Why China is challenging Australia for influence over the Pacific Islands

(CNN)With beaches fringed with palm trees and pristine waters full of tropical fish, many Pacific Islands are the kinds of remote places you would expect to see on Instagram.

But for China and Australia, these tiny islands have become the center of an emerging power struggle.
    Foreign involvement is nothing new for these islands, which collectively control an area of ocean bigger than Russia. Colonial governments ruled some of the 14 Pacific Island nations over different periods of time. They all now govern themselves but, due to poor economic growth, this is one of the world's most aid-dependent regions.
    For decades, Australia has been the biggest donor of that aid. In many ways, that makes sense -- Australia is the richest nation in Oceania and nearly 206,700 people claimed Pacific Island ancestry in its 2016 census. As the country's Prime Minister Scott Morrison puts it: "This is our patch."
    But in recent years, China has emerged as a major player in the region, too.
    The Pacific Islands are home to fewer than 10 million people -- slightly less than the population of Sweden -- are thousands of miles from Beijing and have a combined GDP of about $33.77 billion, less than 1% of China's total GDP.
    But that hasn't stopped the money flooding in, building bridges, roads and an airport.
    In Australia, some analysts fear their country's influence is under threat.
    "Australia is certainly very worried about the level of investment (from China)," said Michael O'Keefe, an expert on Pacific foreign relations at Melbourne's La Trobe University.
    Prime Minister Morrison has made the Pacific Islands more of a priority than his predecessors since he came to power last year. As he announced a 2 billion Australian dollar ($1.5 billion) infrastructure fund for the region in November, he said: "Australia cannot take its influence in the Southwest Pacific for granted.
    "And sadly, I think too often we have."
    So why is China investing so much in this part of the world?

    First thing's first: What's China doing in the South Pacific?

    In many ways, China is doing things differently.
    In the past, Australia has taken what some see as a paternalistic approach in the Pacific Islands, investing in health, education and governance -- the things it thinks the nations need.
    But the approach hasn't necessarily had the desired impact. Although Australia -- and other countries -- have been investing aid in the region for years, economic growth is slow. That's partly due to the geographic isolation of the islands and their small populations, but has been worsened by their vulnerability to climate change and natural disasters.
    In most Pacific Island countries, more than 20% of the population is unable to afford all their basic needs, according to the World Bank.
    That has prompted questions about the effectiveness of aid.
    In papers in 2003 and 2010, Australian economist Helen Hughes said that "aid has failed in the Pacific," because it undercut the private sector, impacting employment and economic growth. But Australian economist Matthew Dornan and Jonathan Pryke, director of the Pacific Islands Program at the Lowy Institute, argued in 2017 that aid has raised "living standards beyond what they would be without aid." The Lowy Institute is a non-profit Australian think tank set up in 2003, which receives half of its funding from donations.
    China, by contrast, is asking Pacific Island countries where they most need investment. That has tended to result in Beijing funding large-scale infrastructure projects.
    Data from the Lowy Institute on the eight countries where both Australia and China are investing shows that in all but one of the nations, China's biggest spend was on an infrastructure project, while all but one of Australia's top projects were non-infrastructure.
    In Papua New Guinea, for instance, China completed a $85 million road upgrade in 2017. Meanwhile, Australia has so far spent $219 million on an initiative to deliver essential drugs such as vaccines, and increase health education, especially around the spread of HIV.
    In 2018, Australia's Minister for International Development and the South Pacific, Concetta Fierravanti-Wells, blasted China for funding "useless buildings" that islands couldn't pay back, but didn't refer to any projects specifically. China lodged a formal diplomatic protest against the minister, calling her remarks "full of prejudice and bias."
    There's another difference between the two players: how the money is delivered.
    While Australia gives its aid through grants with no obligation for repayment, most of China's spending is in the form of loans, according to the Lowy Institute.
    Many of the Chinese loans were taken between 2006 and 2010, said the Lowy Institute's Jonathan Pryke. This was during a "gold rush" period when China was increasingly lending to countries around the world, including in Africa. The loans usually have a grace period of five to 10 years, according to Pryke. So far, there's no record of any Pacific Island countries paying China back, Lowy Institute research found.
    Earlier this year, the US Ambassador to Australia, Arthur B. Culvahouse Jr., described China's spending in the Pacific as "payday loan" diplomacy -- intentionally getting countries to take on unsustainable debts in order to buy political leverage. US Vice President Mike Pence has echoed his sentiment.
    But the data doesn't back up these claims.
    Of the 14 Pacific Island nations, six are rated as being at a high risk of debt distress by the International Monetary Fund (IMF), meaning they are likely to default on their loans, and three are at a moderate risk.
    But last year, Australian researchers Rohan Fox and Matthew Dornan found that while China is the biggest bilateral lender in the region, Tonga was the only country where Chinese lending dominated. In several other countries, multilateral lending was the main source of debt.
    Furthermore, a recent paper by independent, US-based research provider Rhodium Group found that when China renegotiated its debt with over-leveraged countries, it was usually to the advantage of the borrower. But the authors cautioned that might not be true in the future: "Beijing could still use loan renegotiations to advance foreign and domestic policy objectives."
    Many countries have welcomed China's investment. Vanuatu, which received an $80 million loan to build a wharf, thanked the Chinese government for funding projects that no other donor would help with.
    On Monday, PNG's Prime Minister James Marape said his country was open to investors from all countries.
    "Whether they are from (China),