China Challenges US Dominance Across Pacific Islands and Southeast Asia

On June 28, Bloomberg reported on China’s growing presence in Pacific Islands. Senior fellow at the Foundation for Defense of Democracies Cleo Paskal described the geostrategic importance of prominent Pacific places. The islands were pivotal points of power projection back in the early 1900s. China is growing its presence east of the Philippines, including Palau, Micronesia, and the Marshall Islands. It funds infrastructure schemes like the Micronesia National Convention Center and Woleai Airstrip rehabilitation.

China’s Use of Tourism to Influence Pacific Nations Recognizing Taiwan

Several Pacific nations still recognize Taiwan, complicating China’s diplomatic efforts. To address this, China promotes tourism, especially in Palau. The Palau President, Surangel Whipps, accused Beijing of “weaponizing” tourism to pressure his country. It is a ploy for attempting to make Palau switch recognition from Taiwan to China. The same method is seen in the Solomon Islands, which in 2022 inked a security pact with China. China now helps redevelop the Solomon Islands’ capital port and supports police training programs.

U.S. Historical Ties and Military Agreements with Pacific Island Nations

The United States has a historical connection to Pacific Island nations, mainly the Freely Associated States (FAS). They include the Marshall Islands, Micronesia, and Palau. After World War II, America administered these territories and granted citizens the ability to reside and labor in America. In exchange, the U.S. secured military access and defense veto powers in these regions. However, the U.S. focus on the Pacific declined after the Cold War. This decline allowed China to increase its influence through “economic statecraft,” blending aid with political goals.

Growth and Diversification of Chinese Efforts in the Region

China invests in Southeast Asia and the Pacific through infrastructure and healthcare projects. For instance, a Chinese medical clinic near Tonga’s military headquarters provides healthcare and strategic presence. Analysts say these projects create local dependencies and intelligence opportunities. Chinese criminal networks are purported to be present in the region with bribery and smuggling. Such activities could aid China’s strategic interests. Such investments allow China to deepen its influence under the guise of development aid.

China also promotes its digital yuan (e-CNY) to increase its influence in Southeast Asia and the Pacific Islands. Cross-border payment trials using the digital yuan are underway. China has partnered with foreign banks to encourage the currency’s use in global trade. This currency diplomacy may challenge the dominance of the U.S. dollar. Tokenized financial infrastructure can offer cost savings and improve transaction efficiency. This new approach represents a strategic push for financial influence.

China’s Vision for a Multi-Polar Global Currency System

At a Shanghai financial forum, Pan Gongsheng, Governor of the People’s Bank of China, discussed expanding the digital yuan globally. He proposed a multi-polar currency system with mutual checks and balances. This system would reduce the world’s dependence on the U.S. dollar. China is accelerating efforts to create financial systems independent of Western control. The Cross-Border Interbank Payment System (CIPS) is expanding, with foreign banks adopting it. Chinese officials warned about traditional payment systems’ risks from geopolitical tensions and sanctions. Digital currencies play an important role in this changing global finance landscape.