Navigating Influence in the Indo-Pacific: Development Finance, Strategic Competition, and the CPTPP

The Indo-Pacific has emerged as the defining arena of 21st-century geopolitics—a place where economic ambition meets strategic calculation. It hosts one of the world’s busiest maritime trade routes, some of its fastest-growing economies, and a cluster of geopolitical flashpoints that could reshape the global order. Trade agreements, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) - originally a centerpiece of the U.S. “pivot to Asia” - underscore the region’s centrality. Despite Washington’s withdrawal under President Trump, the CPTPP has evolved into a heavyweight economic pact of 12 members, including Japan, Canada, and Mexico, representing 17% of global GDP and setting gold standards in trade norms. China's 2021 application stirred tensions, with Japan and Australia pushing back, while Indonesia has also signaled interest. What’s clear is that the Indo-Pacific is no longer just a strategic waterway—it’s the new center of gravity for global trade and economic governance. This shift isn’t just about trade flows. It’s about influence. Development Finance may be seen as a tool of strategic competition between traditional donors,  like the U.S., Australia, and the EU, and China, especially across the vulnerable yet vital Pacific Island Countries (PICs). At the crossroads of development finance, diplomacy, and geoeconomics, the Indo-Pacific offers a window into a larger story: strategic investments, shifting alliances, and the chaotic, ongoing search for balance in a world no longer dominated by a single superpower.

This article dives into that story, exploring the Indo-Pacific’s rising strategic weight, Indonesia’s role as a pivotal player, and how trade and development finance are redrawing the regional map.

Indonesia: A Pivotal Regional Actor

Indonesia stands out as a potentially decisive player in the Indo-Pacific. As the world’s largest archipelagic state, Indonesia holds critical maritime real estate, controlling routes that link the Indian and Pacific Oceans and offering strategic access to areas such as the South China Sea. Coupled with its natural resources, including 2.41 billion barrels of crude oil and 43.6 trillion cubic feet of natural gas, Indonesia has the potential to play a central role in regional energy and supply chains.

The Malacca Strait, one of the world’s most vital shipping lanes, sees 90,000 to 100,000 vessels transit annually, carrying goods worth about $3.5 trillion. This economic geography positions Indonesia as a maritime hub connecting East Asian industrial economies with energy producers in the Gulf. However, structural limitations persist. Indonesia's defense spending remains relatively low — about 0.7% to 0.8% of GDP — creating potential vulnerabilities amid regional military buildups and grey-zone operations.

Indonesia’s geopolitical strategy is shaped by its historical commitment to non-alignment, a stance that persists in today’s context of U.S.-China rivalry. Jakarta’s policy of strategic autonomy allows it to engage with multiple partners while preserving national sovereignty. In areas ranging from raw materials — especially nickel — to arms procurement and territorial diplomacy, Indonesia continues to navigate complex pressures, striving to maximize benefits without aligning too closely with any one power.

Development Finance as a Tool of Strategic Competition

Development finance has become a key instrument in the Indo-Pacific’s emerging power dynamics. Though small in landmass, Pacific Island Countries (PICs) command vast Exclusive Economic Zones (EEZs) and are rich in critical natural resources, cobalt and rare earth minerals. Their strategic location has drawn intense attention from global powers seeking influence through infrastructure, investment, and diplomacy.

China’s role in this arena has expanded rapidly. Through its Belt and Road Initiative (BRI), Beijing has leveraged infrastructure investments, concessional lending, and high-level diplomatic engagement to secure economic and strategic footholds. Its approach, marked by fewer conditionalities, rapid disbursement, and a focus on large-scale infrastructure, offers an appealing alternative to traditional Western development assistance.

In contrast, donors such as Australia, the U.S., and the European Union have responded by revamping their aid strategies. Australia’s “Pacific Step-Up,” the U.S.’s “Blue Pacific Strategy” and the EU’s “Global Gateway” initiative aim to provide an alternative. The EU, in particular, seeks to assert itself as a normative power in the region, promoting rules-based trade and sustainable development in line with its global ambitions. It is clear that development finance is thus no longer about poverty reduction; it is a tool of strategic statecraft: influence is increasingly exercised through infrastructure investment, concessional loans, aid packages, and technical cooperation. The question now is: whose interests are truly being served? For Pacific Island Countries, climate change is not a distant policy debate; it is an existential battleground. Rising seas, devastating storms, and vanishing coastlines are already uprooting communities and threatening entire ways of life. In this context, climate finance has become the new geopolitical currency. Pacific leaders are demanding more than promises. This sense of urgency has turned climate cooperation into both a strategic imperative and a test for the credibility of external partners. The Western approach, often wrapped in layers of governance reforms and environmental safeguards, moves slowly. It claims the high ground of sustainability and transparency, but can it deliver in time? As the stakes rise, the real question is whether development finance will serve as a lifeline for the Pacific, or as a lever for outside interests.

In context, development finance and trade agreements are not separate domains but interwoven elements of a broader strategy to shape the region’s future. They are complementary tools in the construction of economic corridors, digital infrastructure, and sustainable energy systems, all with deep political implications.

CPTPP: Trade as Strategic Architecture

The CPTPP represents more than an economic agreement, it is a framework for strategic alignment in the Indo-Pacific. With provisions addressing digital trade, state-owned enterprises, investor-state dispute settlement, and labor and environmental standards, the CPTPP functions as a normative blueprint for the region’s economic governance. Since its formalization in 2018, the CPTPP has emerged as one of the most comprehensive free trade agreements globally. It includes commitments such as reducing tariffs and harmonizing rules of origin, establishing common standards for data protection, intellectual property, and public procurement, imposing strict disciplines on state-owned enterprises to counterbalance non-market economies, and enforcing environmental and labor protections.

The European Union, although geographically external to the Pacific, has deepened its involvement through bilateral trade deals with nine CPTPP members, including Japan, Mexico, and Vietnam. The efforts originally led by Sweden and Finland, along with support from EU Trade Commissioner Valdis Dombrovskis, signal growing interest in a formal EU-CPTPP dialogue. The EU’s goal is dual: to diversify economic ties away from the U.S. and China and to enhance its role as a third geopolitical and economic pillar.

Nevertheless, challenges remain. EU digital privacy laws complicate harmonization with CPTPP’s digital provisions. Meanwhile, public resistance within the EU to the perceived weakening of labor and environmental standards has slowed progress. Still, bilateral negotiations — such as those with Australia and New Zealand — offer pathways toward deeper, more structured engagement.

Several emerging trends define the evolving strategic context of the Indo-Pacific. On one side, the geopoliticization of aid Infrastructure development is now a focal point of geostrategic competition. China, Australia, and the U.S. increasingly direct aid to strategic assets. While Western aid is tied to democratic governance, transparency, and environmental standards, China promotes a model of non-intervention, appealing to states wary of conditionalities. In this context, countries like Indonesia and Vietnam are skillfully leveraging the competition between donors to diversify partnerships, enhance bargaining power, and protect strategic autonomy.

The Indo-Pacific has moved from the margins to the epicenter of global diplomacy, trade, and strategic competition. But what defines power in this new era? Not just military alliances, but rules on trade, standards on development finance, and the ability to shape norms. From China’s Belt and Road to the CPTPP and Western aid initiatives, economic statecraft is the new battleground. Indonesia, with its strategic geography and tradition of non-alignment, shows how a middle power can play both sides while safeguarding its autonomy. The EU, too, is testing the waters, can it truly become a "third pole" in the split between Beijing and Washington?

As the Indo-Pacific becomes a laboratory for multilateralism, the future will hinge on how well regional actors manage the delicate balance between openness and sovereignty, influence and independence, growth and sustainability. The real question is: who will write the rules of tomorrow’s global order, and on whose terms?