Australia Lags Behind China in $29 Billion Battle for Influence

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China is taking the lead in the development race across Southeast Asia as traditional donors such as the United States and the United Kingdom withdraw their focus from the region, according to a new report by the Lowy Institute.

The latest edition of the Southeast Asia Aid Map reveals that in 2023, China boosted its spending on regional development for the first time in several years.

Grace Stanhope, a research associate at the Lowy Institute, stated: “The reduction in financial contributions from Western and European countries to Southeast Asia is concerning.”

“We’re anticipating a 20 percent decrease in bilateral foreign aid to this region by 2026,” she noted.

China favours infrastructure, loans

After reducing its annual Southeast Asian development spend by 68 per cent over five years, China boosted its financing in 2023.

A woman in a dark blazer poses for a photo in front of rows of empty chairs.

Source: Supplied

The regional superpower is still favouring market-rate loans for infrastructure projects, with rail ventures in Indonesia and Malaysia accounting for most of the annual increase.

China is on course to surpass long-standing partners in infrastructure investment, expanding its commitments significantly from 2022 to 2023 with the relaunch of the Kyaukphyu Deep Sea Port Project in Myanmar.

Line graph showing SE Asia infrastructure commitments since 2015.

Infrastructure spending commitments by both China and traditional partners to Southeast Asian nations have decreased since 2015. Source: SBS News

It’s the loans to the region’s poorest countries — like Myanmar, Laos, and Cambodia — that have some concerned.

“These countries have far less options in terms of other development providers, and also far higher development needs,” Stanhope said.

“Increasingly, these countries have little room to manoeuvre in their negotiations.”

Stanhope warns reduced competition could lead to less domestic scrutiny of China’s funding.

“In the absence of viable alternatives, there might be reduced pressure for reform as China’s development finance becomes more dominant,” she observed.

Most countries in the Indo-Pacific region have avoided high debt burdens taken on by other developing countries. Globally, a third of developing nations spend more on interest repayments than on health each year.

Melissa Conley Tyler, executive director at the Asia Pacific Development Diplomacy and Defence Dialogue, said: “We don’t want countries in the Indo-Pacific to be heavily indebted.”

“That’s a huge problem if countries can’t provide the services that they need to their citizens because they’re paying back debt,” she said.

Further cuts expected

The full impact of aid cuts is yet to be seen in the region.

The Lowy Institute says that will result in the “centre of gravity” shifting in Southeast Asian development financing.

A bar chart shows the shifts in development funding from various nations since 2019. Source: SBS News

Australia’s response

Australia increased its aid to Southeast Asia in 2023, with Labor committed to raising its international assistance budget annually in line with inflation.

Speaking after the ASEAN Leaders Summit earlier this month, Foreign Minister Penny Wong said Australia had “sought to pivot our aid to the [Indo-Pacific] region” in response to recent cuts.

“Some 75 cents in every dollar that Australia provides in development assistance is directed to our broader region,” Wong said. “We will continue to prioritise that.”

A line graph shows Australian aid spending in Southeast Asia since 2019.

Source: SBS News

Conley-Tyler said it’s critical for Australia to maintain that focus.

“If you have a pandemic or animal diseases, if you have climate migration, all of those things are going to matter greatly to Australia.

“We would, of course, prefer to live in a region that is secure and stable and prosperous. And so the money we put into things like our development assistance is helping on our national interest in that.”