A tiny Pacific island wonders what it will lose by welcoming a giant Chinese tourist resort

Is Yap Ready for the World?

A tiny Pacific island wonders what it will lose

by welcoming a giant Chinese tourist resort

Trouble is brewing in the Micronesian state of Yap. The U.S. is scaling back aid next year, so Yapese officials are turning to Chinese investors who plan to boost tourism. This could change the face of the tiny set of islands. WSJ's Alex Frangos rep 

 

The people of Yap, a flyspeck of an island in the western Pacific, learned long ago how to make money the hard way: They carved giant stone currency and ferried it across open ocean in canoes.These days, islanders are split over how to make money in a global economy—and in particular what to do with a tide of Chinese money now washing up on these remote shores.

Deng Hong, a Chinese real-estate developer, envisions a billion-dollar, 4,000-room casino-and-golf resort that he promises would quadruple the island's annual economic output to $200 million.

But residents of this 39-square-mile (101-square-kilometer) patch of volcanic rock worry whether what they will get is worth what they will give up. Chinese tourists and imported workers would double Yap's population, and to make room for the resort some Yapese would have to leave their ancestral coastal villages of thatch-roofed homes for new housing provided by the developer.

AN ISLAND DIVIDED

Residents of the tiny Pacific island of Yap speak out on whether to allow a massive Chinese real estate project.

"Yapese are not as aggressive as Chinese coming with lots of money," said Henry Falan, the speaker of Yap's 10-man legislature, which has passed laws trying to block the project. "I don't see much future in subjugating ourselves on our own island."

Still, even project opponents agree that Yap—with a population of 11,000—must learn self-sufficiency. The island has long relied on U.S. aid, which is scheduled to end in 2023.

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Seized by Japan in 1915, Yap became a U.S. protectorate after World War II and gained independence in 1986, as part of the Federated States of Micronesia. Since then, the U.S. has provided subsidies that account for 70% of public spending on Yap. In 2011, the U.S. contribution came to $15.5 million. A treaty also gives U.S. military dominion over the area.

"Yap has to do something," said Gov. Sebastian Anefal during the signing of a development agreement with Mr. Deng last summer.

The American money supports a languorous blend of modern life—cellphones, cars, prepared foods—with an easygoing island culture that has survived some 3,000 years on the bounty of fish-filled waters, rain forests and the mild narcotic pleasures of the betel nut, which is still widely used.

There are no traffic lights or retail chains. Most people live on their own land, sustained by fresh fish, crab, chickens, banana and coconut trees and patches of taro. Unemployment is 6%, with about half of Yap's workers employed in public service, including schools, law enforcement, road work and health care. Some families receive remittances from Yapese working in the U.S., which requires no visa. Many Yapese serve in the U.S. military.

"You don't work hard, nobody pushes you around," said Aloysius Faimau, a 66-year-old paramount chief, an ancient title that is part of a complex social hierarchy tied to land ownership and village affiliation. "If you want to earn money, go to Guam, Hawaii or the United States."

Per capita U.S. aid to Micronesia and other nearby Pacific-island nations is the highest of anywhere in the world, more than $1,000 a year. Concerned that Micronesia has grown dependent on aid, Washington nudged its island allies to attract private investment.

In a 2007 speech, David Cohen —then deputy assistant secretary for the U.S. Interior Department's Office of Insular Affairs, which oversees relations with Micronesia—said islanders should embrace modern investment.

He pointed to a precedent: Christianity, which "was alien to the Pacific until the 19th Century," he said. "Today, it is a fundamental part of most Pacific cultures."

Having been claimed by Spain in the late 16th century, sold to Germany in 1899, seized by Japan in 1915 and surrendered to the U.S. at the end of World War II, Yap answered this latest challenge by turning to China. Early in 2011, Micronesia's embassy in Beijing began pitching the idea of transforming the island into a resort.

Mr. Deng, a developer of convention centers and resorts in China, made an exploratory trip in August 2011 and liked what he saw: sparsely populated beaches; crystal-clear water, and dense groves of mahogany and coconut trees, with ferns and tropical flowers.

The island resort, if built, would be the first investment abroad for Mr. Deng's company, Exhibition and Travel Group, or ETG.

The son of an Air Force officer, Mr. Deng sold clothes in a Beijing market, then made his way as an importer-exporter to San Francisco, where he married an American. He returned home and earned his fortune—estimated by Chinese media at $870 million—building resorts for China's burgeoning rich, his projects including an Intercontinental hotel in the Tibetan capital of Lhasa. His company's Panda Travel agency boasts of arranging a million international trips a year for Chinese travelers.

Choosing Yap was simple, said Yang Gang, the island's local ETG representative. "The location is close to China," he said, sitting in his Yap apartment, lit by a bare light bulb, a Spam can overflowing with cigarette butts on the kitchen table.

Reaching the island from the U.S. takes two days, but a direct flight from Shanghai—part of the ETG plan—would be just 3½ hours, making Yap closer for Chinese tourists than Bali or Singapore.

To build support for his resort plans, Mr. Deng paid for Gov. Anefal and village chiefs to visit ETG projects in Chengdu, a city of seven million in western China. He donated $20,000 to Yap after an outbreak of dengue fever struck the island, and his company provided pencils and notepads for local schools.

To design the resort, ETG hired Florida architects HHCP, creators of Dubai's Jumeirah Palm, a sprawling residential development build on an artificial island that from the air looks like a giant palm tree. For Yap, the architects envision beachfront hotels inspired by the island's traditional architecture, with its steeply pitched thatch roofs.

Mr. Deng promises to build Yap a deeper port, a hospital and new schools. He would also build a longer runway for the airport—which now has three middle-of-the-night departures a week, two to Guam and one to Palau—in preparation for those daily direct connections with China.

His company also would pay every resident $400 a year. Yap had 4,000 tourists last year, mostly scuba divers, who stayed at a handful of small hotels. ETG said its resort would draw a million tourists a year.

To help smooth the way, the Chinese developer hired several American consultants, including Mr. Cohen, who flew in on Mr. Deng's private jet to meet with him. Mr. Cohen, who left the Interior Department in 2008 and is now an attorney in Los Angeles, said he helped assess community support for the project.

"I played an advisory role rather than an advocacy role," he said.

In August, ETG's negotiating team and Yap's acting attorney general, a 32-year-old lawyer from Tennessee, completed a development agreement that mapped out how the Chinese would proceed.Since the signing, however, things have not gone smoothly.

A backlash erupted when residents learned that the plan would divide the island into tourist areas and a "native town community," with apartments for the displaced residents. Yapese fret that the project would break ties with ancestral villages.

"We are going to lose our land," said Nicholas Figirlaarwon, a leader of the Concerned Citizens of Yap, the main opposition group. "That's when we stepped forward."

Stone money eight feet (2.4 meters) tall is propped against telephone poles in Mr. Figirlaarwon's village. The circular limestone coins, the world's largest and heaviest form of currency, were quarried and shipped mostly by canoe from Palau, 280 miles (450 kilometers) away, in the 18th and 19th centuries. The money is still used when locals trade property or settle disputes. But rather than move the disks to new owners, Yapese say they simply remember who owns what stones.

Because foreigners can't own property on Yap, the developers must secure 99-year leases from village property owners. It's unclear how many leases have been signed. Opponents who have gotten copies of the leases proposed by ETG bristle at their terms, complaining the rents are low and diminish over time.

Not enough land has been secured to build, according to Mr. Yang, ETG's local representative, who said he has been instructed to keep pushing.

"I don't know why they think we will take their land," he said, after ticking off benefits that the project would bring to residents. "We can't take over. We aren't Japanese soldiers. We do all business legally, with permits. We never force anyone to lease land. It's all based on free will."

Local opponents also say that turning the island into a Chinese resort would further erase a culture that has already faded under U.S. aid. "People live on what they can farm and fish," said John Hagileiram, a Catholic priest from a neighboring island that's part of Yap state. "I can't see how bringing in golf courses and casinos is going to strengthen the Yapese culture. It will do the opposite."

Military analysts warn that as China develops its navy, Yap and other remote Pacific islands that were fought over in World War II could regain strategic importance.

Memorial plaques to fallen U.S. bomber pilots sit near the remains of wrecked warplanes scattered around the island. A U.S. security treaty with Micronesia gives it military dominion in the region.

"As the global geopolitical chess pieces start moving around, it becomes quite evident why the Chinese decided to focus on Yap," said Eddie Calvo, the governor of Guam, the U.S. territory closest to China and home to U.S. military installations 500 miles from Yap. "Besides, for a beautiful place for Chinese tourists to go, it sure seems to be in the right location as well."

Officially, the U.S. is neutral on the Chinese proposal. "The U.S. is not opposed to legitimate investors and investments that would provide long-term benefits to the people of Yap," said Doria Rosen, the U.S. ambassador to Micronesia, in a statement last fall.

In October, opponents organized the Paramount Chiefs, Yap's highest authority, to send a letter to Gov. Anefal ordering him to stop the project to save island culture. Resort supporters said the three letter writers aren't legitimate members of the body, which hasn't been active for more than 100 years.

Shortly after, Gov. Anefal begun to buckle to opponents, who threatened to recall him. The governor sent a letter to Mr. Deng later in October, asking him to reconsider the resort plan. Yap's legislature passed legislation restricting foreign investment to try to dissuade ETG from moving forward.

But ETG shows no signs of budging. Mr. Yang said he's signing land leases and pointed to a recent visit by the Chinese ambassador to Micronesia as a signal of support.

The "project is going forward smoothly," he said in an email.