THIS past weekend, Reuters published a fascinating analysis titled “Empty hotels, idle boats: What happens when a Pacific island upsets China”. It tells the story of the island nation of Palau and begins with the statement: “Empty hotel rooms, idle tour boats and shuttered travel agencies reveal widening fissures in the tiny Pacific nation of Palau, which is caught in an escalating diplomatic tug-of-war between China and Taiwan”.
It deserves a full read but the bottom line is that not only is China waging war to further its interests on all fronts but that the United States is an untrustworthy ally.
Palau is one of the few nations —18 to be exact—that do not hold with the “One China” policy and fully recognizes the Republic of China as a separate country. The People’s Republic of China does not appreciate that diplomatic stance. While many countries—as the Philippines does – keeps relations with Taiwan through a backdoor like our Manila Economic and Cultural Office, Palau maintains full diplomatic relations.
Until last year, China accounted for one half of Palau’s tourist business on which the nation depends for a substantial amount of its economy and foreign currency. Last year Beijing effectively banned tour groups from traveling to Palau. This is not the first time that has happened. The same thing was done to South Korea in 2017 when it installed a controversial US missile defense system.
Of the 122,000 visitors in 2017, 55,000 were from China and 9,000 from Taiwan so the lack of Chinese visitors was a huge tourism blow for Palau. But that is not the full story.
Because of all the Chinese travelers, Chinese companies were investing large amounts in Palau’s tourism infrastructure, including hotels, support businesses and securing large holdings of prime coastal real estate. With the travel ban, those
investments stopped many in midstride. Unfinished construction dots Koror, the main commercial center. “Chinese investors had secured 99-year leases for around 60 hotel projects prior to 2017, but construction has been largely put on hold.”
However, the economic pressure from the travel restrictions is only one piece of the Chinese economic influence in the pacific island region, which—after World War II—was the exclusive property of the US.
The Pacific Island Forum is a group of nations—which reaches from Fiji and Tonga to Micronesia and Palau. China’s total goods trade with the member-countries reached $8.2 billion in 2017 versus $1.6 billion for the United States. Further, the US has been providing direct aid of $200 million a year to Micronesia, the Marshall Islands and Palau, but that is set to expire in 2023 and the US has indicated that it will not continue the aid. China is expected to fill that gap.
From Reuters: “China is making overtures,” said former Palau President Johnson Toribiong. “I like Taiwan. But even Taiwanese want China now. The businessmen, they also want China. They don’t care about political consequence. Think about the economics.”
However, not everyone is convinced mass tourism from China is the best economic path to travel. Palau President Tommy Remengesau Jr.—whose term ends in 2021—says that the country’s tourism industry has adjusted by attracting wealthier tourists. “The reality is that numbers did not mean big revenues for Palau. It actually made us more determined to seek the policy of quality versus quantity.”
The bottom line once again is that it is not just the Philippines that is economically caught between China and the US. And as many nations proved during the Cold War between the US and the Soviet Union, playing both sides can be advantageous.
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