Why Australia should worry about who's helping our neighbours

As Western countries slash foreign aid and trade tensions escalate, south-east Asia is facing a development squeeze that risks weakening both its resilience and autonomy.

With Washington retreating and Brussels distracted, China is steadily consolidating its role as the region's dominant development partner, now delivering over a third of all support to south-east Asia.

This is a deeply uncomfortable picture for Australia, given our future is wedded to that of our region.

Australia cannot compete head-to-head with China on financing. But it is hardly a passive bystander.

Prioritising Australia's foreign aid to where it is needed most, boosting cooperation with Japan and South Korea as major infrastructure financiers, and lifting our commercial engagement all need to be part of how Australia adjusts to a changed regional landscape.

The Trump administration has abruptly cut about US$60 billion in overseas aid.

The European Union and seven of its member states have pledged a further US$17 billion in cuts through to 2029.

The UK has already slashed more than £6 billion a year. These are not temporary belt-tightening measures. They are a sustained withdrawal.

The impact in south-east Asia will be uneven. Larger economies like Indonesia, Malaysia and the Philippines will weather the storm. But in Cambodia, Laos, Myanmar and Timor-Leste, the consequences will be substantial. Western aid funds schools, clinics, civil society groups, environmental protection, and humanitarian relief. The sudden drop in aid to these areas will deepen the divide between Southeast Asia's haves and have-nots, undermining long-term stability and regional cohesion.

Meanwhile, the centre of gravity in development finance and influence is drifting from the West to the East.

The most recent Lowy Institute Southeast Asia Aid Map shows that Chinese financing to the region has rebounded in recent years, driven by big-ticket infrastructure projects in Indonesia and Malaysia.

Japan and South Korea, though quieter, remain consistent, with South Korea signalling plans to scale up its aid efforts. In contrast, Western donors are fading from the field, leaving the shaping of development priorities increasingly to others.

As Western presence shrinks, south-east Asian nations - particularly the most aid-dependent - are left with fewer choices and less negotiating power. Many will turn to Beijing by necessity, not preference. The result: reduced agency, potential for less transparency, and fewer checks on how projects are selected, financed, and delivered.

This turning point presents an opportunity for Australia to step up.

Unlike many of our Western counterparts, Australia has not dramatically cut aid to the region. At around $900 million annually - mostly in grants - we are already the third-largest provider of grant-based assistance in south-east Asia. That is a national asset, if we use it wisely.

First, we must direct aid where it is needed most. In Cambodia, Myanmar, and Laos, up to 80 per cent of support for education, health, and civil society comes from Western donors. As that funding disappears, Australia can play a crucial stabilising role. While recent initiatives, such as the $2 billion Southeast Asia Infrastructure Financing Facility, are aimed at boosting private investment in larger economies like Indonesia and Vietnam, poorer nations require a different approach: targeted, sustained, grant-based support.

Australia should pursue a dual-track strategy: maintaining commercial engagement in emerging markets, while rebalancing some aid towards countries that lack access to private capital but face the most urgent development needs.

Second, we should deepen partnerships with like-minded Asian donors. As Western aid pulls back and China's influence is poised to grow in its wake, we should be working more closely with regional partners that share our values. Japan and South Korea share Australia's commitments on transparency, accountability, and long-term engagement.

They also have substantial financial firepower. Australia should spearhead a coalition of partners to identify critical funding gaps and fill them, through co-financing, joint programs, and co-ordinated technical assistance. This would give Southeast Asian countries real alternatives to opaque or debt-heavy financing models.

Finally, our Southeast Asia Economic Strategy must deliver. The strategy has rightly recognised the need to boost Australian business engagement. While still in its early stages, it has made promising strides. But momentum must be sustained. As south-east Asia's export-driven development model comes under pressure, there is an opening for Australian businesses to play a larger role.

Australia doesn't need to outspend China. But we do need to show consistency, intelligence and credibility in how we engage. Aid is not charity; it is statecraft. It is how we help shape favourable outcomes, support stable growth, and ensure Australia has a lasting voice in a region that will define our future.