Australia may need to work with China in the Pacific to ensure a record level of development aid and loans are not misused and that the fight for influence doesn’t become a flashpoint, a report says.

Traditional development partners of Pacific Island nations including Australia, the US. and New Zealand are locked in a geopolitical competition with China, and complex rivalries can lead to regional needs being neglected, a new report found.

“Pacific Island countries are leveraging geopolitical rivalries to maximise their development options,” the Lowy Institute’s Geopolitics in the Pacific Islands report said.

“But unmanaged competition for influence among key development partners can compromise good governance and privilege geopolitical posturing over local priorities.

“It can serve narrow political interests above development goals.”

There are also concerns by regional leaders that the jostling could expand to a militarisation of the region and their nations being manipulated in the context of the Beijing-Washington competition.

Funding alone cannot solve the problem, with better engagement to target local needs recommended.

Australia, the U.S and other donors could pool resources to set up more accountability and collaborate in a “race to the top” to meet local needs, the report said.

“Australia and the United States rarely work with China in the region,” the report says.

“Yet China’s presence is permanent and guardrails are needed to deter the erosion of democratic institutions and improve accountability for aid projects, said the report.