Palau remains one of the few countries that have refused to abandon diplomatic ties with Taiwan in favor of China.
Palau, previously under US administration until its independence in 1994, established diplomatic relations with Taiwan in 1999. The friendship between Palau and Taiwan has been strong, with Palauans often visiting Taiwan for vacations, education, and medical treatment.
However, China has been pressuring Taiwan’s allies in Africa and Central America to switch sides, and Palau, dependent on China for tourism and financial assistance, is feeling this pressure. China initially focused on increasing Palau’s reliance on Chinese tourism. In 2008, only 634 Chinese tourists visited Palau, accounting for less than one percent of all tourists. By 2015, the number had risen to over 91,000, comprising approximately 54 percent of all visitors. For the small nation of Palau, where tourism contributes more than 44 percent of the GDP, the pressure came in the form of a “China ban.” In 2017, China informed Palau that unless it switched diplomatic recognition from Taiwan to China, Chinese tourists would not return. Subsequently, in November 2017, the Chinese government instructed tour operators to cease selling package tours to Palau, threatening fines for non-compliance. Despite these challenges, Palau refused to yield to Chinese pressure, although the COVID-19 pandemic further exacerbated the difficulties faced by Palau’s service sector. Currently, China appears to be gradually regaining influence in Palau, possibly in preparation for the upcoming elections next year.
President Surangel Whipps Jr. acknowledged that combating Chinese influence is one of the foremost challenges in Palau. China is the largest direct investor in Palau, creating challenges in restricting direct flights from China to Palau. While Palau has been seeking tourism promotion from countries such as Japan, Korea, and Taiwan, Beijing has been exerting pressure to open direct flights to Macau and Hong Kong. President Whipps has been diligently working to attract tourists to Palau but has encountered limited success. However, efforts are underway to attract direct investments from countries other than China, which would help alleviate China’s pressure.
China has consistently employed dollar diplomacy and tourism as tools to pressure small and economically vulnerable nations in order to achieve its objectives, particularly to isolate Taiwan.