Following deadly riots in Tonga in 2006, the local government went looking for funds to rebuild its gutted capital, and found a willing low-interest lender: China. With Chinese money, Tonga not only rebuilt its city centre, but also renovated the royal palace and began work on a new sports complex and a waterfront government office building. These were impressive additions for a nation of about 100,000 people whose main exports are squash, vanilla beans, yams and fish.

For years, Tonga – and several other nations in the Pacific – accrued debts to China that they could hardly repay, but Australia showed little concern. China’s generosity was seen as part of its diplomatic contest with Taiwan for international recognition – a battle that seemingly had little to do with Australia’s Pacific interests.

But China’s deepening ties in the neighbourhood are no longer viewed as benign. Australia is now paying attention, and is worried. This is evident from Canberra’s new approach to the Pacific: it will match China’s stakes and, if necessary, raise them. 

When Xi Jinping announced that he will meet leaders of nations that oppose Taiwan’s independence before the APEC meeting in Papua New Guinea in November, Scott Morrison announced a barbeque with the Pacific nations to be held at the Australian High Commissioner’s residence.

When China’s telecommunications giant Huawei unveiled plans to build a high-speed undersea cable linking the Solomon Islands to Australia, Canberra stepped in to scuttle the deal and fund the cable itself.

When Beijing built a new wharf in Vanuatu, supposedly with an eye to turn it into a naval base, Australia announced plans for a security treaty with Vanuatu.

Canberra’s actions have not been subtle, or cheap. Pacific nations have long been adroit at capitalising on diplomatic enmities – China versus Taiwan, or Russia versus Georgia – to increase their support. Now, Pacific leaders have begun toying with Beijing to raise the price of loyalty to Canberra.

Clearly, Australia will need to find a more sustainable and less reactive strategy. It cannot win a long-term bidding war with China. 

And, as is so often the case, China’s motives are not always clear. It is difficult to know whether Beijing is trying to develop a military foothold in the South Pacific, or whether its purposes are mercantile. 

China is constantly looking for fresh places to which to trade or export its workforce. But there is not always a correlation between Chinese aid and trade, and its diplomatic goals. According to the World Bank, for instance, China now accounts for more than 50 per cent of the Solomon Islands’ total trade, yet the Solomon Islands is only one of a handful of South Pacific countries that still recognises Taiwan. 

Australia needs an approach that constructively strengthens its South Pacific ties, but does not further inflame tensions with China. 

Earlier this week, Bill Shorten unveiled a new Pacific policy at the Lowy Institute, saying he would set up a government-backed bank to promote concessional loans for nation-building projects. Shorten did not mention China, but noted: “Our neighbours in the Pacific are looking for partners … and as prime minister, I intend to make sure they look to Australia first.”

The bank is a good first step towards a new relationship with the Pacific. However, there was little detail about how it would work, or how Australia would ensure that small nations do not fall into a Canberra-funded debt-trap. To succeed, the proposal will need to genuinely address the needs of borrowers. And it should include working with other lenders – including China, India and Japan – to assist Pacific nations. 

Australia’s Pacific approach should not simply be fuelled by China panic. The region is diverse, and complicated, and so are the interests of the various foreign powers that operate there.