US-China relations: how Washington's Pacific funding crunch 'plays right into' Beijing's hands

A failure in Washington to break a deadlock over US$2.3 billion for three Pacific island nations in return for exclusive US security access - including bases for missiles and radar - may open the door for China, leaders and experts have warned.

While a US$95 billion military aid package including for Ukraine and Israel was agreed last week, the relatively small change contained in a 20-year-old renewal deal called the Compact of Free Association (COFA) is yet to be signed off by the US Congress.

The COFA covers Palau, Federated States of Micronesia and the Republic of the Marshall Islands, tiny economies representing nearly 175,000 people yet with an outsize geopolitical role, thanks to their location in the northern Pacific stretching between the Philippines and Hawaii.

Do you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team.

The deal, which dates back to former US President Ronald Reagan's administration and equates to about US$100 million a year, funds education, infrastructure, disaster preparedness and climate change resilience, among other urgent needs.

Last year, the fund made up about 20 per cent of the Marshall Islands' annual government revenue and roughly 30 per cent of Palau's.

In exchange, Washington is granted exclusive military access to key waters with missile testing sites and bases for weapons and radar.

But it has been held up in Congress and as Washington vacillates, Beijing could be about to step in as small, strategically located countries become a contest ground for rivalry between the world's two largest economies.

"It plays right into the way the Communist Party of China thinks, or what it tries to tell us," Palau President Surangel Whipps Jnr told This Week in Asia.

"'Join us and the sky is the limit.' You need tourists? We can give you a million tourists, we can build all the resorts you want. Just sign diplomatic relations with us. But you have to denounce Taiwan."

Beijing views Taiwan as part of China which must be reunited, by force if necessary.

Most countries do not recognise the self-governed island as an independent state but are opposed to any unilateral change to the status quo.

"Of course, we said we're not denouncing Taiwan," Whipps Jnr said. "They're an ally and friend. We will stand by them."

But his words carry a warning in a Pacific island region where the Solomon Islands, Kiribati and Nauru have already dropped their recognition of Taipei in exchange for billions of donor dollars from Beijing.

Last year some of that cash built a stadium for the Pacific Games in Honiara, Solomon Islands, while Chinese language teachers, doctors and agricultural advisers have rushed to Kiribati, which is close to the US Pacific territories of Palmyra Atoll, Kingman Reef, Jarvis Island, and Baker Island.

Details on Nauru's deal with Beijing remain unclear, but reports suggest it will receive US$100 million for its change of allegiance.

Marshall Islands and Palau have diplomatic ties with Taiwan while the Federated States of Micronesia recognises Beijing's one-China policy.

In April last year, the Micronesian Congress reaffirmed its ties with Beijing after outgoing President David Panuelo held talks with Taipei two months earlier about a diplomatic switch in exchange for US$50 million in assistance. Panuelo had publicly complained that Beijing threatened him and used bribes to interfere in Micronesian politics, The Guardian reported.

Collectively, the three island nations are also called the "Freely Associated States" (FAS).

Following the funding block they have sent a series of stern letters to America's congressional leaders, including Senate leaders Charles Schumer, Mitch McConnell, Patty Murray and Susan Collins, warning delay carries diplomatic danger.

One letter seen by This Week in Asia said the FAS deal "effectively expands the United States for defence purposes" across the Pacific "stretching from west of Hawaii to the Philippines to Indonesia".

The partnership allows the US to base missiles and its earliest warning radars trained on Asia in Palau and what the US military says is the world's premier range for ICBM testing and military space operations in the Marshall Islands, FAS leaders said in the letter.

"They also make it possible for the US to conduct military exercises in the Federated States of Micronesia," the leaders added.

The funding issue is sending ripples across America's Pacific territories, especially on the US military installation island of Guam, at which China, Russia and North Korea have weapons pointed, according to a report from Time magazine in 2022.

President Whipps Jnr says he has Palau's 18,000 people across 300 islands to think about, while his political opponents are circling ahead of a planned November election with many eyeing money from Beijing.

"It doesn't really matter that we stand up for Taiwan. It doesn't really matter that we're a radar site.

"We're not as significant or as important as Ukraine or Israel ... It gets to be difficult here for our people to understand what goes on in Washington," he said.

"I've been doing all I can to explain, this is democracy, this is how it works."

But the lack of urgency from Washington is also causing alarm inside the United States among those very aware of the speed at which China may step in while Congress dawdles over a small sum of money by aid standards.

"Funding for COFA cannot be the victim of apathy. The stakes are too high," said Ginger Cruz, a professor of US foreign policy at the University of Guam and a US House Representative primary candidate for the Democratic Party.

"The annual amount of funding sought by each of the three COFA states is roughly equal to the cost of just one ICBM missile. But for that amount, you cover diplomacy and development - key areas where China is surging."

Cruz has done the maths and says the deal allows the US to lease "some of the most valuable strategic real estate in the Indo-Pacific" for US$213 per square mile, per day.

"COFA funding is the biggest bang for your buck," she added.

The US' key Pacific ally Japan is also watching how the funding crunch plays out as it handles its tensions with Beijing and the uncertainty over Taiwan.

"The main reason why Solomon Islands, Kiribati and Nauru switched diplomatic relations from Taiwan to Beijing was due to [local] financial issues and development funding," said Hideyuki Shiozawa, a senior programme officer of the Pacific island nations programme at the Ocean Policy Research Institute of the Sasakawa Peace Foundation.

"These US Freely Associated States are beginning to distrust the United States. This is a situation where the US government needs to send a clear message that it does not disrespect Palau, FSM [Federated States of Micronesia] and Marshall Islands," he added.

Washington's delay is adding complexity to already knotted relations in a region facing myriad internal challenges - from domestic finances to the climate crisis - and pressure from two big powers increasingly keen on securing their interests through the area.

"I see little reason to think that in the long term, the flux in island-states' relations with the major powers will settle down", said Glenn Petersen a professor of anthropology and international affairs at Baruch College, City University of New York

"This applies to the rest of the Pacific islands, I suspect."

This article originally appeared on the South China Morning Post (SCMP).

Copyright (c) 2024. South China Morning Post Publishers Ltd. All rights reserved.