Australia will use a significant portion of its annual Pacific aid budget unveiled on Tuesday to build high-speed internet cables for Papua New Guinea and the Solomon Islands, amid fears about China's growing influence in the region.
The centre-right coalition government did not detail the cost of the networks in its 2018/19 budget, citing commercial agreement limitations, but confirmed the funds would come from the country's A$1.3 billion regional aid budget.
Analysts have estimated the combined cost of the two pipelines at around A$200 million - one-sixth of the overall funding pool for the region, which increased from A$1billion last year and is at a record high.
"Improved access to the Internet will support both countries' long-term economic trajectories," the government said in the budget papers.
The investment is viewed as an attempt to block China's growing ambitions in the region, which has been fuelled by its own significant expenditure on aid. Australian think-tank the Lowy Institute estimates that China spent $1.78 billion in the decade to 2016, and has ramped up investment since.
That has concerned Australia, which has until recently held unprecedented sway in the region on its doorstep, and global allies including the United States, Britain and France.
China insists the Pacific aid is part of its $126 billion Belt and Road Initiative to build a modern-day Silk Road connecting China by land and sea to Southeast Asia, Central Asia, the Middle East, Europe and Africa.
But Australia's Minister for International Development and the Pacific Concetta Fierravanti-Wells in January accused China of "building roads to nowhere", in blunt comments that triggered a diplomatic protest from Beijing.
Western suspicion of China's motives deepened in April after media reports that China had held discussions with the Vanuatu government about establishing a permanent maritime presence in the island country, around 2,000 km (1,200 miles) east of northern Australia, after funding an expansion of its main port terminal. Vanuatu and China both denied the reports.
French President Emmanuel Macron last week pledged to increase his country's diplomatic presence in the region while on his first official visit to Australia.
INTERNET CABLES
The funding deal for the internet cables, linking Australia and the Pacific Islands, killed an agreement between the Solomon Islands and China's Huawei Technologies [HWT.UL] to develop the links.
A source familiar with the thinking of the Australian government said Canberra was concerned that China could gain access to its broadband network if Huawei built the cable, echoing similar national security fears from the United States. The source declined to be named because he was not authorised to talk to the media.
Huawei has denied the allegations, insisting it is an independent company with no links to Beijing.
Australian telecommunications company Vocus <VOC.AX> has been contracted to conduct the initial work for the Solomons cable. Australia has yet to award any contract for the PNG cable.
Some analysts have warned that devoting such a large portion of the regional aid budget to the internet cables leaves Australia exposed to China's growing influence elsewhere in the region.
While the entire region is facing economic hardship, some Pacific nations, most notably Tonga, are particularly reliant on international assistance after a series of natural disasters and weak commodity prices.
In another commitment to the region in Tuesday's budget, the government said it would open a High Commission in the tiny Pacific Island nation of Tuvalu, which it described as an "important partner in the Pacific."
(Reporting by Colin Packham. Editing by Jane Wardell.) ((colin.packham@thomsonreuters.com; +61-2 93218161; Reuters Messaging: colin.packham.thomsonreuters.com@reuters.net)
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