A June Security report from the U.S.-China Economic and Security Review Commission said Beijing’s increasing economic engagement in the Pacific was driven by its diplomatic and strategic priorities, including reducing Taiwan’s international presence, gaining access to natural resources and developing a blue water navy.
Former Micronesian government officials said Beijing also wants to extend its Belt and Road Initiative to Palau, and could provide an important source of investment once the Compact agreement expires.
“China is making overtures,” said former Palau President Johnson Toribiong. “We should be bringing in investors and that is a big factor in our Palau-Chinese relationship.”
Toribiong, who served until 2013, told Reuters Palau should not isolate itself.
“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,” Toribiong said.
Palau receives $10 million annually from Taiwan, as well as education and medical scholarships.
Remengesau said Palau has not had any official talks with China for funding after the Compact expires but the government was discussing the issue internally.
China has quickly become one of the dominant economic players in the Pacific, spending billions of dollars in trade, investment, aid and tourism across Micronesia and the broader region.
China’s total goods trade with the Pacific Island Forum member countries reached $8.2 billion in 2017 versus $1.6 billion for the United States, according to the U.S. security report. Chinese concessional loans to Pacific islands have also risen sharply.
In contrast, Washington’s efforts to strengthen its position in Palau have been largely superficial, according to locals who cite examples of bigger U.S. flags on their official vehicles and increased public signage.
Chinese activity has slowed significantly, however.
Barabe, the resort owner, said Chinese investors had secured 99-year leases for around 60 hotel projects prior to 2017, but construction has been largely put on hold.
At a lush forest site leased by China’s Hanergy group, a rusting metal gate blocks the entrance with no sign of construction. Hanergy did not respond to requests for comment regarding the development.
At a nearby hilltop site overlooking the ocean and leased by another Chinese developer, the shell of a dilapidated mansion stands scrawled with graffiti.
Jackson M. Henry, a real estate appraiser in Koror who helps Chinese companies lease land from local clans, said he was trying to set up channels to aid Chinese investment into Palau ahead of the next election in 2020. Pro business candidate Surangel Whipps Jr. was an early favorite to win the vote.
Henry, whose previous roles included Palau’s ambassador to Taiwan and Chairman of Palau Visitors Authority, said Palau wanted to be friends with both Taiwan and China.
“They (Chinese clients) are looking towards the next administration to improve the relationship with mainland China.”