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Leader of a US Pacific territory tells of ‘lonely’ pivot away from China amid a dire economic crunch

WorldLeader of a US Pacific territory tells of ‘lonely’ pivot away from China amid a dire economic crunch

Palacios took office last year, overseeing the US territory comprising 14 islands that share a maritime border with Japan in the Western Pacific Ocean. Saipan, its main island, lies about 2,700km (1,600 miles) east of Taiwan.
The Northern Mariana Islands form a vital part of the US military’s defence posture in the Indo-Pacific region.

While the Northern Mariana Islands has a population of fewer than 50,000, it is home to American military bases vital to Washington’s strategic defence posture as Beijing raises its profile in the region.

The archipelago is unique for being the only place administered by the US that allows Chinese nationals to enter without a visa for up to 14 days.

The policy was introduced in 2005 to spur the tourism-driven economy. Tensions in the Sino-American relationship could end the waiver as early as September and be replaced by more stringent vetting of Chinese tourists.
To align more closely with US President Joe Biden’s stance towards China, Palacios has sought to reduce the territory’s reliance on the world’s second-largest economy.

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But his efforts to disengage from Beijing following decades of deep economic ties reveal that the challenges confronting the Northern Mariana Islands mirror those Washington faces as it pushes policies such as “de-risking” and “friendshoring”.

The Northern Mariana Islands, some 6,000 kilometres (3,728 miles) west of Honolulu, began forging ties with Beijing when the US and China formally established diplomatic relations in 1979. Several Chinese businesses established garment factories, bringing workers and economic activity.

After China joined the World Trade Organization in 2001, however, that industry vanished as accession to the body gave the domestic apparel industry preferential tariff treatment. That prompted the territory’s turn to Chinese tourism and related investments that, at first, proved to be a panacea of sorts.
Before the coronavirus pandemic, Chinese nationals accounted for more than 40 per cent of all visitors to the Northern Mariana Islands, arriving on multiple direct flights weekly and bringing badly needed support for the local economy.

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Last month, more than 1,500 visitors from China arrived in the Northern Mariana Islands compared with just 73 in February last year, according to local authorities. From April 28, Hong Kong Airlines will commence twice-weekly direct flights from Hong Kong to Saipan.

Yet even though Chinese tourists are now gradually returning to the archipelago after Beijing lifted travel restrictions, Palacios is determined to look elsewhere.

The governor has travelled to Taiwan and Japan seeking visitors. His efforts have yet to yield an infusion of either tourists or investment from places he calls “regional allies”.

The Palacios administration has also acted against some casinos and hotels backed by Chinese investors with charges including visa-waiver abuse, unpaid licence fees, labour violations, missed construction deadlines and unlawful proximity to American military infrastructure.

Efforts to revoke an exclusive casino licence issued to Hong Kong-based Imperial Pacific International are ongoing.

The casinos were a key attraction for Chinese tourists, but since 2021, China has tightened its rules against overseas gambling. Last week, a spokesperson for the Chinese foreign ministry warned citizens to “stay away” from overseas casinos.

These moves exacerbate a grim reality that Palacios was already facing: Northern Mariana Island government coffers are nearly depleted, prompting local lawmakers and business leaders to push back against his tough stance towards China.

The Imperial Pacific Resort casino, pictured during construction in Saipan in 2017, may have its licence revoked. Photo: Imperial Pacific
Last year, when Saipan authorities terminated a land lease for a Macau-based casino company, a senior local official called it a “victim of geopolitical factors”.

In addition, revenue shortfalls have rendered the Northern Mariana Islands unable to fully pay its employees and fund administrative operations in financial years 2023 and 2024.

Citing a total economic loss of more than US$330 million due to the absence of Chinese tourists in 2019, members of the territory’s senate in January wrote to Pete Buttigieg, the US transport secretary.

They asked that the Northern Mariana Islands be exempt from Covid-era limitations on the number of flights transiting between China and the US.

The Transportation Department allows just 35 weekly round-trip flights for Chinese carriers between China and the US – a cap the lawmakers said made it hard for the Northern Mariana Islands to compete with destinations such as Los Angeles and New York.

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Eager to boost travel, the Saipan Chamber of Commerce asked the territory’s lawmakers to urge the US Department of Homeland Security to let Chinese tourists submit their travel documents electronically in advance.

If accepted, the streamlined arrangement could blunt the effect of the current visa-waiver programme for Chinese nationals being revoked.

Palacios has yet to make his position clear on the request, insisting that a visa exemption is unnecessary to boost tourism. The territory needed to “wean [itself] off” the Chinese market, he has said, calling it “tenuous” given the fraught state of Sino-American relations.

Arnold Palacios became governor of the Commonwealth of the Northern Mariana Islands in January 2023. Photo: Handout
He has asked for funds from Washington to shore up unemployment benefits, end austerity measures, build critical infrastructure and add the islands to the list of subsidised airfare destinations to ward off “malicious influence from the Chinese Communist Party”.

During his recent visit to Washington, Palacios met with officials from the State and Defence departments and delivered a speech at an inter-agency event organised by the Interior Department.

He argued that the social and economic stability of the Northern Mariana Islands was “directly tied to national security and a free and open Indo-Pacific”.

Citing the territory’s rising importance to America’s defence policies in the region, Palacios last year wrote to Admiral John Aquilino, commander of the US Indo-Pacific Command, requesting financial help.

And last month, Saipan’s head of ports authority endorsed a “marine highway” from the Northern Marianas to different Pacific islands, pitching to play a more useful role for the American military and create a new stable market for economic recovery.

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Despite the concerted appeals for action, Washington has yet to dole out any major relief aid. When asked about the status of Palacios’s requests, the Defence and Interior departments referred the Post to the State Department, which declined to comment.

In an interview, Palacios voiced frustration over waging what he described as a lonely battle.

The pressure was unrelenting, he said, and “on a weekly basis, twice a week, you have editorials, you have people saying, ‘if we only had the Chinese tourists back, would we be in this situation? Why is the governor taking this position?’”.

Palacios added it would have been “more convenient” politically to take a more China-friendly approach like his predecessor, but he has resisted.

“First of all, we’re American citizens,” he said. “We are in this situation with a country that is not friendly any more”.

“I’ve made the effort to go to Taiwan, to Japan, to reinvigorate the tourism industry as well as bring in Taiwanese investment, bring in more Japanese investments again … [and woo] the Koreans and the Indians”.

To illustrate his wariness towards Beijing, Palacios cited a case from last year when more than 20 Chinese nationals were arrested for entering the US via the Northern Mariana Islands and illegally going to Guam by boat.

“That’s where Andersen Air Force base is,” he said, referring to the American military installation located on Guam. “There’s this reason to be concerned.”

Liu Pengyu, spokesman for the Chinese embassy in Washington, rejected Palacios’s concerns as “ill-intentioned fabrications without any evidence”.

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Liu said that “turning away Chinese tourists will also harm the interests of the US itself”, claiming that the number of China’s outbound passenger visits was projected to reach 130 million in 2024.

At the think tank event, Palacios said he is aware of the economic repercussions of moving away from China, calling it a “big sacrifice”.

Asked if he took up the associated challenges during his meetings at the State Department, Palacios replied: “I didn’t have to raise them because [the officials he met] knew these issues were going on.”

The governor revealed in his meetings with Pentagon officials that he had considered abandoning his stance, saying: “I was talking to one of the assistant secretaries on policy. And I explained this to him and I say, ‘you know, sometime, maybe I’ll just fold my pen and raise my hands’.”

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Tourism is the “cornerstone” of the Northern Mariana Islands economy, which has not recovered from Covid and “the truncation of visitors from China”, according to Leland Bettis of the Pacific Centre for Island Security, a Guam-based think tank.

He said that the territory has been “encouraging” the US Indo-Pacific Command “to schedule more ship visits to Saipan, but this is at best a small Band-Aid on a gaping economic wound”.

Bettis added that financial help from Washington “seems highly unlikely”. As an indicator of budget pressures in Washington, he noted that an US$11 billion “unfunded priorities” budget was submitted by the Indo-Pacific Command to Congress last week.

He also said that the US Congress this year also eliminated the $30 million in federal grants that the Northern Mariana Islands and Guam received since 2003 for hosting migrants from Palau, the Federated States of Micronesia and the Marshall Islands.

In terms of helping the territory’s ailing economy, Randall Schriver, a former assistant secretary of defence for Indo-Pacific security, told the think-tank discussion that the Pentagon “can’t do it all, they shouldn’t do it all and for them to be successful, they absolutely can’t do it”.

“I think we have to be a little more creative,” Schriver added, saying help on the order that the Northern Mariana Islands sought “would be inappropriate and not effective” if it were merely from the Pentagon. “It has to be inter-agency, absolutely.”

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