Australia tops the charts for Pacific aid funding as China retreats and targets its money towards island nations with which it has more friendly relationships.
Labor and coalition governments put almost $27 billion towards the Pacific between 2008 and 2021, making up nearly 40 per cent of development finance in the region, the Lowy Institute's latest Pacific aid map report shows.
China's contributions dropped to about $380 million in 2021 compared to almost $450 million per year pre-pandemic. It contributes nine per cent of aid.
But Beijing is concentrating its aid towards more China-friendly nations, which mainly targets infrastructure projects, transport and the government and civil society sector.
"China’s financing has gone from loud and brash to a self-styled strategy of ‘small and beautiful’, ushering in a new trend of downsized, more politically targeted (official development finance)," the report said.
"Chinese development finance in the region is primarily directed to countries with official diplomatic relations with the People’s Republic of China."
This includes Cook Islands, Fiji, Kiribati, Micronesia, Niue, PNG, Samoa, Solomon Islands, Tonga, and Vanuatu.
PNG is also the lead recipient of Australian aid, followed by the Solomon Islands, the Oceania region, Vanuatu and Fiji.
But while Australia has become the leading source of loans that provide much-needed development support, the swap from grants has heightened the risk of debt sustainability.
This defined "a new era" of development financing in the region, according to the report.
With climate finance a key issue for the region, the report found a shortfall in terms of requirements.
"Climate development financing has grown steadily but remains well below that needed, especially for adaptation," the report said.
