China returns to Pacific with aid and influence push, report shows

China has regained its place as the second-biggest bilateral donor to the Pacific Islands, displacing the United States and targeting its spending to win influence, a Lowy Institute report on aid to the region found.

China had ramped up projects in 2022 after a pandemic lull, the Lowy Institute's annual Pacific Aid Map published on Wednesday showed.

Overall development finance to the Pacific Islands fell the most on record in 2022, dropping by 18%, as COVID-19 support was reined in.

Against this backdrop, China's development support of $256 million, a 6% increase on the previous year, saw Beijing regain its place as the region's second-largest bilateral donor after Australia.

"Beijing has emerged from a pandemic-induced lull with a more competitive, politically targeted model of aid engagement. China is also engaging in new aid modalities, notably in the

use of direct government budget transfers," the report said.

Government budget transfers had been used to secure diplomatic support in Solomon Islands and Kiribati, while there was also a region-wide increase in small grants administered directly by China's embassies, it said.

From 2008 to 2016, China was responsible for 89% of the Pacific's bilateral debt and a third of all bilateral infrastructure works in the region, the report said. By the end of 2016, Chinese banks had lent more than $1.1 billion to the region, sparking concerns about so-called "debt trap diplomacy", stoking fears the region risks becoming more susceptible to diplomatic pressure from Beijing.

In 2022, China appeared to shift strategy, increasing grants to the Pacific, the report said.

China's largest grant-financed project in the region was announced this year, the $135 million Vanua Levu Road Upgrade in Fiji.

Australia remains the biggest donor to the Pacific Islands, with multilateral development banks ranking as the second and third largest sources of development finance overall.

The Australian Infrastructure Financing Facility for the Pacific (AIFFP) committed nearly $750 million to projects in PNG, Fiji, Micronesia, Nauru, and Palau in 2022 in an attempt to displace China's dominance in infrastructure.

Development support from the United States, New Zealand,

and Japan fell below pre-pandemic levels in 2022, the report said.

Taiwan dropped out of the top 10 donors to the Pacific Islands, spending $7.2 million, after several nations switched diplomatic ties with Taipei and switched to Beijing.