Buying friends through dollar diplomacy

Buying friends through dollar diplomacy

May was a tough month for Taiwan’s international presence. The troubles began on 1 May when the Dominican Republic ended its alliance with Taipei in favor of Beijing, then doubled on 26 May as Burkina Faso followed suit. Despite its successful self-governance, the Chinese-claimed territory struggles to maintain international support and acknowledgement as an independent country. Beijing’s ‘dollar diplomacy’ will continue to chip away at Taipei’s legitimacy, leveraging smaller impoverished nations in an effort to solidify and justify its influence over the Taiwan Strait.

The status quo

China’s charm offensive highlights a growing mistrust of the changing political climate in Taiwan. Tsai Ing-wen made local history in 2016 when she and her Democratic Progressive Party (DPP) won the Taiwanese presidential election, ousting the Kuomintang majority for the first time since 1950. Her pro-independence tendencies worried Beijing. Tsai’s unwillingness to affirm the 1992 Consensus—an agreement that there is one China, but along two different interpretations— threatens a long-held status quo and an already-shaky bilateral relationship. When she directly called Donald Trump to congratulate him on his US election victory later that year, Beijing grew even more concerned that she was shoring up international support and preparing for a push for Taiwanese sovereignty. As the Tsai administration continues to build its relations with the US, its mainland counterpart grows suspicious.

Beijing consistently sends belligerent warnings in the form of increased air force drills and naval exercises in the Taiwan Strait, but has also taken more subtle efforts to maintain the status quo in the region. The government has cracked down on foreign firms operating in China such as Delta Airlines, Zara, and Marriot that refer to Taiwan as a separate country. Companies that list Taiwan separately on online surveys or exclude the island from Chinese maps have faced strong criticism, heavy fines, and even temporary suspension of the offending website. Tensions ramped up again when China opened four new flight routes near Taiwanese airspace without any consultation or approval from the Tsai administration, which responded by refusing to acknowledge the almost 200 flights and forcing their cancellation before the Lunar New Year, the region’s highest travel season.

Dollar diplomacy

Beijing’s soft power offensive against Taiwanese legitimacy includes buying support from impoverished nations. Countries allied to Taiwan are enticed with soft loans (meaning that they pay below market-rate interest or even no interest at all), multimillion-dollar donations, and long-term investment projects that bring much-needed development. Offers have included a scholarship program for Caribbean students to study in China, a USD 250 million children’s hospital to Trinidad and Tobago, a USD 600 million highway to connect the Jamaican islands, and even a USD 60 million cricket stadium in Antigua and Barbuda. Most importantly, the cash comes with no strings attached—China provides exorbitant financial support in exchange for simply switching diplomatic alliances.

Impoverished nations willingly play along because they have no other choice. Countries receive notoriously flawed aid packages from typical lenders such as the US, which re-instated the “Global Gag Rule” that prevents the use of foreign aid to inform about or provide abortions, and the World Bank, whose austerity measures have continued to cripple the Greek economy. China’s simple request to recognize its sovereignty over Taiwan offers a far more bearable solution, and countries openly acknowledge and accept the help.

Grenada’s nutmeg crisis clearly highlights the power and convenience of dollar diplomacy. In 2004, Hurricane Ivan caused over USD 900 million in damages and leveled the country’s nutmeg crops—a main export that needed approximately five years to fully recover. When then-ally Taiwan offered a disappointing USD 4.7 million in emergency funds, Prime Minister Keith Mitchell flew to Beijing to strike a better deal in aid and development and, in return, renounce Grenada’s ties to Taipei in favor of the mainland. Chinese foreign direct investment in Grenada has since leapt from USD 4 million in 2006 to USD 14.5 million in 2013. China successfully flexed its philanthropic muscles while simultaneously leading another diplomatic ally away from Taiwan.

In a more recent case, the Dominican Republic openly admitted that its decision to switch alliances was financially driven. Legal advisor to the president Flavio Dario Espinal acknowledged the valuable relationship between Taiwan and the Dominican Republic, but also admitted that “the socioeconomic reality” forced his country to reconsider its allegiances. Taiwan’s recent accusations shed more light on Espinal’s vague explanation: according to an official from the Taiwan Foreign Ministry, China offered a package of up to USD 3.1 billion that included low-interest loans, financial aid, and investments for a freeway, infrastructural projects, and a natural gas power plant. While details of Burkina Faso’s impending aid remain undisclosed, Foreign Minister Alpha Barry confirmed that a Chinese delegation would soon travel to the country to plan development packages.  

Taiwan’s response

Tsai struggles to compete with China’s massive spending power. Although she openly criticized China for buying her diplomatic allies out from under her, she has few options. When Haiti threatened to end its bilateral relationship in early June, Tsai quickly caved and offered USD 150 million in loans to help the Caribbean nation recover from the 2010 earthquake. With only 18 countries left supporting Taiwan, including only one in Europe and one on the African continent, the Tsai administration may find itself forced to dole out larger, unaffordable aid packages. Furthermore, as the Tsai administration and its pro-independence narrative directly caused China’s increased diplomatic push, the DPP could lose voter confidence and suffer defeat in the next Taiwanese elections in favor of yet another pro-status quo party and president.

Taiwan is highly likely to more closely ally itself with the US, but the Trump administration’s dedication is questionable. Washington has indeed pushed for increased communication between high level officials with the Taiwan Travel Act and called for improved military capabilities to counter China with the US National Defense Authorization Act. However, the US’ relationship with China is too crucial for the Trump administration to take any truly aggressive action in the name of the small island nation. While the Taiwan Strait may see increased military presence in the form of China’s so-called “routine” exercises, Taiwanese jets monitoring the situation, or the US’ Freedom of Navigation missions, escalated encounters are still highly unlikely.

Who’s next?

China is likely to continue an aggressive philanthropic campaign, whittling away at Taiwan’s allies, and a few countries already seem receptive. The Vatican, the sole diplomatic ally to Taiwan in Europe, has seen an unsteady but potentially pivotal shift in relations with the notoriously atheist Chinese Communist Party. eSwatini, formerly Swaziland, recently reaffirmed its decades-long bilateral relationship with Taiwan and declared no interest in switching allegiances to China despite heavy courting. However, as the sole remaining country on the African continent that supports Taiwan, eSwatini could face new pressure not only from China, but from its own neighbors as well. If the push for a Pan-African association gains more momentum and the union forges formal ties with China, the continent’s number one trading partner, eSwatini could find itself pushed into—or out of an alliance. As China doles out more generous aid packages and outshines Taiwan’s diplomatic efforts, the Tsai administration will have to find new ways to establish itself on the international stage.

Categories: Asia Pacific, Economics

About Author

Kiana Mendoza

Kiana Mendoza is China-based consultant who has worked with firms from Shanghai to London, but remains proud of her California roots. She graduated from Claremont McKenna College with a degree in International Relations and Asian Studies and specializes in US-China relations, Chinese foreign policy, and national security.