In Micronesia, China Upsets Obama’s Asia Tilt

The Pacific islands that were the focus of some of the biggest and bloodiest battles fought by US Marines during World War II – are gradually slipping into the Chinese orbit as American authority fades.

Although in all high-level summits with US representatives since 2013 Chinese officials have reiterated that the islands can accommodate both Chinese and US interests, China’s incursion into the key US possession of Micronesia delineates clearly the continuing struggle between the two. Chinese entry into the region began in the mid-2000s and has intensified ever since.

Micronesia includes five independent countries: the Federated States of Micronesia, Kiribati, the Marshall Islands, Nauru and Palau; as well as three US territories: Guam, the Northern Mariana Islands and Wake Island. American air and naval bases have been stationed here since WWII, the largest of which is on Guam. The recent China factor has come as the most serious challenge the US has faced in the region.

US Subsidies Prop Up Economies

Over the years, a significant supply of US dollars in the form of subsidies has allowed the US to maintain its hegemony. Even today, the US dollar is the official currency in the Federated States of Micronesia, the Marshall Islands, Palau, the Northern Mariana Islands and Guam.

As of 2013, the Federated States of Micronesia relied on the United States for $92 million in annual economic assistance, 40 percent of its national revenue. In return, it gives the US a mandate for the island nation’s diplomacy in defense and national security-related areas under an accord. Palau and the Marshall Islands also have similar arrangements with Washington.

The US has been reducing aid every year. For instance, between 1987 and 1991, the US provided US$430.5 million dollars to the Federated States of Micronesia and Republic of Marshall Island. However, this amount was reduced to 365.5 million between 1992 and 1995 and it further reduced to 295.5 million between 1996 and 2001.

This aid program is due to end in 2023 and the states, economically challenged as they still are, are desperate to fill the void and no state in the region has been as eager to fill this gap as China. Hence the beginning of Chinese investment and aid and the consequent US-China tussle in the larger Pacific region. In a way, China’s policy to replace the US as the biggest financier of these states seems to be the root where branches of the power tussle in both the South and East China seas sprout from.

China, for its part, has sought to blame the Americans for any possible tensions. On Jan. 30, the Foreign Ministry spokesperson Hua Chunying told a press briefing that that “countries located outside the region” should refrain from disrupting stability in the Pacific Ocean region – the US and its allies.

Beijing Maintains Strength

While China does certainly not want to see what it considers any extra-regional power to have any say in the oceanic matters, it has certainly aimed at maintaining its own position of strength. While the world media regularly continues to pay particular attention to developments taking place in South and East China seas, there are by the far the only regions where this struggle for control over seas, resources and markets is going on.

The Federated States of Micronesia, which are linked to the US by the Compact of Free Association signed in 1986 and extended in 2003 till 2023, are on the receiving end of Beijing investment, sometimes in excess of capital injections from the US. Additionally, part of the Chinese subsidies go into a trust fund established with the aim of supporting the economy of the Federated States of Micronesia following its independence in 2023 (i.e., after the funding from the United States dries up).

Apart from providing aid and placing funds, China has also entered into different economic agreements with Micronesia, since at least 2003-2004 has continuously expanded its fisheries business to the point where it has established a virtual monopoly.

Developing Yap

Similarly, in October 2011 a Chinese company, Exhibit and Travel Group (ETG), unveiled a huge development plan for the Micronesia’s state of Yap, roughly 800 km. away from Guam, where one of the US largest military facilities in the Western Pacific is based. It is considered one of the Pacific’s best dive spots. The proposed development plan was consistent with the federated states’ own Strategic Development Plans for 2004–23, which involved making tourism ‘the leading economic activity in the FSM.’ Only about11,000 people live on the island.

Guam, where the US lost 3,000 killed and 7,122 wounded against 18,337 dead in three weeks of fighting in 1944, and which remains a US territory today, has also been receiving Chinese funds and bank investments. In the past few years, China and Guam have been trying to agree on a visa-free regime but so far without success.

Due to the complexity of the situation in the South China Sea, which today is almost totally claimed by China via its s-called nine-dash lie, a troop increase is expected at the US military base on Guam. Consequently, while curtailing its funding for other Micronesian territories in its control, Washington is holding steady in its support for Guam in order to prevent the growth of Chinese influence.

Thus while the US’s economic assistance to Micronesia on the whole is decreasing and is certain to end in 2023, its military presence is unlikely to change. Given very recent incidents taking with regard to US naval ships passing near Chinese-built reefs in the South China Sea, the military aspect of US presence continues to pose a meaningful challenge for China to counter.

Chinese Tourists Overwhelm Palau

While Palau, a complex of 250 islands with a population of just 21,000, is largely considered to be the most Americanized territory, its economy depends to a considerable extent on China’s money. It is one of the most attractive tourist places for Chinese and the volume of tourists from China to Palau makes up about 70 percent of the total tourist influx. Palau’s budget depends for 85 percent of its funds on tourism.

And it is through this tourism that China is likely to expand its economic and consequently political interests and presence there. In this context, the establishment of the “Palau-China United Association” this month to assist new arrivals of Chinese who want to do business in Palau can be regarded as a step towards that very direction.

The long and short of this ever-increasing Chinese economic ingress and the declining US economic assistance but enhanced military presence is that the US and China are headed towards an era where both of them could find themselves seriously locked into a geo-political entanglement unless some understanding and rules of business are reached at and agreed to. While actual hostility does not seem possible under the given circumstances, small episodes of resentments and entanglements are likely.