Under the compacts, US economic assistance to these Freely Associated States (FAS) is set to expire in 2023, creating an opportunity for China to fill the void, Grossman warned.

China is not the priority for Pacific island leaders – it’s climate change

The compacts provide the US exclusive military use of the waters around the FAS, including the ability to deny access to foreign militaries.

Crucially, Palau also forms part of the geostrategic area China refers to as “the second island chain”, which is central to Beijing’s naval strategy. This puts the US’s exclusive control of these waters directly at odds with Beijing’s defence priorities.

According to Liang Jiarui, a researcher at Liaocheng University’s Pacific Islands Research Centre, establishing “strategic fulcrum ports” in the Pacific is also a key aspect of this regional strategy.

“Having a strategic fulcrum port means having an overseas base,” Liang wrote in an article published by the centre. “These ports will make up for the gap between the Chinese navy and the US in the South Pacific region.”

The territorial waters of the FAS span hundreds of thousands of kilometres and contain some of the deepest lagoons in the Pacific, which are ideal for conducting military drills.

As part of its intensified focus on the Pacific as a strategic priority, Washington plans to expand its defence presence in Darwin, on Australia’s far northern coast. Secretary of State Mike Pompeo also visited the FAS last week.

Coinciding with Pompeo’s visit, Beijing donated US$2 million to the FSM’s trust fund, which had until then been supported by the US.

Under the current agreements between Washington and the FAS, US economic assistance expires in 2023 and the states will thereafter be dependent on their trust funds and other sources of financial support. Unless the FAS find alternative sources of financial support, the expiration of this funding could undermine their economies, the Rand report warned.

Confronted by the prospect of losing strategic ground to Beijing, Washington appears to be changing its tune. During his visit to the FAS, Pompeo said the compacts would be renegotiated.

“As of several years ago, it was an open question whether [the compacts] would be renewed,” Amy Searight, the former US deputy assistant secretary of defence for South and Southeast Asia, told the South China Morning Post.

“The US defence ties with these countries have been real and important for the US but there has been a fair amount of benign neglect as the strategic focus of the US shifted to other parts of the world.”

But the uncertainty surrounding the future of the FAS compacts offers Beijing further opportunity to undermine the states’ commitment to Washington between now and 2023, the Rand report said.

“Not addressing the region’s biggest priority is a real Achilles’ heel for the Trump administration’s strategy,” Searight said. “There is a real frustration in the region that the US has walked away from any kind of global leadership on climate change.”

Australia’s dilemma in the Pacific: is China a partner or competitor?

China’s Foreign Ministry spokeswoman Hua Chunying on Wednesday criticised the US for its “cold war mentality” and “zero-sum game” approach to the Pacific islands.

“China provides Pacific island countries with sincere assistance without any political conditions [to promote development],” Hua said, adding that China conducts rigorous economic assessment before approving loans, including the sustainability of the debt and the recipient nation’s ability to repay it.

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