Inflatable boats crammed with camouflaged soldiers power onto a remote beach crawling with Australian, U.S. and Japanese commandos — watched by officers from China.

The drills in Australia's remote Top End are the biggest war games in the military calendar this year as 30,000 service members practice beach landings, parachuting and bush survival. Attended by Chinese observers, they reflect the delicate dance playing out in a region wracked by territorial tensions.

Tucked in the south of the Pacific, Australia nonetheless plays a significant role in regional security. The challenge for the country as a middle power in Asia is how to further build strategic ties with Japan, a mutual U.S. ally, without alienating China, its biggest trading partner.