Until very recently, it was boom time for the Pacific paradise of Palau. More and more tourists were discovering the tiny nation, drawn to its reefs and forests, pristine beaches and the promise of a perfect slice of idyllic island life.
A record high of 162,000 tourists visited Palau in 2015 — double the number in 2005. And with tourism contributing more than 85 percent of Palau’s gross domestic product, the going was good — really good.
Now, Palau’s stunning beaches, once swarming with travelers, are empty. So too are the hotels, including mothballed building projects that started during the boom. Tour agencies have wound down, and tour boats to Palau’s famous Rock Islands aren’t going anywhere.
Palau, an archipelago of more than 500 islands in the western Pacific Ocean, has been brought to its knees after making a very powerful enemy: China.
Palau is one of 17 nations still diplomatically partnered with Taiwan, which provides Palau with more than $13 million a year in funding, as well as scholarships in education and medicine, according to Reuters.
But Palau’s recognition of Taiwan does not align with Beijing’s One China policy, which maintains Taiwan is part of China.
In November, in a move many took as Beijing pressuring Palau to shift its diplomatic focus away from Taiwan, China declared Palau an illegal destination, and threatened Chinese tour groups with fines of more than $60,000 if they took tourists there.
That move hit Palau right where it hurt.
Before the travel ban, Chinese tourists accounted for about half of all visitors to Palau. They’re now gone.
Chinese investors had also been behind large building and business projects in Palau during the tourism boom, including new 99-year leases on about 60 hotel projects. They are now on hold.
Palau Pacific Airways announced last month it was closing after bookings plummeted 50 percent since China’s travel ban on Palau.
“The Chinese government made Palau an illegal tour destination possibly and most likely due to lack of diplomatic status,” the company that ran the airline, Sea Passion Group, said.
It also said the carrier, which flew direct from mainland China, didn’t have a single booking from China in July or August.
The airline told Reuters the Chinese government was “putting an effort to slow or stop tourists going to Palau."
Others in Palau have been feeling the squeeze from China.
Jeffrey Barabe, who owns a major hotel in Palau’s most populated island Koror, told Reuters China was “weaponizing tourism."
“There is an ongoing discussion about China weaponizing tourism,” he said. “Some believe that the dollars were allowed to flow in and now they are pulling it back to try and get Palau to establish ties diplomatically.”
Palau President Tommy Remengesau said there was no official word from China but the superpower’s intentions were "no secret."
“It is not a secret that China would like us and the diplomatic friends of Taiwan to switch to them,” he told Reuters. “But for Palau it is not our choosing to decide the One China policy.”
Remengesau said while tourism and investment from China was welcome in Palau, his nation’s ideals were more aligned with Taiwan.
Taipei, Taiwan’s capital, has accused China of using economic incentives to win over its allies.
This week, El Salvador announced it was ditching Taiwan and formally establishing diplomatic relations with China, marking another victory for Beijing.
The Dominican Republic and Burkina Faso both dropped ties with Taiwan in May, following the African island nation of São Tomé and Principe in 2016, and Panama in 2017.
Along with the Palau ban, Beijing has forbidden tour groups from going to the Vatican City — another tiny nation that recognized Taiwan.
Recently, Beijing has issued demands to foreign companies that still referred to Taiwan as a separate country, including airlines that listed the island separately to the People’s Republic of China in flight itineraries. It made similar demands regarding Hong Kong and Macau.
Qantas, American Airlines, Delta and United Airlines were among the airlines that said they would update their websites accordingly.
But as for whether Palau would back down amid perceived pressure from China, it appeared the tiny island was staying firm.
Remengesau said Palau had a plan to recover from the withdrawal of Chinese visitors with a focus on cashed-up travelers: Palau has already started rebranding itself as a luxury destination, rather than a holiday spot for the masses, in a “quality over quantity” approach to tourism.
But the country’s former president, Johnson Toribiong, who left office in 2013, talked up the importance of investment in Palau and said the nation should not isolate itself.
“I like Taiwan. But even Taiwanese want China now. The businessmen, they also want China,” Toribiong told Reuters.
“They don’t care about political consequence. Think about the economics.”