With Chinese development finance flowing into the Pacific and Western aid in record retreat, Canberra can’t outspend Beijing. Australia’s best bet for lasting influence is to hand Pacific partners real control over how aid is designed and delivered.
With a 43 per cent increase in Chinese development finance to the Pacific, alongside Beijing’s broader geopolitical push into a region Australia has traditionally considered central to its strategic interests, Canberra’s geostrategic position is coming under increasing pressure.
At the same time, the Western aid system is retreating. Official Development Assistance (ODA) fell by 23.1 per cent in 2025, the largest annual contraction on record, with Germany, the United States, United Kingdom, Japan and France accounting for almost all of the decline. US aid alone fell by 56.9 per cent. Australia’s aid effort has followed the same broader decline over the longer term, falling substantially relative to national income and losing political salience at home.
The problem for Australia is clear: China is expanding its development presence in the Pacific at a time when much of Western aid is retreating and Australia’s overall aid effort remains historically low relative to national income.
In this environment, Canberra cannot assume that throwing more money at the region will in turn generate more loyalty. Pacific states have their own interests and priorities, and aid does not automatically generate influence. On the other hand, Canberra cannot afford to think this way.
Australia cannot win a competition for Pacific influence simply by trying to match China dollar for dollar. It must compete differently.
That means changing not only the scope of the aid Australia provides, but who has power over how it is designed and delivered. Giving Pacific governments, civil society and local organisations greater authority can strengthen local agency, build trust and legitimacy, and ultimately strengthen Australia’s long-term relationships in the region.
If Australia wants influence in the Pacific, it needs to earn it.
Pacific States Are Not Passive Recipients
Pacific governments are deliberate when it comes to choosing foreign development programs, weighing up how well they serve their own interests, and perhaps more importantly, what kind of partnerships they come attached to. Research into Pacific perceptions of Beijing demonstrates this clearly, with many Pacific actors welcoming Chinese development opportunities whilst remaining cautious about the debt, transparency and sovereignty concerns that accompany them. However, there is also research to suggest that this scepticism extends to Australian engagement as well. What stands out is Pacific nations do not automatically accept foreign influence simply because assistance is on offer, regardless of the geopolitical affiliations.
This offers an important lesson for Australia. By accepting aid, Pacific nations are not necessarily signalling political alignment, unconditional trust or a lack of awareness for the geopolitical competition driving development initiatives. In fact, it is quite the opposite.
This does not mean geopolitics should be removed from Australian aid. That would be unrealistic. Geopolitical competition can help explain where Australia directs its aid and why particular programs are prioritised. But it cannot, by itself, determine what makes aid effective. In any case, if Canberra wants to genuinely strengthen its influence over the long term, Australia needs to become a more effective, trusted and locally legitimate development partner.
In earning that legitimacy, however, lies somewhat of a paradox: Australia may strengthen its regional position not by controlling more, but by giving Pacific partners greater control. Strategic competition may tempt Canberra to tighten its grip on aid. But in actuality too much control risks weakening the very relationships Australian aid hopes to strengthen.
Who Controls Australian Aid?
Pacific aid has become increasingly “politici[s]ed, privati[s]ed and contested”. Much of Australia’s assistance is concentrated among just four major contractors – Abt Global, DT Global, Tetra Tech and Palladium – while Pacific firms and institutions can remain marginalised from the very programs designed to support them. The issue is not simply who funds development. It is who gets to control it.
Large contractors are not inherently the problem. Complex programs require technical expertise, financial oversight and the capacity to deliver major projects. The problem emerges when Canberra identifies the problem, determines the priorities, designs the program and controls implementation, leaving Pacific passive actors as recipients instead of genuine development partners.
Aid may deliver projects, reports and funding without delivering genuine local agency.
A 2025 independent evaluation of the Australian Humanitarian Partnership found that funding to local partners had risen from around 20 per cent in 2018 to more than 40 per cent by 2024. More importantly, locally co-chaired coordination arrangements were found to improve trust and transparency.
That matters. Localisation is not simply about fairness or representation. It can strengthen the trust and relationships on which effective aid, and ultimately Australian influence, depend.
Localisation Must Mean Sharing Power
Pacific scholars Theresa Meki and Jope Tarai argue that development practice can over-value external Eurocentric knowledge while undervaluing local knowledge. Their call for outsiders to “yield” power so Pacific actors can also “wield” it captures what genuine localisation should mean.
Localisation cannot simply involve consulting Pacific communities after Canberra has already identified the problem, designed the program and decided how the money will be spent. It must mean giving Pacific actors greater authority over those decisions in the first place.
That requires shifting more funding, decision-making and implementation power towards Pacific governments, civil society organisations and local firms.
There is also no single set of “Pacific priorities”. While Papua New Guinea faces major challengers in turning economic growth into jobs and extending infrastructure and basic services to a large, dispersed population, Fiji places particular a stronger emphasis on climate and disaster resilience. A few kilometres away, Solomon Islands faces its own pressures around job creation, public finances and economic diversification. These differences strengthen the case for greater context-specific and local decision-making, rather than attempting to design development priorities predominantly from Canberra.
Again, this does not mean Australia should abandon its own national interests. Canberra is entitled to care about regional security, the development outcomes of its neighbours and the responsible use of Australian public money helping to support those initiatives. Nor should localisation mean abandoning Australian channels for accountability, financial oversight or evaluation. But accountability should not become an excuse for permanent donor control. The challenge is to build these accountability measures with Pacific partners, while giving them a greater role in determining what development should look like in their own communities.
This is where development policy and strategic policy can support one another. More transparent, locally led and trusted aid can strengthen Australia’s strategic position indirectly because influence ultimately depends on relationships, credibility and legitimacy, not simply how much money Canberra spends.
Pragmatic Reform, Not Revolution
Australia does not need to reinvent its aid system. What it needs is practical, incremental, and pragmatic reform within the system it already has.
Canberra should do fewer things better: simplify fragmented programs, concentrate resources on initiatives with a strong evidence base, and shift greater funding and implementation authority towards Pacific governments, civil society and local firms. External expertise will still be necessary, but it should support Pacific capability instead of substitute for it.
Australia has already committed itself to this direction. At the 55th Pacific Islands Forum Leaders’ Meeting in Palau from 31 August to 3 September 2026, Prime Minister Anthony Albanese argued that the region’s major challenges require solutions “designed and delivered for the Pacific, by the Pacific”. That emphasis on partnership has since appeared more broadly in Australia’s foreign policy, with the government’s September 2026 UN Security Council campaign pledging to “listen with respect” and “partner as equals”. DFAT similarly describes its approach as “Pacific-led, Australian-backed” and places locally led development at the centre of its development policy. The real test is whether that language produces a genuine shift in who controls funding, implementation and decision-making.
That shift does not require Australia to abandon its strategic interests. Competition with China will continue to shape where and why Canberra spends development funding. But Pacific agency, trust and legitimacy will increasingly determine whether that spending truly produces lasting influence.
Done properly, Australia’s strategic interests and locally led development in the Pacific are not competing goals but mutually reinforcing ones. Championing Pacific-led development sits firmly within Australia’s interests. If Canberra wants to remain a trusted and influential Pacific partner, out-competing Beijing or simply spending more will not be enough. Australia must build relationships in which Pacific states have greater power to shape the development programs intended for them.
Aid can assist Australia in expanding its regional influence, but Canberra would do well to remember that it cannot buy Pacific loyalty. It must earn it, by supporting Pacific plans and priorities on Pacific terms.
Carlo Edward Caiani is a Master of International Relations candidate at the Australian National University and holds a Bachelor of Science from the University of Melbourne. He is an Editorial Intern with the Australian Institute of International Affairs as part of the September 2026 cohort. His research interests include Australian foreign policy, development, diplomacy and Asia-Pacific security.
This article is published under a Creative Commons Licence and may be republished with attribution.
Photo: “Painting Australian Aid Logo, Solomon Islands” Yvonne Green, DFAT (CC BY 2.0)
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