Jenny Hayward-Jones is Director of the Lowy Institute's Melanesia Program, and Dr Philippa Brant is a Lowy Institute Research Associate.

On 8 November China announced a new assistance package for the Pacific Islands, potentially worth more than US$2 billion.

Stressing that cooperation with Pacific Island countries was part of a long-term strategic goal of China's diplomacy, Vice Premier of State Wang Yang told Pacific Island leaders and ministers meeting in Guangzhou that China was a reliable and sincere friend.

These kinds of 'packages' are common announcements from Chinese-hosted regional forums. They include a combination of 'aid' and 'non-aid' measures.

The package is actually made up of two loan facilities for use in infrastructure development, of up to US$1 billion each. One is concessional (which is counted as 'foreign aid') and the other is a more commercial loan facility administered through the Chinese Development Bank (CDB). This is the first time a large CDB facility has been included in a regional cooperation package for the Pacific Islands region.

In addition to the loan facilities, the package also includes 2000 scholarships over four years, professional training, medical assistance, cooperation in agriculture and forestry and support for environmental protection, disaster relief and green energy.

China has also promised to remove tariffs on 95% of commodities from least developed countries in the Pacific Islands and to assist island countries with targeted marketing strategies to access the Chinese market. China's announcement has been warmly welcomed by Pacific Island leaders.

This announcement will give the Abbott Government pause for thought.

Foreign Minister Julie Bishop has expressed frustration that other donors win much greater recognition from Pacific Islands for much smaller contributions than Australia's. She wants to see better branding of Australian aid and recognition that Australia is the partner of choice for Pacific Island countries.

Australia is the biggest aid donor to the Pacific Islands by a huge margin, disbursing just over $1 billion there in the last financial year alone. Australian aid to the Pacific Islands constitutes approximately 60% of total aid received by the region, a market dominance second to none in global aid terms. 

Australia need not worry that China is about to supplant it as the major development partner of the region.

It is unlikely that many Pacific Island countries could take on additional loans from China, even on a concessional basis. The economies of Tonga, Samoa and Cook Islands have suffered in past due to concessional loans from China and none are likely to increase their debt levels by taking on additional loans. Six countries in the region are ineligible because they recognise Taiwan rather than the People's Republic. Papua New Guinea and Fiji are the only countries with economies of a size and situation that render concessional loans a viable option. It is difficult to see how both loan facilities could be fully disbursed in under a decade and even then the reach of these loans is likely to be limited.

The Australian Government does have cause to worry, however, that Beijing's announcement will likely enhance Chinese diplomatic influence in the region.

Even if few countries will benefit from the loan facilities, the announcement of them, together with the other uncosted elements of the assistance package, help back up China's claim that it is a generous and sincere friend of the Pacific.

Foreign Minister Bishop's desire to secure greater acknowledgment (read influence) of Australian aid in the Pacific Islands is not helped by the announcement of apparently significant largesse from China just after Canberra has abandoned earlier intentions to increase aid. Vice Premier Wang's reference to dealing with climate change being the 'common challenge to all mankind (sic)' will also resonate with island countries at a time when the Australian government appears to be ambivalent about the extent of the climate challenge.

If past practice is a guide, canny Pacific Island politicians will use China's generosity to play to concerns about Chinese influence, encourage competition between donors and leverage more flexibility from traditional donors. This may result in a flurry of activity from multiple donors but does not guarantee the achievement of the development outcomes the island countries need.

The Pacific Islands region is one where Australia's diplomatic influence intersects most obviously with a rising China. Australia has the influence, the motivation and the capacity to work with China to create better development outcomes for island countries and enhance its own standing in the region.

Earlier this year, Australia and China signed a Development Cooperation Partnership MoU that enables some technical collaboration in the Asia Pacific. As we have suggested previously, the Abbott Government could tie this cooperation with China in the Pacific Islands more firmly to the broader political relationship and seek broad agreement on approaches to the region's major challenges. This may help facilitate collaboration in specific priority areas, including climate change mitigation, agricultural development and joint defence-force disaster relief responses.

China wants to be seen as a globally responsible player. If China can demonstrate it is both committed to helping the Pacific Islands tackle priority challenges (rather than contributing to their debt problems) and to collaborating with the region's most significant partner, this constructive approach would be noticed internationally. And it would not lessen the appreciation of island countries for Chinese aid.

For Pacific Island countries, high level agreement between Australia and China on approaches to development in the Pacific would mean greater certainty about the commitment of their major external donors to their core development and security challenges.

Photo by former Lowy Institute researcher Fergus Hanson.