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China Is Making Inroads in Micronesia

The growing chatter in Mandarin begin to increase as hungry Chinese tourists briskly move toward the buffet line to scan the day’s menu before taking the food that they choose to feast on. It is organized chaos, with customers circling the dishes arranged neatly in front of them while restaurant and kitchen staff working like machines in an assembly line quick to replenish food items that are halfway to being consumed.

This has become a familiar scene in the restaurants of Saipan’s seven major hotels and other food establishments that offer lunch buffet. From 11a.m. to 2 p.m. they are packed with families, friends and other groups that travel to Saipan. Forecasts and current data indicate a rosy tourism outlook for the Chinese market, a region of thousands of islands scattered in an area of 2.9 million square miles.

In Koror, the capital of Palau, more Chinese restaurants have sprouted to cater to the market. In 2016, Chinese tourists posted arrivals of 64,990 compared to the historic 87,058 in 2015. For the past years, Chinese tourists are dominating Palau’s tourism market, a market share of 38.44 percent in overall 2016 arrivals. But mass tourism in Palau is not something embraced with warmth by the local community. Some accuse the Chinese visitors of having “no regard for their island environment, culture and history.”


With an economy heavily relying on tourism revenues, industry forecast predict China to emerge as the third-largest source market for Guam by 2020. The same report from the Pacific Asia Travel Association (PATA) released in 2016 also projected arrivals from China to Asia Pacific destinations to reach 150 million within three years. China continues to dominate as a source market, spending more than $200 billion in tourism activities in 2015, according to the World Travel and Tourism Council.

Riding on the island’s proximity to China, the Guam Visitors Bureau created a 2020 tourism roadmap, with plans to attract 100,000 Chinese tourists without a visa waiver, and 350,000 with a visa waiver. GVB emphasized that a “visa waiver status or interim parole authority continues to be the greatest economic opportunity for the island.” Even with a lack of an agreement, visitors from mainland China grew by 51.3 percent last year, according to GVB.

While forecasts and current data indicate a rosy tourism outlook for China, the decision over the policy granting a China visa-waiver agreement for Guam-bound travelers may be impacted by the current U.S. president’s trade and political relations with China. Lately, President Donald Trump has been actively pursuing protectionist policies and has even threatened to enforce large tariffs on Chinese imports.

Elsewhere in Micronesia, China is extending its economic influence by providing aid to poor island nations and building empires. The People’s Republic of China has built diplomatic relations with the Cook Islands, the Federated States of Micronesia, Fiji, Niue, Papua New Guinea, Samoa, Tonga, and Vanuatu, becoming a major donor and providing some $1 billion in aid. According to the Lowy Institute in Australia, China has grown as a source of aid to various South Pacific nations.

In Yap, Chinese investors are developing a new mega-resort, a project that receives mixed reactions from the local community.


On Saipan, the Marianas Visitors Authority is expecting the numbers of Chinese visitors to surpass the Koreans—two of the CNMI’s basic markets since Japanese arrivals continued to plummet. MVA’s latest numbers showed that tourist arrivals on Saipan reached 501,489 last year the first time it had reached the mark in 10 years.

According to MVA’s numbers, Chinese tourist arrivals jumped by 25 percent in 2015 from 15 percent in 2011 while the Koreans are within 34 to 40 percent range from 2011 to 2015. Overall, China’s outbound tourists reached the 120 million mark more than a year with millennials—enjoying the huge gains of the new wave of economic growth—comprising more than half of those travelers who spent more than $104 billion in various places they visited.

Chinese investments also poured in with Hong Kong-based Imperial Pacific International the biggest contributor to the Northern Mariana Islands’ economy with its multi-million dollar casino resort project. Car rentals, grocery stores, restaurants, shops, tour agencies and even wedding photography have sprouted with the latter attracting wealthy Chinese couples who dream of experience a romantic exchange of “I Dos” at the beach with the setting sun as background.

MVA has also tapped Skywalker Communications Group, an advertising and marketing firm based in Beijing, as its promotional arm as they continue to take advantage of the huge Chinese market.

The entry of charter flights and other low cost carriers flying non-stop from major cities in China to Saipan also helped in the growth of tourism here. China Eastern, Dynamic, Sichuan Airlines, Hong Kong Airlines and low cost carrier counterpart Hong Kong Express have daily non-stop flights along with Korean airlines Asiana, Eastar, Jeju Air, and Jin Air, and Philippine Airlines.

But economic progress comes with a price as economic development is only concentrated in one area: Garapan, Saipan’s central business and tourism district.

Garapan has become crowded with businesses opting to open their shops in or within the zone causing traffic—morning and afternoon rush hours—and parking nightmare. Tourists who are not familiar of CNMI’s traffic rules have also caused some problems on the road with some drivers stopping in the middle of the road without warning or they are making sudden turns that almost cause accidents.

The influx of Chinese tourists also prompted some businesses and employers to add “can speak Mandarin” to the list of qualifications of employees they are looking for.

Drug-related crimes also saw a slight increase with ice continuing to wreak its havoc on the streets while suspicious massage parlors that offer “extra service” have sprouted.

Tinian and Rota, the CNMI’s two other inhabited islands, were left behind in the renewed development with the latter being hardest hit as prices of basic commodities are twice or even higher compared to Saipan while its residents continue to leave to find suitable work since economic activity is at a standstill.

The CNMI government, the business sector, and the entire community must join hands in addressing some of the issues that would affect the CNMI in the long run as the economy continues to improve. Officials need proper urban planning in order to solve key issues like the environment, traffic, and zoning. Or else, fail to control the increasing growth and be totally overrun by the Chinese “incursion.”


Investors from mainland China have also been showing greater interest in Palau, where they have bought apartment buildings and converted them to bed and breakfast facilities. Some of them are locally-fronted such as Vacation Hotel, Paradise Resort and Nemo Hotel among others.

According to the 2015 Fiscal Year Economic Review by the U.S. Graduate of School and published in November 2016, the rapid growth in tourism in Palau is due to the large influx of visitors from China in the package tour segment of the market. As a result, there is an increase in hotel accommodations and “increased utilization of capacity of lower grade hotels. These developments run counter to Palau’s stated policy to encourage high value tourism.” Palau

President Tommy Remengesau Jr. has time and again reiterated that his administration is adopting a policy to attract high value tourists but the growth though originated from the package tour segment. But as economists have recommended, the high value concept that Palau is a great idea but it needs to adopt policies with less impact to the existing investors.

The economic report stated that “the policy of restricting charters should be gradually phased out and replaced with more efficient economic incentive related policies, that encourage a move towards the high value concept that Palau has adopted without penalizing existing investors. “

However, others might resist, but as long as China remains a source market for tourist they will be here. To stem the tide, the Palau government at the end of 2016 signed a law to reform its Foreign Investment Law, preventing front operations, shutting down foreigners from using Palauan name to establish local businesses. The reform was designed to attract high paying investors and limit budget traveler accommodations to local businesses.

The FIB reform that tried to address this issue. “If it is implemented fully will determine who is legitimate and who is front.

While this investment has been good for the national economy, it hurts local tour operators. Many local boat drivers are not happy that Chinese businesses taking over the tour industry, supposedly a protected sector exclusive only for Palauan ownership, for locals and Palauan front for Chinese take customers away from the local who have invested in their own boats and their livelihood depends on it.

Being a small island with a population of about 20,000, the surge is too quick that its infrastructure can no longer cope with it, putting strain on the sewer system, creating traffic and impacting its natural resources.

“The issue we have is about our carrying capacity,” Belau Tourism Association president Leilani Reklai. “Can Palau’s environmental assets handle thousands of visitors a day? Is the quality of experience degraded when hundreds of people are swimming inside jellyfish lake or jumping off into Blue Hole? Do we have enough quality rooms to give our visitors pleasant experience during their stay here?”

Leasing of lands to new investors has also opened unintended consequences that make Palauans unhappy. Displaced families are being evicted from their apartments as Chinese investors have taken over buildings and other properties to build lodging facilities. “Chinese investments, especially all the land leasing has driven up land prices and makes it harder for locals to purchase/lease land, especially for first time homeowners and those looking to build homes,” said Semdiu Decherong, a Palauan resident. “Also, money flows are not well vetted so we don’t necessarily know if the funds being invested in Palau are from legitimate sources. I take it that a majority of investments are legitimate, but there are some that don’t seem to make practical sense.”


In Yap, Chinese investors have bigger plans for Yap, which receives about 5,000 visitors a year. The company Entertainment & Travel Group (ETG) plans to build a mega resort of up to 1,500 rooms, coupled with an offer to open a regular, direct airline service from China. This was a scaled down version of the project which was originally designed as 10,000-hotel room complex, on a piece of property leased by brothers Al Ganang and Bruno Ganang.

Yap and its atolls have a population 7,000 people and the island has a land area of only 100 square kilometers. The advent of China into the tiny island has polarized the community. While the mega-development is touted to contribute a great deal to the local economy, not everyone is happy.

“Our local people have had no access to lawyers or land valuers and they don’t know what they are signing in these contracts,” Yap Sen. Nick Fajir told local reporters.

“It seems to me that the plan is to move all us Yapese onto a “native” reservation somewhere on our island and we will be reduced to just doing cultural dances for their tourists,” said local Sen. Clement Mulalap.

Yap’s Gov. Tony Ganngiyan supports any development opportunities. “One of the big problems that we have for development is that we need accommodation facilities and we expect that to happen first before we improve air services to this area,” he said.

Besides the social and cultural aspect, observers underscore the underlying political and geopolitical issues. In December 2015, FSM expressed its intent to end the Compact of Free Association with the United States by 2018. And using what political pubdits call “check book diplomacy,” China is positioning itself to build alliance with a region of key strategic interest to the United States.

“Until China turned its interest to the region, the US -as the dominant player, granting the Pacific Island countries military protection and financial aid, through a combination of direct investment and aid, China is challenging the US hegemony in the region with the US Compacts of Free Association set to expire in 2023,” Antonio Graceffo, a lecturer at Shanghai University,s chool of economics, writes in a paper titled China Economic Activity in Micronesia and the Pacific Island Countries. “”This pivot will present significant challenges for US policy makes and military planners who have hitherto been accustomed to having complete and uncontested dominance of the Asia Pacific region.”

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