The air above Palau's pristine waters smells of salt and breadfruit, and on calm mornings in Koror, Palau's commercial centre, the whirr of dive boat engines echoes across the bay.
A few years ago, those boats were filled with tourists – many from China – drawn to Palau's lagoons and limestone caves. Hotels were full, restaurants bustling, and fishermen could barely keep up with demand. But that is no more.
The boom – and the abrupt collapse – was no accident. Between 2015 and 2017, Chinese tourists made up around half of its visitors. Then, in 2017, Beijing reportedly ordered tour operators to stop selling packages to Palau, slashing the main source of tourism to the islands at the time.
I actually bought new boats to accommodate the sudden increase of tourists, said a dive shop owner in Koror. But after the tourism peak, he said, these boats had been sitting idle in the bay and it took them years just to make back the money they spent.
The message was clear, Palauan officials allege. They say that China had used its vast outbound tourism market as part of a broader campaign to try to peel Palau away from recognising Taiwan - and into Beijing's orbit.
Palau is one of only a dozen nations that still recognise Taiwan as a sovereign state. This challenges a key pillar of China's foreign policy, the one China principle, in which Beijing asserts sovereignty over Taiwan.
However, Palau's strategic location in the Pacific makes it desirable for influence from the world's biggest powers. It is situated on the Second Island Chain, which the U.S. views as crucial in containing China's military expansion.
Palau and the U.S. have a long history of partnership: before its independence in 1994, Palau was a U.S.-administered territory. Under the Compact of Free Association, Palau grants exclusive military access to the U.S. in exchange for extensive aid, alongside the ability for Palauan citizens to live and work freely in the U.S.
As the geopolitical struggle unfolds, Palau finds itself at the center of military activities, with President Surangel Whipps Jr. acknowledging the island's unique vulnerability and importance. No matter what we do, Palau is going to be the centre of any military activity because of our location, he stated.
The U.S. has increased its military infrastructure in Palau, with plans to upgrade airstrips, expand Malakal Harbour, and construct radar systems for monitoring military activities in the Pacific. However, concerns arise about nearby Chinese land leases to businesses close to these military sites.
Historically, Palau's relationship with Taiwan has been strong, with financial and logistical support elevating the bond since Palau's independence. Despite rising concerns regarding China's influence, many Palauans still view Taiwan as a trustworthy ally.
This delicate geopolitical scenario is accompanied by domestic issues such as organized crime linked to Chinese syndicates and a sense of insecurity amongst the local populace. Residents of Palau express anxiety that their idyllic homeland may become a battleground in a larger conflict between superpowers.
As the U.S. attempts to shore up its presence and reassure Palauans amid growing worries of military confrontation with China, the challenges facing this small, largely untouched paradise throughout this geopolitical struggle will continue to evolve.
