Australia's incoming Prime Minister Scott Morrison speaks at a press conference in Canberra on August 24, 2018.Photo: AFP/Saeed Khan
Australia's incoming Prime Minister Scott Morrison speaks at a press conference in Canberra on August 24, 2018. Photo: AFP/Saeed Khan

Australia will set up an infrastructure bank as part of a US$2.2 billion package of measures aimed at countering China’s influence in the southwest Pacific and lifting its political engagement in the region.

Prime Minister Scott Morrison said Thursday that Australia could not take its influence in the southwest Pacific for granted, “and too often we have.”

“Australia has an abiding interest in a southwest Pacific that is secure strategically, stable economically and sovereign politically. It’s where Australia can make the biggest difference in world affairs. A strong, stable region keeps all of us more secure and enables our economies to grow.”

The centerpiece of the package is a US$1.5 billion financial facility that will offer loans and grants for transport, telecommunications, energy and water projects. An export financing agency will also get an extra US$727 million in an effort to encourage more Australian firms to invest in the Pacific.

Known as the Australian Infrastructure Financing Facility for the Pacific, the package will be in addition to a Pacific funding plan announced in July by the US, Japan and Australia. Both are designed to take some of the air out of China’s US$1 trillion Belt and Road Initiative (BRI), which is gaining a Pacific foothold.

Papua New Guinea Prime Minister Peter O’Neill (L) speaks with China’s Premier Li Keqiang at the Great Hall of the People in Beijing, June 21, 2018. Photo: AFP/Fred Dufour 

A first tranche of eligible projects under the trilateral arrangement is expected to be announced by the three countries at the Asia Pacific Economic Cooperation (Apec) summit held next week in Papua New Guinea.

Morrison did not rule out further partnerships, saying he would “seek cooperation with others – New Zealand, the United States, Japan, China, France and the UK – to ensure our engagement supports common goals.”

Japan said late last month it was interested in establishing infrastructure or maritime security projects in the Pacific in cooperation with Australia.

Diplomatic missions will be opened by Canberra in Palau, the Marshall Islands, French Polynesia, Niue and the Cook Islands, and security ties will be expanded as part of the gambit. There will be more naval deployments and exercises and a Pacific faculty will be set up at an Australian defense force training facility.

It has already been confirmed that Australia will modernize Papua New Guinea’s small military force and upgrade its naval base on Manus Island. Timor Leste will also get funding that may include security improvements.

A map of the Pacific region. Image: iStock/Getty Images.

The announcements were timed for the East Asia Summit in Singapore on Wednesday and Thursday next week and the Apec gathering of leaders of several days later in Papua New Guinea. China’s premier Li Keqiang will attend the Singapore summit and president Xi Jinping is scheduled to be in attendance at the Apec summit.

Pacific leaders have accused Morrison of neglecting the region after he stayed away from the last Pacific Islands Forum, held in Nauru, and has allegedly given a lower priority to Pacific affairs than his predecessor, Malcolm Turnbull.

His about-face comes after warnings by intelligence chiefs of increased activity by China’s security agencies and evidence that Beijing was wooing Pacific nations with infrastructure packages.

Australia has already agreed to fund an under-water internet cable to the Solomon Islands to stop any deal with China-based Huawei that might have created a security lapse.

Treasurer Josh Frydenberg has also said he will block a proposed US$9.5 billion takeover of Australia’s largest gas infrastructure firm, APA Group, by Hong Kong’s CK Group.

He said this was because the deal would create an “undue concentration of foreign ownership by a single company group in our most significant gas transmission business”; but the takeover had earlier been scrutinized on national security grounds by a public agency.

The shells of the Sydney Opera House are seen through a Chinese flag. Photo: AFP/Torsten Blackwood

Owned by Cheung Kong Holdings, CK Group has substantial investments in China and there were concerns it might extend Beijing’s reach into Australia.

The decision could again set back China-Australia ties, which had improved after a chill earlier in the year. That setback was mostly due to tighter rules on foreign investment and claims of foreign meddling by Canberra. China has not yet responded to the ruling on CK Group’s deal.

Morrison said Australia was “returning the Pacific to where it should be – front and center of Australia’s strategic outlook, foreign policy and personal connections.” But Australia is already the biggest player in the region.

According to a chart compiled by the Lowy Institute think tank, Australia was by far the largest source of aid for the Pacific as a whole in 2016, with a contribution of almost US$800 million.

New Zealand gave US$192 million, Japan US$181 million, the World Bank Group US$144 million and China US$114 million.

Papua New Guinea, with US$646 million of aid, was the biggest recipient, ahead of the Solomon Islands (US$189 million), Fiji (US$177 million) and Vanuatu (US$153 million). Smaller nations like the Cook Islands and Niue, grouped as Oceania Regional, collectively received US$239 million.

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