nov. 8, the first such meeting in two years.

But Pryke said Wang struck "a surprisingly conciliatory tone" after the meeting.

"We are not rivals, and we can absolutely become cooperation partners," Wang said, acknowledging "ups and downs" in the two countries' relationship.

That could ease Australia's anxiety over China's activities in the Pacific, said Pryke. Because of low engagement with the country, "we don't know what their strategic intent is," he added.

At any rate, Australia is not the only country moving to preserve its Pacific position. New Zealand, another traditional power in the region, announced a Pacific Enabling Fund on Nov. 8 ahead of the APEC meeting, pledging $10 million New Zealand dollars ($6.8 million) to fund more diplomatic activities and military cooperation as part of its "Pacific Reset" strategy.

Nikkei staff writer Sarah Hilton in Tokyo contributed to this report.

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