The Morrison government is still considering the package, with the final decision on cost and scope to be made in the coming months.
The sources said the package would focus on countries along the 4900-kilometre Mekong River, including Cambodia, Laos and Vietnam.
Beijing has been steadily growing its influence over smaller countries in the region including Cambodia and Laos, while Vietnam has been pushing back against China’s assertiveness, such as its expansion in the South China Sea.
A US government-funded report by research company Eyes on Earth earlier this year found Chinese dams were holding back large amounts of water in the Mekong, worsening a severe drought and reigniting warnings that millions of livelihoods in the downstream countries could be destroyed. China’s Foreign Ministry dismissed the findings as “groundless”.
Australian aid to south-east Asia and east Asia has fallen by about $384.7 million, or 29.8 per cent, over the past five years. Overseas development assistance to Vietnam dropped by $79.9 million between 2014-15 and 2019-20. Aid to the Philippines fell by $64.1 million, Laos by $26.2 million and Cambodia by $32.7 million.
According to a report by the Brookings Institution this year, China dwarfs both Australia and the US in infrastructure financing in south-east Asia. Between 2008 and 2016, China accounted for $42 billion in financial commitments for infrastructure projects in the region, compared to just $1 billion for the US and $1.8 billion for Australia.
US ambassador to Australia, Arthur Culvahouse jnr, in March called on the Morrison government to extend its Pacific step-up strategy to south-east Asia. Warning about the growing influence of China in the region, Mr Culvahouse said Australia “sits on the frontline of the great strategic competition of our time”.
“We’ll be pushing Australia to expand its step-up from the Pacific Islands region to south-east Asia and to look north as well,” he said.
Australia last year agreed with its “Quad” partners – Japan, the United States and India – to work together to promote infrastructure development in the Mekong region.
Diplomacy and security experts have been warning that Chinese influence throughout the region, including in south-east Asia, needs to be countered by an increase in Australia’s aid budget.
Bridi Rice, director of policy and advocacy at the Australian Council for International Development, said cuts to development and diplomacy in south-east Asia had “undermined our friendships and influence at a time when we should have been scaling up”.
“Strategically, it was short-sighted,” she said. “The Australian government has set out an ambition to re-engage and become a partner of choice. We must move decisively to fulfil that ambition, invest in all forms of Australian statecraft and re-establish our credentials.”
Anthony is foreign affairs and national security correspondent for The Sydney Morning Herald and The Age.