Rising Seas, Rising Stakes: China and Australia vying for Pacific Hearts in the Climate Crisis

While the Trump administration has retreated from climate leadership, both Australia—a key ally of the United States—and China have sought to position themselves as the Pacific Island Countries (PICs) as the preferred allies in the fight against the climate crisis.  The Australian federal government has been increasing its foreign aid packages to PICs and strengthening engagement with local PICs leaders on climate action.  At the same time, China has implemented green Belt and Road Initiative (BRI) projects across the Pacific intended to secure support for its “One China” policy (recognizing the PRC as the sole legitimate government of Greater China).  While some PICs are making the most of China and Australia’s “point-scoring” contests to leverage much-needed financial aid in the climate crisis, the PICs have been wary of these diplomatic games hindering regional cooperation on this issue.  During a joint press conference with the Foreign Minister for China, Wang Ya, the then-Prime Minister for Fiji, Bainimarama told reporters that, from a PIC perspective,  “geopolitical point-scoring means less than little to anyone whose community is slipping beneath the rising seas”.  

Since several of the PICs gained independence in the 1970s (such as Fiji and Papua), China and Taiwan have competed in the “market for diplomatic recognition” in the Pacific by offering much-needed economic boosts to PICs.  Prior to 2019, Taiwan and the PRC each had diplomatic relations with six PICs.  More recently, economic depressions exasperated by climate change have pushed PICs towards to the higher bidder, China.  Both Solomon Islands and Kiribati broke off relations with Taiwan in 2019.  In return, China promised around US$500 million in financial aid to the Solomon Islands and a US$60 million grant to Kiribati.  In January 2024, Nauru also severed ties with Taiwan allegedly in exchange for US$100 million in aid from China to compensate for lost revenue arising from the closure of Australia’s detention center in Nauru.  This has left just three PICs (Marshall Islands, Republic of Palau and Tuvalu) that recognize Taiwan—a quarter of Taiwan’s remaining allies.  

Although Australia does not have diplomatic relations with Taiwan, frictions between Australia and China have intensified competition in Asia-Pacific.  The frictions ignited in 2017 when former Prime Minister Malcolm Turnbull introduced laws to curb covert foreign influence in Australian politics in late 2017.  The tensions intensified when former Prime Minister Scott Morrison called for an investigation into the origins of COVID-19, and China retaliated with trade sanctions.  Australia’s commitment in 2021 to a defence pact with America and Britain (AUKUS) has added further fuel to the fire.  

Map of Australia and Oceania. Source: Peter Hermes Furian / Adobe Stock

These tensions have resulted in a constant game of diplomatic one-upmanship between Australia and China to win the favor of the PICs.  The PICs are located at a strategic juncture between Australia, the United States, China and Taiwan and are close to the contentious South China Sea.  In 2022, China’s Foreign Minister, Mr. Wang, undertook an unprecedented tour of 8 PICs with the aim of securing a regional agreement covering trade and security.  While the Foreign Minister did not walk away with a regional deal, China did reach a security pact security agreement with the Solomon Islands.  In the pact, China agreed to support the Solomon Islands police enforcement capacity as well as cooperate with the Solomon Islands on humanitarian assistance and disaster response efforts.  A year after the pact was signed, Australia signed a Bilateral Partnership Arrangement with Samoa, which includes climate and disaster resilience and security cooperation as priority areas.   

The PIC calls for help in the Climate Crisis

As island nations, the PICs are at the forefront of climate change and are increasingly at the whim of rising sea levels, coastal inundations and natural disasters, including tropical cyclones, storms and floods.  At the 49th Pacific Island Forum (PIF) in 2018, a group of PICs agreed in the Boe Declaration that the “single greatest threat” to the people of the PICs is climate change.  In 2021, Tuvalu’s Foreign Minister, Mr. Simon Kofe—representing an island in Polynesia that is projected to be submerged by the Pacific Ocean by the end of the 21st century—captured global attention at the COP26 United Nations climate summit by delivering a speech while standing ankle-deep in water.  The Foreign Minister emphasized that if the region is serious about addressing climate change, “then there really are [sic] no good buys and bad guys.”  Former Fijian Prime Minister, Mr. Bainimarama, also stressed the need for cooperation based on mutual trust rather than regional competition, calling out for “genuine partners, not superpowers that are super-focused on power”.

Aerial Image of the international airstrip in Vaiaku, Tuvalu. Source: Dmitry / Adobe Stock

The Australia’s Approach: Grants  

Much of the PIC’s climate and disaster resilience depends on foreign aid, with Australia (US$15 billion or 40% of total aid) being the largest donor and China (US$3.2 billion or 9% of total aid) being the fourth largest donor behind Japan and New Zealand.  In 2023, Australia committed to ensuring half of all government foreign investments in 2024/2025 valued over AU$3 million will have a climate objective, increasing to 80% by 2028/2029.  Since 2017, Australia has rolled out a broad sweep of Overseas Development Assistance (ODA) programs to assist PICs with climate and disaster resilience—including:

1. Australian Humanitarian Partnership Disaster READY Program (AU$100 million or US$66.5 million) in Fiji, PNG, Solomon Islands, Vanuatu and Timor-Leste.
2. Pacific Humanitarian Warehousing Program, which includes a US$66.5 million redevelopment of training facilities and a disaster relief warehouse for Fiji’s security forces; and
3. US$66.5 million grant to the Pacific Resilience Facility, which is a Pacific-led facility that provides grants to small climate adaptation and disaster preparedness projects.

Unlike China, Australia does not have large state-owned engineering and construction enterprises that the government can deploy for overseas projects.  Australia has, however, followed China’s footsteps by offering loan-based financing for local PIC projects—often with private Australian contractors—through the Australia Infrastructure Financing Facility for the Pacific (AIFFP).  Through the AIFFP, Australia has become the largest infrastructure financier to Pacific governments after the Asian Development Bank (ADB).  One prominent example is Palau’s first utility-scale solar and battery energy storage facility, which received a US$20 million loan and grant package from AIFFP and will power around 20% of Palau’s power needs. 

Typically, the ODA grants and AIFFP loans are offered without political conditions attached and have been well received in the Pacific.  Nonetheless, Former Secretary General to PIF, Dame Meg Taylor, has criticized  Australia’s aid to the Pacific as becoming increasingly politicized, privatized (in the hands of Australian and international cooperations rather than local PIC companies) and contested by PIC peoples.  The Papa New Guinean (PNG) Minister for National Planning, Mr. Ano Pala, labelled the Australian aid as “boomerang aid” on the basis that it has often benefitted Australian management contractors and lacked clear tangible outcomes for PNG citizens.  This criticism came after the Australian government—in a somewhat hypocritical move—offered an approximately US$400 million loan to fund a national PNG rugby team, conditional on PNG agreeing not to increase security relations with China.

The Chinese Approach: Debt-Financing

While the West has labelled China’s lending to developing nations as “debt-trap diplomacy”, this, as explained in SIPR’s recent article, Beyond Buzzwords: Unpacking Chinese Economic Engagement in Latin America | FSI), seems to be an oversimplification of a complex issue.

On the one hand, China’s foreign aid to the PICs has, over the years, largely been concentrated in countries that recognize the “One China” policy: initially Fiji, PNG and Samoa, then following 2019, the Solomon Islands and Kiribati and, in January 2024, Nauru.  Although much of this aid has comprised loans for major infrastructure projects, Beijing has committed to expanding its involvement in green projects.  In Fiji, China has been actively involved in reducing reliance on costly imported diesel and expanding Fiji’s hydropower industry.  A cornerstone of this effort was the Nadrivatu Hydropower project—the second-largest hydropower plant in Fiji—which was built by a Chinese state-owned entity, Sinohydro.  The project received a US$70 million loan from the China Development Bank as well as a US$30 million loan from Australian New Zealand Bank.

On the other hand, the total foreign aid China provides globally is on the decline, after dropping from US$384 million in total in 2016 to US$241 million in 2021.  This decline is driven by decreased appetites for loans in both China and the Pacific.  Between 2017 and 2021, only the Solomon Islands and Vanuatu entered into new loan agreements with China.   On the supply side, Beijing tightened capital controls on BRI outflows in 2017 due to concerns about political and financial returns from aid “investments” in the Pacific.  Around the same time, Australia introduced the Pacific Step-Up program, which included approximately US$1.3 billion for the AIFFP to assist PICs with their infrastructure debts and increasing budget deficits.  

On the demand side, many of the PICs’ public debts were growing at unsustainable rates.  This led many—including Beijing—to question whether debt finance is a sustainable option for countries that frequently need cash injections for disaster relief.    Tonga's debt repayments to China are 3.8% of Tonga’s GDP, and loans with China Exim Bank comprise 40% of Vanuatu’s public debt.  With tropical cyclones and volcanos impacting local communities and businesses in Tonga and Vanuatu, these loans are becoming increasingly difficult to repay.  

Australia’s Critical Advantage: Visa Pathways

The program that may have received the most attention from Pacific Island locals is Australia’s Pacific Engagement Visa (PEV), which the Fiji Times described as “something Australia can offer that China can’t”.   The PEV provides close to permanent Australian visas for 3,000 Pacific Islanders.  In the first stage of this program, over 50,000 families applied for these visas, including 8% of Fiji, 13% of Tonga and 20% of Tuvalu.   While there are many reasons for applying for these visas, concerns about the habitability of PICs are an underlining factor.  Australia’s small population-to-land ratio, particularly compared to China, and historical ties with the PICs make it ripe for receiving Pacific Islanders should the need for resettlement arise.

PICs push for a multilateral solution

Despite both Australia’s and China’s efforts, aid projects in the Pacific are less effective on average than in other developing countries.  The saturation of aid in the Pacific has rested in duplication and over-burdened already small bureaucracies.  It is also unclear how much sway the contributions are having in winning the hearts of PIC communities. 

At the PIF in August this year,  Tuvalu’s Climate Minister, Dr Maina Talia, criticized the Australian government for undermining its relationship with the Pacific by approving three coalmine expansions less than one month after Australia and Tuvalu ratified a climate and security deal.  From the perspective of a Pacific Islander whose home and livelihood are at risk, these contributions could be seen as merely providing a band-aid rather than a sustainable solution.  Financing infrastructure to protect communities from rising sea levels can only have so much impact when Australia’s and China’s domestic policies continue to contribute to rising sea levels in the first place.  How can the PICs credibly view Australia and China as trusted partners in the climate crisis when Australia is the second largest exporter of emissions in the world, and China is one of the largest contributors to the climate crisis?

When it comes to Australia, however, the PICs should not underestimate their own influence on domestic climate policies.  Recently, Australia put forward a bid, which it is predicted to win, to host the United Nations COP31 climate talks alongside the PICs.  While the bid may have been motivated by the desire to foster trust with the PICs, playing host to the world leaders in climate talks will likely pressure Australia to change its approach to regional climate discussions.  In previous regional climate talks, the PICs have criticized Australia for using “diplomatic strong-arm tactics” to water down multilateral commitments to climate objectives, particularly when it comes to eliminating reliance on fossil fuels.  In Australia’s bid for COP31, Australia has shifted its tune.  The Energy Minister for Australia, Mr. Chris Bowen, has declared that Australia will market itself as a “renewable energy powerhouse” in its bid and work with PICs to “elevate the case of the Pacific for more climate action” at the COP31. 

Australian Prime Minister, Mr. Anthoney Albanese, has described climate action as “the key to the door” to engagement in the Pacific.  It appears that Australia is doing everything in its arsenal to unlock that door, including—in a surprising move—engaging in talks with China.  In September this year, Australia and China engaged in their Strategic Economic Dialogue (Dialogue) for the first time since 2017.   While multiple factors would have influenced the recommencement of the Dialogue, both countries agreed at the dialogue that cooperation can be mutually beneficial for climate goals.  This small step “unlocks” the possibility of cooperation between Australia and China in regional efforts to find “win-win” solutions for the PICs in the climate crisis.  The timing of the talks, just after the announcement of Australia’s bid to host the COP31 with the PICs, also demonstrates just what a “key” role the PICs can play in influencing global climate talks and regional geopolitics. 

The views expressed in this article are those of the author and do not represent those of any previous or current employers, the editorial body of SIPR, the Freeman Spogli Institute, or Stanford University.