[Analytics] How China’s ‘great friendship’ with Micronesia leaving US with strategic headache in Pacific

As US financial support expires in 2023, Beijing could ‘loosen the screws’ on regional alliance with lucrative development deals. Independence vote in Micronesia’s Chuuk state in March could raise the stakes, potentially allowing China access to strategically vital waters. Meaghan Tobin specially for the South China Morning Post.

In China earlier this month, David Panuelo, the president of the Federated States of Micronesia, climbed the Badaling section of the Great Wall. And, according to Huang Zheng, Beijing’s ambassador to the Pacific nation, the countries’ “great friendship rose to even greater heights” during Panuelo’s visit.
Chinese investment in Micronesia reached similarly lofty levels in conjunction with Panuelo’s trip, which marked three decades of diplomatic ties and included meetings with President Xi Jinping and Premier Li Keqiang. Beijing has committed US$72 million in economic development deals, almost as much as its total investment of the previous three decades.

Micronesia is one of three Pacific nations with agreements with Washington, known as the Compact of Free Association (COFA), which allows their citizens to live and work in the US. In exchange, Micronesia, neighbouring Palau and the Marshall Islands grant the US exclusive military and defence access to their territorial waters – more than 2 million square miles of the Pacific that have been an essential element of Washington’s power projection in the region since World War II.

However, analysts warn Micronesia’s “great friendship” and tighter economic ties with Beijing could undermine this long-standing defence relationship with the US.

Much of China’s funding has been directed to Micronesia’s Chuuk state, which will in March vote in an independence referendum.

Although Chuuk is home to fewer than 50,000 people, its waters include one of the region’s deepest and most strategically appealing lagoons, creating extra incentive for Beijing and potential concern for Washington as the two countries vie for influence in the Pacific.

How China ‘loosens the screws’

With a population of just 113,000 people, Micronesia relies on remittances sent home by citizens working in the US as well as the financial support from Washington under COFA. That assistance is scheduled to expire in 2023, creating uncertainty about the future of the relationship and making Chinese investment even more influential.

“Panuelo’s visit to China is a perfect example of how [the Chinese side] just needs to do a little to get a lot,” said Derek Grossman, senior analyst at Rand Corporation, a Washington think tank. “US$100 million is not very much for them and they can essentially loosen the screws [on COFA] with that.”

The value of Micronesia’s bilateral trade with China has increased by nearly 30 per cent annually for the past five years, according to Micronesia’s Foreign Ministry. In 2017, the island nation signed onto President Xi’s signature Belt and Road Initiative which aims to build a vast network of strategic investment, trade routes and infrastructure projects across more than 150 countries.

In recent years Chinese funding in Micronesia has built office and residential complexes for government officials, a showpiece new convention centre in the capital city Palikir, transport infrastructure and student exchanges, according to a recent report by Rand.

Jian Zhang, associate professor at UNSW Canberra at the Australian Defence Force Academy, said Beijing’s investment reflected a decision to cultivate broader, deeper ties.

“China’s interest in building the relationship with Micronesia is not just about its diplomatic rivalry with Taiwan or economic interests,” he said. “It has elevated the relationship to a comprehensive strategic partnership which encompasses all areas.”

During his recent visit, Panuelo described China as Micronesia’s top economic partner and the US as its top security partner.

Gerard Finin, professor of regional planning at Cornell University, who previously worked with the US Department of State in the Pacific, said: “China’s leadership consistently accords large ocean states the full protocol that is expected when a head of state visits.

“In contrast, Washington has only had a limited number of meetings and never hosted an official state visit to Washington for the leader of a Pacific Island nation,” said Finin.

US President Donald Trump in May hosted the leaders of Micronesia, Palau and the Marshall Islands together at the White House. When Mike Pompeo visited Micronesia in August, he became the only sitting US secretary of state to have done so.

Pompeo said negotiations to update COFA had begun but no details have been made public. Micronesia has assembled a team to conduct the negotiations but the US has not, the Honolulu Civil Beat website reported.

Panuelo’s team met Micronesian students studying in China and representatives of state-owned China Railway Construction Corporation, which will build the roads in Chuuk, funded in part by US$50 million from Beijing. Construction of the Chuuk government complex was also funded by Beijing and the state’s governor joined Panuelo for his visit.

Should Chuuk vote to separate from Micronesia in March, it could also mean breaking from COFA, jeopardising the US work privileges of thousands of Chuukese and opening the state’s waters to other partners, particularly China.

Chuuk is home to one of the deepest lagoons in the Pacific, a geographic rarity of particular value in strategic military operations and submarine navigation.

Zhang said Beijing would explore any opportunity to build a port with potential military capability.
“China has a long-term need to gain a strategic foothold in the region,” Zhang said. “That is a key part of the Belt and Road Initiative. At the general level it’s an economic initiative but an important aspect of the maritime Silk Road is to develop a network of strategically located port facilities.”

Sabino Asor, chair of the public education committee for the Chuuk Political Status Commission, told Civil Beat seceding from Micronesia would be the best option for Chuuk’s future.

“There is no encouraging prospect if Chuuk remains within the Federation,” she said.

However, Patrick Buchan, at Washington think tank Centre for Strategic and International Studies, said Chuuk’s dependence on remittances from the US made breaking from COFA unlikely.

In the meantime, uncertainty over COFA negotiations persists, although there is a chance it will be renewed with few changes.

“There is circulation with people easily coming and going that provides a level of understanding and friendship that does not exist between too many other countries,” Finin said.

However, China’s most attractive feature may be its willingness to at least discuss the most pressing concern of Pacific Island nations: climate change.

“When the Trump administration talks about how it doesn’t believe in climate change, or can’t even say the words – that is really offensive for Pacific nations,” Grossman said. “China knows that, and is taking full advantage of it.”

Meaghan Tobin has nearly a decade of experience spanning journalism and public policy in Washington, Taipei and Beijing. For the Post, she covers geopolitics, diplomacy and policy trends in Southeast Asia and the Pacific.