Community leaders in North Queensland fear China's plan to build a fish processing facility on their doorstep will jeopardise border security and the commercial fishing sector.

Key points:

• PNG has signed an MOU with China to build a $204 million fishing facility on the island of Daru
• There are fears the facility is a ruse to allow China to bring defence capabilities to Australia's doorstep
• Under the Torres Strait Treaty, Chinese-backed vessels could legally fish in Australian waters

China's Ministry of Commerce has announced that Fujian Zhonghong Fishery Company has signed a memorandum of understanding with the Papua New Guinea Government to build a $204 million "comprehensive multi-functional fishery industrial park" on the island of Daru under its Belt and Road Initiative.

Daru is one of the few Torres Strait Islands that are governed by Papua New Guinea rather than Australia.

Former PNG government adviser Jeffrey Wall said it was a lot of money to spend in a small community not known for commercial fish stocks.

"We should be absolutely alarmed not only because it is strategically located close to Australia, but there is potential for conflict in the Torres Strait," he said.

"It's the town nearest to Australia and it's only several kilometres from some of our islands in the Torres Strait.

"It's an area that's porous and therefore would be open to drug smuggling and people trafficking, which has been happening — it's a very vulnerable spot."

Daru Island is located in the Torres Strait less than 200 kilometres from the Australian mainland.(Google Maps)

Mr Wall said he believed China had ulterior motives for the site.

"In my view, what they're going to do, first of all, is build a very large wharf. So when you build a very large wharf, what do you build? Somewhere where naval vessels can land," he said.

It is a view shared by Federal MP for Leichhardt, Warren Entsch, whose electorate encompasses the Torres Strait.

"Given that we are establishing with Papua New Guinea and America a naval presence on Manus Island, it worries me that there might be other motives for what the Chinese are doing there," Mr Entsch said.

Lobster fishing industry threatened

Ulterior motives aside, Mr Entsch said he believed the potential impacts to commercial fishing were concerning enough.

Under the Torres Strait Treaty, Papua New Guineans from 13 villages can move freely across the border and are allowed to fish in Australian waters.

Federal Member for Leichhardt, Warren Entsch, fears China will 'rape and pillage' Torres Strait waters.(Supplied: Warren Entsch)

"They're going to rape and pillage this, they're going to vacuum-clean these reefs," Mr Entsch said.

"Have a look at what they've done in the Galapagos, they absolutely crashed that industry.

"The Torres Strait Islanders own the rights to the tropical rock lobster fishery and it all goes to China, so this is their way around it.

"We can't stop it, unfortunately, because Papua New Guinea is a sovereign nation and they won't take too kindly to us going in and telling them they can't do it."

Treaty a 'back door' into commercial fishing

Torres Strait Fishing Association president Phillip Ketchell said he was also concerned China could use the treaty as a "back door" into the fishery.

Under the treaty, Papua New Guineans are allowed to take 25 per cent of the total allowable catch of rock lobsters within Australian waters.

Mr Ketchell said authorities would need to increase surveillance of fishing vessels.

"We're a bit worried about how do we keep tabs on what's being fished," he said.

"Traditionally they just work out of Daru with their long boats and go back to Daru and offload, but with the Chinese going in there with the amount of capital they're going to pour into that, with bigger and better boats, it looks like we're going to be copping the 25 per cent impact quite often.

"Painted crays are very lucrative in the Chinese market and demand a high price, and we're a bit worried that we're going to be exploited by the Chinese coming in and helping the Papua New Guineans."

How can Australia respond?

Mr Ketchell said the Torres Strait Treaty might also need to be reviewed, but because it was written under international law, that might prove difficult.

According to Mr Wall, Australia's best chance of stopping the development was through Australia's strong diplomatic ties and generous aid program in Papua New Guinea.

He said Australia already gave its nearest neighbour $600 million in aid each year.

"Australia gives more than the rest of the countries put together," Mr Wall said.

"I always say to my Papua New Guinea clients and prime ministers, they're our closest neighbour and our best friend.

"The Chinese clearly want to challenge that and we've got to be prepared to proactively respond."

He said Australian aid should now be used to help lift the living standards of people residing in and around Daru, by helping them set up a locally owned commercial fishing export industry.