It was once dubbed "the American lake", while Australia's former prime minister John Howard liked to refer to it as "our patch".

But times are changing in the South Pacific.

This week two developments showed the growing reach of China's economic and diplomatic footprint in a region traditionally allied to the West.

First, there was the release of extraordinary trade figures showing China's two-way trade with the Pacific Islands has almost doubled in just one year.

Then came the revelation China has lavished the region with $US1.8 billion ($2.4 billion) in aid over the last decade, meaning it will soon be the Pacific's second largest donor, behind Australia.

Taken together, they are likely to provide fresh ammunition in a long-running debate.

In one camp are those who see China's growing presence in the Pacific as relatively benign; driven by the desire to expand markets for its cheap consumer goods rather than any geopolitical imperative.

But others see Beijing's bid for influence as an emerging threat to regional security, playing out as it does against the backdrop of Washington and Beijing's strategic rivalry and China's military build-up in the South China Sea.

It is a dynamic that Canberra will have to confront as it re-evaluates its Pacific policy as part of the Department of Foreign Affairs and Trade's just-announced foreign policy white paper.

And navigating China's emergence as a key player in the Pacific throws up a broader — and long-standing — foreign policy dilemma: how Australia charts a course between strategic ally Washington and economic partner Beijing, as the global balance of power shifts from West to East.

Deep pockets, deep debt: China's economic reach in the Pacific

"We've seen a very significant and steady growth in recent years in both directions and the trade shows that the Pacific Islands can benefit from the growth of China," David Morris, the Pacific Trade Commissioner in Beijing, told Pacific Beat upon the release of the latest trade statistics.

By any measure, it is an extraordinary leap: two-way trade between China and the islands reached $US7.5 billion ($9.9 billion) in 2015, up from $US4.5 billion in 2014, driven by a doubling in the value of Chinese exports.

Sorry, this audio has expired Pacific trade with China doubles amid environmental concern ( Jemima Garrett )

It lends some support to the view that Beijing's primary motive in the region is economic: to secure markets for its products and, in turn, access to the region's rich natural resources.

And it does not necessarily translate into a greater strategic threat, the Lowy Institute's non-resident fellow Jenny Hayward-Jones told the ABC.

"Many Pacific Island Countries, like Australia, are in the position of having China as their primary trading partner but not their primary strategic partner," she said.

"And as is the case for Australia, increasing Chinese economic (and in the Pacific Island countries' case, aid) influence does not mean Pacific Island countries have to switch their strategic allegiances.

"They can get what they want from China without moving into China's strategic orbit."

The Lowy Institute has just updated its groundbreaking research on the extent of China's aid program, tracking more than 200 projects worth $US1.8 billion since 2006.

China is now on track to overtake Australia as the largest aid donor to Samoa and Tonga, having already claimed the status of lead donor to Fiji.

Crucially, China's aid spending often comes with "no strings attached", in contrast to the strict governance criteria imposed by Australia — often a source of irritation to Pacific governments, who can see the demands as patronising.

China also funds much-needed infrastructure like roads, bridges, schools and sporting facilities, where Australian aid programs tend to focus on supporting broader political and economic reforms.

"I think we all know now is [Australia's] role in the Pacific is being challenged by [the fact] China's frankly cashed up and it's spending its money pretty freely across the South Pacific," Cameron Hawker, an analyst with the Australian Defence Force Academy (ADFA) and a former Coalition adviser, told Pacific Beat.

"You only need to visit Fiji and other countries to see stadiums and all sorts of government buildings going up — and clearly 'Made on China' signs on it."

China has opened its wallet for projects big and small — from $US175,000 worth of quad bikes for Cook Island MPs to a $US25 million grant to build PNG's Western Pacific University in the Southern Highlands.

Papua New Guinea's Prime Minister Peter O'Neill meets Chinese Premier Li Keqiang in Beijing. ( AFP: Mark Schiefelbein )

But Lowy research fellow in the Melanesia program, Jonathan Pryke, cautioned against drawing too close a comparison between China and Australia's aid programs.

The bulk of China's aid comes in the form of concessional loans to fund large infrastructure projects, he points out, which is a "narrower form of engagement" than that offered by Canberra.

According to an analysis by ANU and Lowy, the loans typically offer a five to seven-year grace period and then an interest rate of 2 to 3 per cent over 15 to 20 years, and are as much about securing market access for Chinese companies as helping recipient nations.

Examples include the $US74 million finance for the Pacific Marine Industrial Zone in PNG's Madang — to develop better fish processing infrastructure — on the condition that the project is built largely by Chinese companies and labour.

"I don't think we should panic ... It is certainly a large amount of money but ultimately this is a good thing for the Pacific," Mr Pryke said.

"It democratises further their access to international finance and it allows them to engage with new partners. There's still great need for finance in the region.

"But it should give Australia and conventional donors a moment of pause.

"We should really be reflecting on how much longer can we maintain that position of being the partner of choice in the region when China doesn't have the same stringent requirements of safeguards and quality and reporting that we might demand.

"Also, their objectives are a lot more opaque to begin with."

And while many Pacific nations have welcomed Beijing's largesse, the loans have not been without controversy in recipient nations — often contributing to a growing debt burden.

In Tonga for example, external debt to China represented nearly a third of its gross domestic product by 2011.

China agreed to defer repayments after the International Monetary Fund warned Tonga was at high risk of debt distress — but when repayments start again in 2018, they will reportedly be even higher than before.

"A lot of the smaller island countries, because these are concessional loans, are really at their limits of how much debt they can take on board," Mr Pryke said.

"Tonga, Samoa and Vanuatu are already facing varying degrees of debt distress."

And they have learned that reaching into China's deep pockets comes with other risks, Lowy's Danielle Cave wrote in her analysis of China's latest aid spending.

"The Chinese Government ... is just doing what all governments do — engaging internationally to promote its own interests," she said.

"But those interests don't always benefit Pacific partners — debt distress, local business frustration, poor aid management, aid quality complaints and high-level corruption are some of the issues that have arisen from China's style of foreign aid delivery in the Pacific."

Then Chinese Vice-President Xi Jinping (R) meets then President of French Polynesia Oscar Temaru in 2011. ( AFP: Gregory Boissy )

Will China flex its muscle in the Pacific?

China's economic expansion in the Pacific is just one plank of its "Going Global" strategy, which has actively encouraged state-owned enterprises to invest abroad.

But the more hawkish observers have long seen more at play than just a pursuit of economic gains.

For years, China so-called "chequebook diplomacy" in the Pacific was driven by its rivalry with Taiwan, which has been formally recognised by six Pacific states.

But as tensions have eased under Taiwan's president Ma Ying-jeou's leadership, so too has neutralising Taipei's influence become less of a priority.

Today, long-time China-watchers like Australian National University Professor Hugh White say that while Beijing is clearly driven by its economic interests — the larger strategic threat cannot be ruled out.

"China clearly does seek to become at least a leading power in the Western Pacific and perhaps the leading power in the Western Pacific," he said.

"One of the things it would naturally do as it moves towards that goal is to cultivate a closer political and even strategic relations with all the countries in the region including the smallest and in some ways the most remote."

The concern appeared to be echoed in Australia's 2016 Defence White Paper, which warned that instability in the South Pacific "could have strategic consequences for Australia should it lead to increasing influence by actors from outside the region with interests inimical to ours".

Sorry, this audio has expired Australia preparing foreign policy white paper ( Bruce Hill )

ADFA analyst Cameron Hawker also warned against complacency.

"In a sense we probably take the Pacific somewhat for granted," he told Pacific Beat.

"The only other major foreign power that obviously operates at will in the Pacific is the United States, which is very much to our advantage.

"But we tend to take it for granted that no hostile power will act in the space and if a hostile power were to act in that space it would definitely be a threat to Australia."

In 2014, China and Fiji signed a memorandum of understanding between their military forces when Chinese President Xi Jinping visited Nadi, vowing increased defence cooperation.

But Jenny Hayward-Jones said she was not convinced Beijing was likely to replace Australia and its allies as the region's primary security partner.

"On the strategic side, we have seen China exercise caution, with naval visits — fewer than those of Australia and New Zealand — focused on medical ships that deliver special health care to Pacific Island residents, military aid generally of the non-lethal variety and no attempt — as yet at least — to establish naval bases," she said.

Certainly, she said, Beijing was seeking greater diplomatic influence, but it has not translated into the outcomes it might have hoped for.

She noted that Vanuatu was the only Pacific Island nation that has backed China's position on the South China Sea.

"Fiji, which is otherwise close to China, and PNG have been very cautious in what they have said and not toed the line that China would have expected.

"This is important because those two countries are the most significant in terms of the size of their economies and population and because they have military forces."

President Obama addresses Pacific leaders in Hawaii in August 2016. ( AFP: Saul Loeb )

China activity gets Washington's attention

Nevertheless, Beijing's growing presence in the region has not gone unnoticed by Washington, which has sought out greater engagement with the island states as part of President Barack Obama's much-vaunted foreign policy "pivot" to the Asia Pacific.

Sorry, this audio has expired Obama praises efforts by Pacific leaders in combating climate change

Mr Obama arrived at the 10th Pacific Island Conference of Leaders meeting in late August bearing gifts: a $US30 million aid package to help deal with the impact of climate change.

The leaders in turn passed a resolution declaring that they "are backing the US foreign policy rebalance towards the Asia Pacific while proposing to reinvigorate awareness of Pacific issues in Washington".

Professor White said the US State Department was keenly aware of the need to strengthen its ties with the island states.

Hillary Clinton was the first US Secretary of State to attend the Pacific Islands Forum. ( AFP: Jim Watson )

"There is a clear concern in Washington that an improvement in China's position in the South Pacific, and an enhancement of its political and strategic standing there, would be a negative for Washington because in the end between the US and China it's a zero sum game," Professor White said.

He cited then-secretary of state Hillary Clinton's attendance at the South Pacific Forum in 2012 as a "pretty unusual step", showing the Pacific was firmly on the US radar.

More significantly, Professor White believes Washington may have been behind Canberra and Wellington's 2014 detente with Suva, ending the years of sanctions that followed Fiji's 2006 military coup.

Australia and New Zealand's withdrawal had left a diplomatic vacuum which China was only too happy to occupy, and Fiji's military regime was adept at using Beijing's open arms as leverage against its larger neighbours.

When Mr Xi visited Nadi in 2014, Prime Minister Frank Bainimarama couldn't resist a veiled dig at Australia and New Zealand, praising Beijing for its non-interference in the country's internal affairs.

"From Fiji's point of view, they could see an opportunity in China's interest ... to put pressure on Australia and New Zealand, to remind [them] that countries like Fiji have options, they don't just have to deal with the world through us," he said.

"I would be very surprised if there hadn't been quite close discussions between Washington and Canberra about the management of the Fiji issue."

A Chinese honour guard welcomes Fiji's Prime Minister Frank Bainimarama in Beijing in 2015. ( AFP: Wang Zhao )

Meanwhile, Prime Minister Malcolm Turnbull took the opportunity at this weekend's Pacific Island Forum meeting to reiterate Canberra's commitment to the region, flagging a "new Pacific strategy to be considered by ministers later this year".

He promised an extra $80 million to help the islands manage the impacts of climate change, and said his presence should "underline Australia's long-term commitment as a major and reliable partner on strategic, security, economic and development issues".

Cameron Hawker believes Australia should trade on its natural advantages when it comes to its relationship with its Pacific neighbours.

Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume. Listen Duration: 4 minutes 30 seconds 4 m 30 s Malcolm Turnbull comes 'bearing gifts' to Pacific Islands Forum ( Chris Uhlmann ) Download 8.3 MB

"Australia offers a much broader range of engagement than China possibly can," he said.

"Whereas China can splash around a lot of money, Australia is not acting by itself. It's also with New Zealand and other like-minded countries and we have a range of soft power options at our disposal."

And Professor White said that engagement in the Pacific should not prove too difficult for as long as the strategic rivalry between China and the United States — heightened by the Hague rejecting Beijing's claim to most of the disputed waters in the South China Sea — can be contained.

"But if [it] really intensifies and that's not a very remote possibility — we are seeing a pretty clear pattern of intensification at the moment, over the last few years and even months and weeks — if that trend continues, then the stronger China's position in the South Pacific becomes, the more potential problems that poses for Australia and New Zealand."