How Beijing uses inducements as a tool of economic statecraft

Report March 24, 2025 • 2:00 pm ET

Executive summary

As strategic competition between the United States and China intensifies, Washington and Beijing seek every possible advantage to gain an edge. In this environment, both countries are increasingly turning to economic statecraft—the use of economic coercion or inducement to pursue strategic goals—to advance their interests. Among these tools, economic coercion often garners the most attention, both as a preferred instrument of US policymakers and as a key driver of China’s expanding influence. However, this focus on coercion largely overlooks the strategic value of economic inducements, which serve as a powerful and affirmative means of cultivating influence. These positive measures enable the United States to leverage its economic strengths, advance its global interests, and support recipient countries—all while countering China with a more transparent, sustainable, and effective alternative.

For successive US administrations, the global reliance on US goods and services for economic growth has reinforced Washington’s ability and willingness to employ sanctions, trade restrictions, and unilateral economic measures to shape policy decisions in targeted countries. Meanwhile, decades of steady growth have enabled Beijing to wield its economic power in pursuit of strategic objectives. Considerable attention has been devoted to China’s use of economic influence and its deep integration into the global economy as tools of coercion, with Lithuania, Japan, and Australia among the most prominent targets of Beijing’s economic pressure campaigns. In response, nations worldwide have sought to resist China’s coercive tactics, implementing countermeasures both independently and in coordination with allies and partners.

China’s use of economic inducements, however, remains largely overlooked despite being instrumental in Beijing’s ability to encourage and entice countries into supporting its policies. Through public diplomacy, discourse power, strategic engagement with key constituencies, and coordination of economic activities among China-based entities, Beijing has demonstrated considerable skill in leveraging targeted incentives to persuade leaders—particularly in the Global South—that quid pro quo arrangements with China offer a viable path to economic development and growth. These leaders often view US-China competition as an opportunity to enhance economic outcomes while bolstering their domestic political legitimacy.

Nowhere are the successes of China’s economic inducements more evident than in the gradual erosion of Taiwan’s formal diplomatic relationships. In less than a decade, Beijing has convinced eleven of Taiwan’s former diplomatic partners to switch recognition to China. Many of these shifts were achieved through carefully tailored inducements designed to align political leaders with Beijing’s strategic objectives. Contrary to popular narratives, these inducements were not always overwhelming financial offers or corrupt dealings; rather, Beijing strategically cultivated political and sectoral interests to incentivize a diplomatic realignment. Similarly, China has employed targeted economic inducements to expand its influence in multilateral institutions, garner support for its global initiatives, and secure market access for Chinese firms, among other strategic objectives.

Beijing’s use of economic inducements is particularly effective because China has tailored its measures to align with the specific needs of recipient countries and their leaders or political parties. For politicians in both democracies and authoritarian states, public promises of economic support from Beijing can boost domestic political support and international legitimacy. Even when Chinese projects are later exposed as inefficient or detrimental, their speed, cost efficiency, and willingness to assume risk continue to make them appealing.

Too often, Chinese firms and state-run lenders are perceived as the most viable—or only—option available to Global South countries seeking economic development. Yet the appeal of Western economic engagement remains strong, and Washington should look beyond unilateral coercive measures to offer an affirmative vision of economic development and compelling alternatives to Chinese projects and financing.

Transparency and sustainability are key strengths of US and Western economic initiatives. Collaborating with like-minded allies and partners can enhance the financial viability and long-term success of development projects. The US International Development Finance Corporation warrants greater attention as a critical instrument of US economic statecraft, while US public diplomacy institutions play a vital role in countering Chinese influence and promoting Western-led initiatives. By leveraging targeted inducements, multilateral economic initiatives, and strategic partnerships with like-minded countries, the United States can expand its economic statecraft tool, diminish the appeal of Chinese economic engagement, and advance its interests abroad.

Chapter 1: Introduction

Economic statecraft and US-China competition

The foundation of strategic competition between the United States and China is an unprecedented level of economic interdependence—both with each other and with the global economy. This interdependence, largely sustained by post-World War II institutions, has driven global economic growth for decades. However, it now also enables the more deliberate use of economic ties to pursue strategic and geopolitical objectives.¹

Economic statecraft—the use of economic means to pursue political goals—is deployed through two primary levers: coercion and inducement. Of the two, economic coercion has received far more attention in academic literature, policy analysis, and China-specific scholarship. Beijing’s use of economic inducements—both promised and delivered—is less appreciated and relatively unexplored, as is how the United States can employ similar measures to advance its national interests.²

These economic inducements can take a variety of forms: official international assistance or humanitarian aid (such as grants, capacity building, technical assistance, or budget support), development finance (such as loans, credit, guarantees, and public-private partnerships), investment, and access to currency, trade, preferential tariffs, and subsidies are some of the most cited.³ Studies have investigated these mechanisms of influence, including the use of inducements to garner votes in the United Nations and the World Bank.⁴ Corruption through bribes and kickbacks, political donations, academic donations, and other incentives to buy elite support for the sender’s goals are also forms of inducement.⁵ Promises—free trade agreements (FTAs), memoranda of understanding (MOUs), market access promises, and signing ceremonies for new economic arrangements—can be a potent incentive, even if the final product is substandard or not completed.

The existing literature divides these inducements into two broad categories: quid pro quo arrangements that involve conditionality and unconditional structural engagement.⁶ This latter category of inducements creates a commercial motivation to favor the provider of the incentive, in turn building and expanding interest groups in the target country that support closer economic relations with the sending state.⁷ In reciprocal arrangements—the focus of this study—the provider of the inducement explicitly links the incentive to the desired policy behavior in the recipient country, requiring a clear request (whether in public or private) that can be accepted or denied. While it is important to separate the intent of these two categories of economic inducement, they are also intertwined: broad structural factors can act independently while simultaneously shaping the frameworks for quid pro quo arrangements. Promises of structural engagement—such as pledges to increase trade, investment, or aid in agreements or MOUs—can serve as transactional inducements. However, insufficient follow-through often impedes the sustained alignment of interests and behavior.

Weaponizing US economic statecraft

For decades, US foreign economic policy has often sought to wield the centrality of the US economy and financial system as a weapon to compel desired behavior. Sanctions have been used by the United States across a wide range of issues and are policy tools that can quickly earn broad domestic political support—for both good and ill.⁸ Their efficacy has long been debated in academic literature, with concrete answers hampered by the evolving nature of sanctions, the difficulties in defining sanctions, economic coercion, and success, as well as the empirical challenges of identifying the full universe of cases.⁹ More recently, export controls and trade tariffs have come to the forefront as preferred instruments of US economic statecraft, with China as a primary target. These punitive measures seek to blunt the impact of Beijing’s industrial policies and its efforts to bolster its domestic economy at the expense of the United States and other countries.

Concerns about the overuse of economic sanctions and other punitive measures have grown in policy discourse as the unintended consequences of sanctions and potential harms to US foreign policy interests become more apparent.¹⁰ In a 2016 speech, then–Treasury Secretary Jacob Lew warned of the risks of sanctions overreach: “[W]e must be strategic and judicious in how we apply sanctions” to avoid driving business activity away from the US financial system.¹¹ Daleep Singh, a former deputy national security advisor for international economics, wrote that “the United States and its partners will need to apply the same creativity and urgency toward developing a positive vision for economic statecraft as they have in designing sanctions and other restrictive measures in the recent past.”¹²

This is not to say that inducements have not been used at all; the United States has effectively employed such measures before. As detailed in a report from the Atlantic Council’s Geoeconomics Center, there are numerous examples of the United States and the European Union (EU) using “positive economic statecraft” in a variety of contexts. In tactical cases, the United States and the EU linked the provision of aid, finance, or trade to a specific desired outcome or action.¹³ For example, the United States has conditioned nonmilitary aid to Pakistan on cooperation with counterterrorism efforts; the EU offered Moldova a support package after it joined the EU’s sanctions against Russia in 2023; and a Tax Information and Exchange Agreement between the United States and Panama in 2011 was a prerequisite to a subsequent FTA. The Pakistan and Panama cases indicate that US policymakers have already used economic inducements to great effect and should consider employing them more extensively moving forward.

In other cases, the failure of inducements to entice desired policy changes in North Korea and Iran has perhaps contributed to a decline in their use.¹⁴ US economic statecraft was used in attempts to convince Pyongyang and Tehran to abandon the pursuit of nuclear weapons. It is also notable that Chinese economic statecraft toward North Korea has been of questionable influence. China and Russia, likewise, are competitors of the United States for whom the benefits of positive incentives are difficult to envision—except perhaps on extremely specific and discrete issues. Convincing these regimes to accede to US policy demands, however, is a high-stakes outlier in policy—significant enough that failure in this area should not dissuade US policymakers from employing inducements more broadly in foreign policy. There remain opportunities to use positive incentives to advance both US interests and development needs in many countries.

The US focus on sanctions-based economic statecraft has contributed to Washington’s underappreciation of the needs of developing countries. It is difficult to present an affirmative offer to these countries when the United States is so focused on discouraging undesired behavior—most often through threats and sanctions. This has created openings for Chinese inducements, which can significantly influence the policies and behaviors of leaders in countries requiring economic growth and development. Moreover, developing countries’ real or perceived lack of competitive alternatives from Washington and its allies has significant foreign policy and national security implications for the United States. It has been easy to dismiss the geopolitical importance of these small and developing countries. However, in times of great power competition, their role is amplified—they are needed for international support, to combat transnational threats, and as markets for US companies. For example, the Solomon Islands previously received scant attention from the United States, but Beijing’s expanding influence there has raised concerns throughout the Indo-Pacific region that China seeks naval basing rights. Washington’s response to the China-Solomon Islands security agreement signed in April 2022 included warnings about China’s intentions and a belated flurry of diplomatic activity.¹⁵ In the decades following the Cold War, the United States was, by default, the most important partner for many countries due to its economic influence and global security interests. However, with China now a near-peer economic competitor, Washington needs to expand its toolkit.

Scope of the study

To the extent possible, this report seeks to establish a clear and direct linkage between China’s strategic intent, the promise and provision of economic inducements, and a discrete outcome—either acquiescence or refusal of Beijing’s demands. Ideally, a specific policy request from China is apparent, as is whether the target country complied. In the absence of such evidence, close process tracing—through interviews, contemporaneous research and reporting, MOUs, and contracts—can help reveal the contours of influence attempts. The potential use of inducements to influence a recipient country to withhold action it might otherwise take makes process tracing particularly valuable, while expert interviews can help uncover such hidden cases. This report benefited from off-the-record interviews in Washington and Taipei with US and Taiwanese officials, academics, journalists, and representatives of several of Taiwan’s current diplomatic partners.

Establishing intent is a fundamental and inextricable challenge in any study of power and influence—a task made even more difficult by China’s opaque state-capitalist system. By focusing on national-level policies in the target country that are of strategic importance to Beijing, this research seeks to circumvent some of these challenges by explicitly analyzing areas where intent is unquestioned. This approach enables a more focused assessment of the factors—both in China’s offer and in the target country—that contribute to success. While this method inherently introduces selection bias, the observational nature of this study, China’s strategic use of diverse tools of economic statecraft, and the immediate policymaking implications of these findings necessitate a targeted analysis.

The focus of this report will be on the effects of publicly announced inducements, though attempts at bribery or elite capture through private rents can also play an important role in China’s economic statecraft strategy. There are pragmatic reasons for the decision to deemphasize corruption—namely, the methodological challenges of identifying under-the-table deals. However, the intent behind dark money is often unrelated to a specific public policy issue or is merely a feature of, rather than the driving force behind, larger announced deals. Publicly announcing these agreements allows the recipient leader or regime to leverage the deal with China to bolster political legitimacy both domestically and internationally. Still, by identifying issue areas where China has strategic intent and process-tracing the events surrounding success (or failure), this report aims to assess the impact and deployment of various inducements, including bribes and corruption.

Chapter 2: Inducements in Chinese economic statecraft

Economic inducements have played an important role in China’s foreign policy strategy for decades, harking back to Mao Zedong’s foreign aid to Africa.¹⁶ In recent decades, China’s rapid economic development has led Beijing to use inducements to create an international environment more aligned with its interests.¹⁷ Without an extensive array of security relationships, Beijing has been largely dependent on economic arrangements to extend its influence and pursue desired policy change in other countries.¹⁸ Since Xi Jinping took power, China has used this strategy more frequently and with greater success, commensurate with the growth of its economy and its increasing importance to global markets.¹⁹

For good reason, international attention focuses primarily on the Belt and Road Initiative (BRI) as a potential—and powerful—conduit for Chinese economic influence. Chinese institutions have poured many billions of dollars into BRI projects and the initiative’s constituent parts, from the original Maritime Silk Road and Silk Road Economic Belt to the Digital Silk Road, Polar Silk Road, and Health Silk Road. Beijing claims that more than 150 countries and institutions have signed on to the BRI, and China has introduced the Global Development Initiative (GDI) alongside the BRI to promote economic development in the Global South.²⁰ In recent years, Xi has also launched a slew of complementary initiatives to expand China’s influence, including the Global Security Initiative (GSI), Global Civilization Initiative, and Global Artificial Intelligence Initiative.²¹

The extensive literature on China’s global economic footprint notes that BRI-associated projects are a ubiquitous aspect of Beijing’s growing influence.²² These studies provide valuable insight into Chinese trade, investment, and/or financing in a specific country, within a wider region, or emanating from a single large-scale initiative such as the BRI. Many of these works use broadly applicable indicators to highlight China’s structural engagement and its resulting influence, and these indicators serve as important context for Beijing’s ability to shape the policies of target states. A 2021 RAND Corporation report emphasizes trade and foreign direct investment as the economic inputs of China’s influence while also highlighting the complexity of the literature on the relationship between influence and economic ties.²³ A 2023 RAND Corporation report compares US and Chinese approaches to development highlighting how China blends different forms of economic engagement into its larger portfolio of development cooperation.²⁴ Large databases such as the American Enterprise Institute’s China Global Investment Tracker and AidData offer valuable insights into China’s overseas investment and construction, as well as its development financing.²⁵ These are just a few notable works in this space.

Yet membership in the BRI—most often through the signing of an MOU—is not the only channel for Chinese economic engagement, and not all of this engagement, BRI or otherwise, confers immediate or quid pro quo benefits for Beijing. China’s domestic overcapacity, for example, is often cited as an important driver of Chinese firms’ overseas activities, suggesting that not every investment or trade deal is meant to extend Beijing’s geopolitical influence.²⁶ To some degree, the BRI can be viewed as a political slogan, mobilizing domestic and international actors toward the initiative’s broader goals without directing specific actions.²⁷ The purpose of this report is to highlight this distinction—between non-conditional economic engagement and targeted quid pro quo inducements—as fundamental to the US response to China’s economic statecraft.

China has tied the promise and delivery of specific economic inducements to achieving discrete strategic goals. These quid pro quo arrangements can be obscured in a larger review of China’s economic inputs. In Greece, China’s footprint has grown rapidly following a privatization push after the 2008 Global Financial Crisis. However, as noted in an International Republican Institute report, “Beijing’s influence over government discourse and decision-making in Athens is disproportionate to its level of investment and economic importance in absolute terms.”²⁸Growing trade and investment relations, such as in Greece’s energy sector, serve as the backdrop and conduit for Beijing’s influence, but China’s investment in the port of Piraeus—and the promised economic growth associated with the investment—was the proximate cause of political decisions by Greece in favor of Beijing in the EU.²⁹

Economic inducements, however, are not universally positive for leaders in recipient countries, and China’s infrastructure investments and development projects have rightly received significant attention for their negative externalities. There is an extensive list of projects that have failed to deliver on their promises or have triggered opposition from local communities due to environmental, social, and governance (ESG) concerns, debt distress and difficulty refinancing loans, cost and timeline overruns, imported labor from China, corruption, and other issues.³⁰ These externalities constitute the core of Western warnings to the Global South of Chinese economic influence.

While many countries are now more cautious about accepting Chinese bids—and Beijing has pulled back on some lending in the past few years—in many cases, Chinese projects are either the only option to meet development and infrastructure needs or the most competitive option for emerging economies. Fifth generation (5G) cellular networks, high-speed rail, and port infrastructure are some prominent examples.³¹ Indeed, Chinese projects can offer ready-made links between state-owned companies and state-owned policy banks, allowing for a streamlined bidding process (or to avoid competitive bidding altogether) and rapid project development.³²

These projects’ connections to the Chinese party-state are a leading concern for US and Western policymakers. China’s state capitalist system allows the Chinese Communist Party (CCP) to orchestrate the economic activity of state-run financial institutions, state-owned enterprises (SOEs), and even private corporate entities in a way that the United States and its partners have not matched.³³ At the same time, US researchers and policymakers should not assume that China is uniformly intent or effective in its use of economic ties to achieve strategic goals, nor that Chinese corporate entities are eager participants in these endeavors.³⁴ Beijing can encourage economic activity abroad for several possibly overlapping reasons, including strategic gain, national economic strength, and support for Chinese companies abroad.³⁵ Likewise, it is important to interrogate the mechanisms through which Beijing hopes to gain strategically from its economic reach and growth. Outside of coercion and inducements, economic statecraft initiatives can enhance political influence by creating vested interests, transforming public and elite opinion, and giving rise to structural power.³⁶

Even as China faces an economic slowdown, there is little reason to believe that Xi will deemphasize economic statecraft in his foreign policy.³⁷ He is acutely aware that domestic perceptions of foreign policy issues, particularly those related to territorial disputes and political legitimacy, are paramount to the political survival of the CCP. Independent of ongoing struggles in the domestic economy, Beijing has learned from past failures and is reining in some of its more ostentatious projects, shifting toward “smaller” and “greener” programs.³⁸ No longer able to spread economic largesse as widely, China may instead direct its capital toward economically or strategically advantageous projects, fostering more sustainable and targeted engagement.³⁹

Existing research on Chinese economic statecraft and implications for the study of inducements

While the literature on Chinese economic statecraft and coercion is well established, relatively few works specifically examine Beijing’s use of inducements. Scholars of Chinese economic statecraft, however, have produced a robust body of research on Beijing’s use of coercion; these studies, while not focused on inducements, have important implications for the study of positive economic incentives. Recent think tank analyses—including from the Center for Strategic and International Studies, Australian Strategic Policy Institute, and Mercator Institute for China Studies—offer a snapshot of this research.⁴⁰ Together, these reports and others reveal important trends in China’s use of economic coercion that can be applied to the examination of strategic inducements.

First, the targets of Chinese coercive attempts are somewhat predictable, which likely holds true for inducements as well. These studies note that targets are largely Western-oriented, democratic, and developed. However, what remains unaccounted for is how China exerts influence in the Global South, where Beijing has consistently used positive economic incentives. Second, coercive measures are aimed at strategic industries with a strong political lobby in the target country; similarly, China carefully selects the recipients of economic inducements, targeting leaders, other political elites, and their constituents. Lastly, there are certain issues around which Beijing is likely to exert economic coercive force, including national sovereignty, national security, political legitimacy, and territorial disputes. To gain a full understanding of Beijing’s economic statecraft, it is also important to identify the issues which invite China’s economic inducements.

While there remains a dearth of research explicitly discussing China’s use of economic inducements as part of its larger economic agenda, investigations in this area have been increasing in recent years. This scholarship largely focuses on China’s non-conditional economic engagement or employs broad measures to identify correlations between specific Chinese incentives and policy outcomes. Evelyn Goh, for example, discusses economic inducements as a “preference multiplier” in China’s influence efforts in Southeast Asia, serving to politically advantage actors whose interests align with those of Beijing in a form of non-conditional structural engagement.⁴¹ In Africa, Ana Christina Alves argues that China’s development financing for infrastructure projects has had moderate success in achieving tactical and structural goals since the founding of the People’s Republic of China in 1949.⁴² Dreher et al. argue for a need to differentiate types of Chinese aid to assess their effects on policy in Africa, concluding that China’s Official Development Assistance—though less so commercial loans—is driven by foreign policy considerations.⁴³Several studies examine the limited effectiveness of China’s positive economic efforts to influence Taiwanese elections through strategic agricultural purchases. While these works offer valuable insights, they largely overlook quid pro quo arrangements in favor of statistical correlations.⁴⁴

Audrye Wong provides an in-depth analysis of the issue, examining when Chinese inducements effectively achieve geopolitical goals.⁴⁵ She distinguishes between subversive carrots—which circumvent political processes and institutions in target countries—and legitimate seduction, arguing that countries with high-accountability domestic political institutions are less susceptible to subversive carrots. Because of this dynamic, she contends that China has been less successful in achieving influence than commonly assumed. The utility of this framework is clear. However, the intent behind these subversive carrots—often, but not always, involving hidden bribes and corruption—is not explicit, making its application difficult. These subversive carrots are not necessarily directed by the party-state, especially with other economic incentives at play. Even when they are, assessing the desired strategic outcome remains challenging—whether the engagement is non-conditional (such as increasing the market share of a Chinese SOE) or transactional.

This question of intent is one reason to deemphasize—though not discount—the potential effect of subversive carrots. Chinese inducements, particularly those related to the BRI and its infrastructure projects, are undoubtedly crafted to align with the needs and domestic political priorities of elites and decision makers in the target country. This, in turn, creates opportunities for graft, opaque deals, and a lack of accountability.⁴⁶ However, the assumption that these inducements are primarily intended to advance “strategic corruption”—the explicit use of bribes and elite capture to achieve geopolitical aims—lacks broad support, despite some important high-profile cases.⁴⁷ In this report, the Solomon Islands and Kiribati are the two most apparent examples of possible corruption, though in both cases there are significant public benefits as well. Most significantly, such corruption is often linked to a Chinese company with a clear economic rationale for the project in question. Chinese inducements can be and have been used to secure lucrative business deals, facilitate personal enrichment for high-level policymakers and commercial actors on all sides, and to expand China’s non-conditional economic engagement. However, there is minimal evidence that these efforts are part of a larger scheme directed by the party-state to exert influence over specific strategic issues.

Explaining the success of Chinese inducements

For leaders and regimes in power, receiving economic inducements can enhance citizen perceptions of a regime’s performance, help secure public compliance, and strengthen both domestic authority as well as external validation of the regime’s position.⁴⁸ To reap these benefits, leaders in both authoritarian and democratic governments are eager to announce inbound investments, foreign aid, or trade agreements—even if they obscure the longer-term ESG trade-offs, or instances of bribery and corruption, associated with these deals.⁴⁹ Together, these factors increase the likelihood that the recipient of the inducement—most often the ruling regime—will achieve political stability and maintain its grip on power.

Broadly, China’s economic inducement strategy has been effective because it is sensitive to the domestic political needs of leaders and regimes in recipient states. Beijing promotes itself both as a member and leader of the developing world, free from the colonial and Cold War baggage associated with the United States and other Western institutions. China’s professed adherence to a nonaligned posture further facilitates a persistent diplomatic presence in the Global South and ensures a sympathetic ear for Chinese proposals.⁵⁰ Moreover, China’s state-owned banks and firms are willing to finance and/or build what recipient countries want, rather than promoting projects that align with a predetermined set of values or development priorities. They also engage with state actors that Western institutions have neglected for various reasons. BRI projects address infrastructure and connectivity needs in developing countries; foreign aid provides a domestic political boost to elites in recipient countries; and promises of increased trade and investment make for good publicity, even when such pledges fail to materialize. These inducements allow for a sustained Chinese presence in a country that can build goodwill and help maintain stable relations.⁵¹ While they often advance China’s broader non-conditional engagement objectives, they can also be tailored to meet specific needs.

The Lowy Institute’s Global Diplomacy Index offers a snapshot of China’s efforts in this regard. Beijing holds a slight lead over the United States in overall diplomatic posts (274 versus 271), embassies (173 versus 168), and consulates general (ninety-one versus eighty-three).⁵² China has more posts in Africa, East Asia, the Pacific Islands, and Central Asia and is tied with the United States in the Middle East and South America. Reporting suggests that Chinese diplomats can be more adept at engaging with locals than the “wolf-warrior diplomacy” narrative of recent years would suggest.⁵³ Beijing has emphasized discourse power as an important aspect of China’s influence abroad and seeks to “tell China’s story well.”⁵⁴ As detailed by researchers at the Atlantic Council and elsewhere, this discourse power manifests in various forms, including partnerships with local media, ostentatious branding of Chinese projects, the establishment of Confucius Institutes, training centers, province-led international communication centers, and other programs that promote China-affiliated ideas.⁵⁵

These various connections—diplomatic, commercial, informational, and educational—provide Chinese actors with access to local institutions and leaders, as well as insight into development priorities in recipient countries. The definition of “local” in this context varies widely depending on government structure, leadership dynamics, accountability mechanisms, and public opinion. In some countries, central leaders are the primary decision makers, while in others, municipal policymakers, businesspeople, or community leaders hold greater influence. Regardless of the political structure, China has established mechanisms to assess development needs and identify potential synergies. Beijing has also demonstrated an ability to identify important areas of economic development for targeted countries and take action—whether through vanity projects for leaders or investments in export markets with political significance.

In BRI projects in Southeast Asia, for example, power-holder diplomacy (currying favor with top leaders) and aligning the BRI with a host country’s national strategy or a leader’s vision are two key approaches to generating demand for inducements.⁵⁶ These strategies highlight crucial aspects of how Beijing has pursued success in its economic statecraft. China has effectively communicated its vision for economic development—including through the BRI, Asian Infrastructure Investment Bank, and other lending institutions—to sympathetic and financially constrained countries. It has also identified critical needs, determined the most effective targets for inducements within domestic political environments, and assessed how these needs align with elite interests in recipient countries. In the Philippines, for example, Beijing actively supported the presidential candidacy of Rodrigo Duterte, who sought a break from the United States and actively courted BRI projects. Once elected, promises from China buttressed Duterte’s “Build, Build, Build” economic development campaign, including infrastructure projects focused on the then president’s home island of Mindanao.⁵⁷

These aspects of China’s economic statecraft—communication, identification, and assessment—are meaningless without the ability (or a credible promise) to deliver inducements in ways unmatched by Western countries or institutions. In some cases, this is a straightforward process. For example, Cambodia and Prime Minister Hun Sen received foreign aid in exchange for stifling opposition to China’s interests in the Association of Southeast Asian Nations (ASEAN), the region’s primary multilateral grouping. Similarly, as part of the Solomon Islands’ diplomatic switch to China in 2019, Beijing replaced a Taiwanese fund with its own and constructed a grant-funded sports stadium. Meanwhile, Beijing’s unfulfilled promises to Italy enticed Rome—frustrated with Europe’s lack of economic support—to join the BRI.⁵⁸

Many countries in the Global South require infrastructure and connectivity investment, an area where China’s project development model is often welcomed. In the Xi era, these projects fall under the BRI umbrella, though their core characteristics predate the initiative. As identified in a Council on Foreign Relations Independent Task Force Report on the BRI, these characteristics include state backing and access to cheap credit for Chinese companies, state-owned commercial and policy banks directed by Beijing to embrace BRI projects, a lack of concessionary terms (at least in the contract) that make loans more accessible, and an eagerness to launch projects quickly—often to minimize financial viability assessments or ESG transaction costs.⁵⁹ Together, these factors enable Chinese projects to move swiftly from planning to construction, with a high tolerance for risk.

Need for further study

Important work has been done to better understand China’s economic statecraft, including valuable scholarship on China’s non-conditional economic engagement and its resulting influence. Yet little attention has been given to how China uses targeted economic incentives to address the immediate development and economic needs of recipient states and, through these measures, alters their policy behavior to align with Beijing’s geopolitical goals.

Since 2016, eleven nations have recognized Beijing, leaving Taiwan with only twelve remaining diplomatic partners. Perhaps most notably, Beijing has successfully enticed several of Taiwan’s diplomatic partners to switch recognition to China by offering public economic incentives that Taiwan and its Western partners choose not to match.⁶⁰ The president of Paraguay, which continues to recognize Taiwan, made this dynamic explicit when he requested $1 billion in investment from Taipei to help resist Chinese pressure.⁶¹ Inducements are an ideal mechanism for enticing Taiwan’s partners to switch, as they align with Beijing’s self-professed support for developing countries and are less likely than coercion to provoke domestic resistance in the recipient country. Taiwan’s diplomatic partners are all small, developing nations, where a relatively small amount of inducements can have a significant impact. There is little doubt that Beijing will continue to use inducements to erode Taiwan’s remaining diplomatic relationships and will press its advantage unless countered by a deliberate effort.

Beijing has also successfully used inducements to gain influence in multilateral fora and shape proceedings in its favor. In Southeast Asia, China is often, and rightly, criticized for its belligerent tactics in the South China Sea; at the same time, it has managed to forestall a strong regional response through the targeted use of inducements to key players in ASEAN, the region’s consensus-based organization.⁶² Both Cambodia and the Philippines, for example, have moderated their criticism of China or supported its positions based on promised and delivered inducements.⁶³ China appears to be using a similar playbook in the Pacific Islands, where substantial pledges of investment and aid have helped Beijing advance its policy preferences among members of the Pacific Islands Forum.⁶⁴ Farther afield, China has invested in Central and Southern Europe in an effort to weaken anti-China sentiment in the EU, though with less success.⁶⁵

In addition, Xi seeks both domestic and international legitimacy through grand, large-scale initiatives. The BRI is the most obvious example, and more recently, China has sought support for its GDI and GSI.⁶⁶ While these programs have served as vehicles for inducements, Beijing also uses economic incentives to entice noncommittal countries to sign on, bolstering the Chinese party-state’s political legitimacy at home and abroad. When Italy joined the BRI in 2019—the first Group of Seven (G7) government to do so—the move was highly touted by Beijing. Italy’s leaders were lured by promises of trade and investment, but the benefits were scarce. Italy withdrew from the initiative in 2023.⁶⁷

The following two chapters will examine episodes in which China has successfully—or unsuccessfully—used positive incentives to induce desired changes in policy. Chapter 3 takes an in-depth look at the circumstances of Taiwan’s recent diplomatic losses and the prospects of maintaining its remaining partners; it concludes by addressing arguments about the relative importance of the formal diplomatic relations. Chapter 4 reviews several additional cases, expanding on China’s efforts in ASEAN, Italy, and other countries. Beijing’s use of quid pro quo inducements to achieve strategic goals should be of great concern to the United States as Washington seeks to counter Chinese influence.

Both China’s supply of positive inducements and the recipient country’s demand are necessary components of Beijing’s economic statecraft. Beijing has demonstrated a sensitivity to the political motivations and institutions of recipient countries that influence the acceptance or rejection of its strategic inducements. Further research into the development of China’s economic inducements—including communication of offers, identification of elites, and assessment of domestic needs, in addition to promise and delivery—would help shed light on how China is achieving strategic success and what factors the United States should prioritize in crafting an effective response.

Chapter 3: Taiwan’s fight for diplomatic recognition

The governments of China (the People’s Republic of China) and Taiwan (the Republic of China; ROC) have competed for diplomatic recognition since the Kuomintang (KMT) fled to Taiwan in 1949. Initially, both sides considered themselves the sole legitimate government of China, though today only Beijing holds this position.⁶⁸ No country maintains official diplomatic relations with both simultaneously.⁶⁹ Taiwan held a coveted permanent seat on the United Nations Security Council since the world body’s founding in 1945 until China took over the position in 1971. Most countries have since switched recognition from Taiwan to China, including the United States in 1979. For the next few decades, Taipei and Beijing engaged in a competition over diplomatic recognition, with China gradually gaining the upper hand.⁷⁰ This contest was termed “dollar diplomacy” (sometimes referred to as “checkbook diplomacy”) under the late Taiwanese president, Lee Teng-hui (1988–2000), a term now viewed as a derogatory in both Taiwanese and Chinese discourse.⁷¹

In 2008, Taiwan’s election of President Ma Ying-jeou (2008–16)—a member of the KMT, which at this time advocated for a more reconciliatory approach toward China—eased Taiwan and China into a “diplomatic truce.” Beijing hoped that improved cross-strait relations under Ma would show the benefits of closer political ties between Taipei and Beijing and pave the way for unification. Beijing went so far as to reject efforts by Taiwan’s diplomatic partners to switch recognition.⁷²

This truce held until the 2016 election of the Democratic Progressive Party’s (DPP’s) Tsai Ing-wen (2016–24) as Taiwan’s president. Tsai and the DPP were viewed negatively in Beijing as advocates of independence, though the former president professed a desire to maintain the status quo.⁷³Regardless of the truth, Beijing sought to convince Taiwanese citizens that the DPP was unable to protect Taiwan, often resorting to coercive tactics in bilateral relations, including cutting off all communication, conducting naval exercises around the island, and imposing trade and travel restrictions.⁷⁴ The CCP has continued and expanded these tactics following the election of the DPP’s Lai Ching-te in 2024.⁷⁵

China’s measures against Taiwan under DPP leadership have included poaching Taipei’s diplomatic partners. At the beginning of the Ma administration, Taiwan was recognized by twenty-three countries; as of early 2025, that number has shrunk to twelve (including Vatican City), with eleven countries recognizing China since Tsai’s election. These countries are The Gambia, São Tomé and Príncipe, Panama, the Dominican Republic, Burkina Faso, El Salvador, the Solomon Islands, Kiribati, Nicaragua, Honduras, and Nauru. How has China been able to convince so many of Taipei’s diplomatic partners to change allegiance?

The key to Beijing’s success lies in the use of positive economic inducements, buttressed by the promise of economic growth and investment. While additional variables are at play—including “subversive carrots,” coercion, and personal ties—recent switches have been accompanied by lavish promises of aid, investment, and trade. As with many of China’s economic overtures and promises, exact numbers are difficult to parse—and delivery is even more difficult to ascertain. Still, the majority of switches have occurred with an identifiable set of economic incentives attached, including trade agreements, infrastructure deals, investment promises, grants for specific purchases, and contributions to political funds. These incentives often meet domestic economic development needs that offer the host government—whether democratic or autocratic—the opportunity to boast of its ability to deliver public goods and services to its population. Many of the diplomatic switches came in close proximity to elections, as noted in each vignette described below.

This ability to trumpet broader benefits to a country’s population is one reason that corruption and “subversive carrots” are—if present—typically part of a larger package of promises. Allegations of corruption are present in several of the poaching case studies, though it is worth noting that Taiwan has also been accused of engaging in questionable tactics.⁷⁶ Personal gain and corruption can push a policymaker or politician into taking a policy position that benefits China, but in most political systems—even authoritarian ones—citizens (as well as businesspeople and other policymakers) have some expectation that the public will benefit from the policy in question. When it comes to China, this means there is usually a public good on offer, which can include promises of loans, investment, trade, and/or grants in support of infrastructure projects.

These offers are particularly attractive because of the underlying economic dynamics at play. Countries considering a switch cannot ignore the pull of China’s market—particularly in relation to Taiwan’s.⁷⁷ Open access to Chinese trade flows, investment, and aid is enticing on its own, and many of Taiwan’s former partners had commercial ties with Chinese companies and individuals in the years prior to switching diplomatic recognition.

Case studies

Taipei is currently left with twelve remaining diplomatic partners. Between 2000 and 2008—the start of the temporary truce in the diplomatic contest during the Ma administration—eight countries switched recognition: Macedonia (2001), Liberia (2003), Dominica (2004), Grenada (2005), Senegal (2005), Chad (2006), Costa Rica (2007), and Malawi (2008).⁷⁸ Since the pause ended in 2016, eleven additional countries have recognized China at Taiwan’s expense.

The vignettes that follow describe the circumstances of each of the eleven countries that have switched recognition since Tsai’s election, including reported amounts of inducements and any domestic political development in these countries. In pursuit of analytical clarity, these descriptions focus on changes in diplomatic recognition after The Gambia in 2016. Restricting the analysis to this period keeps the ruling regimes in China (Xi) and Taiwan (DPP) constant. These vignettes emphasize developments in China and Taiwan’s relationship with each country, primarily in relation to the switch in recognition. Put together, these case studies offer a systematic analysis of China’s strategy and the circumstances surrounding each switch. Each vignette begins with a quote—their purpose is to highlight the precariousness of Taiwan’s position, not to call out the politicians who made these statements.

Following these discussions, the next section reviews Taiwan’s remaining partners to assess China’s efforts in those countries and the likelihood of a diplomatic switch in the foreseeable future. The chapter concludes with a review of three common arguments as to why Taiwan should not concern itself with its formal partners—geopolitics, economics, and values—and offers two reasons that Taipei and Washington should have a vested interest in maintaining Taiwan’s formal relationships in their current state. In short, deterrence relies on China’s perception of Taiwan and the United States’ willingness to confront Beijing in attempts to degrade Taipei’s ability and willingness to uphold its sovereign rights. Taiwan’s international legitimacy is part of this larger calculus.

Nauru

“Nauru regards Taiwan as kin, standing firmly in our support and laboring hand-in-hand to advance democracy, freedom, peace, sustainability, stability, and economic growth in our region.” – Nauruan President Russ Kun during a national day celebration visit to Taiwan on October 9, 2023⁷⁹

Dates of switch: January 15, 2024 (break with Taiwan), January 24, 2024 (switch to China)
Reported ask of Taiwan: $83 million
Reported inducements from China: $100 million/year in aid
Post-switch agreements: Ten MOUs
Relation to domestic politics: President David Adeang (2024–) sworn into office on October 31, 2023, after a vote of no-confidence through parliament against Russ Kun (2022–23)

In January 2024, Nauru became the most recent country to switch allegiance from Taiwan to China. The move came just days after the election of the new Taiwanese president and was widely viewed as an expression of Beijing’s disapproval. The government of Nauru declared recognition of China as “in the best interests” of the country and its people. Media reported China’s promises to Nauru at $100 million a year, citing a senior Taiwan official.⁸⁰ Taiwanese media alleged that Nauru had asked Taipei for $83 million to cover the budget shortfall from the closing of Australia’s Regional Processing Centers for refugees.⁸¹ Nauru has since committed itself to its new relationship with China, and President David Adeang visited Beijing in March 2024.⁸² During the visit, the Nauruan president signed ten MOUs on a wide variety of areas, including economic development, trade, the BRI and GDI, banking, green and digital development, and media cooperation.⁸³

Nauru’s diplomatic switch came just a few months after Adeang’s predecessor was ousted in a no-confidence vote in October 2023. Former President Russ Kun had been supportive of his government’s relationship with Taiwan, and the no-confidence vote raised uncertainty in Taipei regarding the next president’s stance. Initially, Adeang was viewed as largely supportive of Taiwan, and concerns over a potential switch were mollified when Nauru accepted a new Taiwanese ambassador in December 2023.⁸⁴

Major Chinese firms were involved in Nauru for some time prior to the switch. China Harbour Engineering Company (CHEC), a major Chinese state-owned construction firm, was leading the redevelopment project for Aiwo port, supported by the Asian Development Bank (ADB), and slated to be completed in 2025.⁸⁵ Australian authorities noted “suspicious” payments from CHEC flowing to a Nauruan official who pushed for the diplomatic switch.⁸⁶ The Aiwo project was noted at the March 2024 state visit to Beijing as one area in which to deepen cooperation. CHEC also has a solar farm project in Nauru.⁸⁷ In 2021, Nauru had helped scuttle a proposal from a Huawei subsidiary to build an undersea communications cable to connect Nauru to an Australian network.⁸⁸

Despite the diplomatic switch, China’s dominant influence in Nauru is far from assured. In December 2024, Nauru and Australia signed an agreement declaring the two sides have to mutually agree on any engagement in Nauru’s security, banking, and telecommunications sectors, as well as other critical infrastructure.⁸⁹ The pact—coming after China has pushed security and policing agreements in other Pacific Island countries—is a significant hold on Beijing’s encroaching influence. With a population of 12,500, Nauru depends on Australia for development assistance and banking services and generates much of its revenue from fishing licenses.

Nauru had previously recognized China between 2002 and 2005, for which it was promised $137 million in grants and debt repayment from Beijing.⁹⁰ In exchange for switching back to Taipei—an example of “yo-yo diplomacy”—Taiwan funded Nauru’s purchase of a Boeing 737 jet in 2006.

Honduras

“We hope to deepen such friendship and diplomatic ties ….” – Honduran President Juan Orlando Hernández during a surprise visit to Taiwan on November 13, 2021⁹¹

Date of switch: March 26, 2023
Reported ask of Taiwan: Up to $2.5 billion for debt relief and hospital and dam construction
Reported inducements from China: Promised FTA and investments for dam construction
Post-switch agreements: FTA negotiations, multiple feasibility studies for dam projects, $276 million for education infrastructure
Relation to domestic politics: January 2022 election resulting in change in Honduran presidency and party in power

During her campaign for office, Honduran President Xiomara Castro (2022–) pledged to pursue a diplomatic switch, in contrast to the policies of her predecessor, Juan Orlando Hernández (2014–2022).⁹² She initially pulled back from that position when she took office in January 2022 (in part due to US pressure), but over a year later, Castro fulfilled her promise in March 2023, despite US efforts to prevent the decision.⁹³

There were multiple signs that a switch was in the offing. At a January 2023 meeting between the Honduran foreign minister and Chinese vice minister, during the inauguration of Brazil’s president, the two sides explored the possibility of Chinese financing for the Patuca II hydroelectric dam project.⁹⁴ Chinese financing (Industrial and Commercial Bank of China; $300 million in 2013) and construction (PowerChina, through its subsidiary SinoHydro) had already built the 104-megawatt Patuca III Hydropower Station, completed in 2020; Chinese media reported it was the first time Chinese financing had been used in a country without diplomatic relations with China.⁹⁵ PowerChina completed construction on the 60-megawatt El Arenal Hydropower Station in 2022.⁹⁶ In February 2023, the Honduran foreign minister again declared that the government was looking for, “in this vision of generating more energy capacity for the country, is for [China] to finance Patuca II.”⁹⁷ Taiwan responded by expressing “grave concern” and warning of Beijing’s “false promises.”⁹⁸

Reports on Honduras’s demands from Taiwan to prevent the switch vary widely. Honduras was rumored to have asked Taiwan to purchase $2.5 billion of its sovereign debt.⁹⁹ The Honduran foreign minister stated that the country had asked Taiwan to double its annual aid package (from $50 million to $100 million) and to consider “realigning” its $600 million in debt to Taiwan.¹⁰⁰ Honduran officials confirmed a request for $2 billion in loans, while then–Taiwanese Foreign Minister Joseph Wu also highlighted requests for $45 million to build a hospital and $300 million for a dam. (These figures were later raised to $90 million and $350 million, respectively.)¹⁰¹ After the switch, Tsai stated that her government would not “engage in a meaningless contest of dollar diplomacy with China.”¹⁰²

Despite the shift in recognition, Honduras has yet to see significant benefits, though there are signs of progress.¹⁰³ A June 2023 visit to China by Castro saw Honduras join the BRI and sign the usual assortment of cooperation documents. The Honduran president also requested her country be admitted to the BRICS-led New Development Bank (though Honduras is not listed on the bank’s website as of February 2025).¹⁰⁴ In July 2023, the Honduran government pursued investment for a $20 billion rail line connecting the country’s Atlantic and Pacific coasts and began negotiations on an FTA, which resulted in an “early harvest” arrangement in February 2024 as talks continue.¹⁰⁵ A March 2024 agreement yielded $276 million in funds to boost education infrastructure.¹⁰⁶

In September 2024, the mayor of the Honduran capital, Tegucigalpa, signed an agreement with China Civil Engineering Construction Corporation to carry out an evaluation for the Río del Hombre dam, with an estimated investment of $500 to $550 million.¹⁰⁷ An October 2024 visit by Honduras’s energy secretary to Beijing yielded agreements on completing the Patuca III and feasibility studies for the Patuca II-A, as well as a study of the country’s electrical system.¹⁰⁸ In December 2024, the energy secretary met with representatives of the Industrial and Commercial Bank of China to discuss possible financing for the new dam and refinancing options for the country’s debt.¹⁰⁹

During the first administration of US President Donald Trump, Honduras signaled its openness to a diplomatic switch from Taiwan to China, citing the United States’ retreat from investment and aid pledges.¹¹⁰ The Trump administration had ordered that aid be withheld from El Salvador, Guatemala, and Honduras as a response to a surge in asylum seekers, though aid was restored after reaching immigration agreements.¹¹¹

Nicaragua

“We’re still engaged in this battle, which is a just battle, one of principles, so that the people of Taiwan continue to be incorporated in international organizations attached to the United Nations.” – Nicaraguan President Daniel Ortega on January 10, 2017¹¹²

Date of switch: December 9, 2021
Reported ask of Taiwan: N/A
Reported inducements from China: Vaccines
Post-switch agreements: MOUs, FTA, infrastructure projects
Relation to domestic politics: Presidential election in November 2021 (won by the incumbent) and repression, resulting in condemnation from Washington

Nicaragua’s switch in December 2021 was presaged by a downturn in relations between the United States and the administration of President Daniel Ortega (1979–90, 2007–), a longtime revolutionary and antagonist of the United States. Sanctions against Nicaraguan officials and criticism of the country’s November 2021 election from the administration of then–US President Joe Biden made a turn toward Beijing for aid and investment the most likely course of action.¹¹³ The Organization of American States, the EU, and others condemned the election as illegitimate and repressive.¹¹⁴ Managua’s switch came on the first day of Biden’s Summit for Democracy (to which Nicaragua was not invited).

The initial switch did not appear to come with significant promises—likely because Nicaragua had few alternatives in combating its international isolation—though the day after the announcement, the Chinese government agreed to send one million doses of COVID-19 vaccines. Cooperation later picked up with the signing of MOUs, an FTA (that came into force in 2024), and infrastructure projects.¹¹⁵ Nicaragua has received significant investment from Chinese companies, including involvement in the gold mining industry, construction of a new airport, and development of Nicaragua’s National Emergency Response System.¹¹⁶ In 2023, the China International Development Cooperation Agency began a $60 million housing project.¹¹⁷

Nicaragua—and Ortega—has a lengthy history of switching sides. During Ortega’s first presidency, Nicaragua switched recognition to China in 1985, until his successor restored ties with Taiwan in 1990.¹¹⁸ Upon his election in 2007, Ortega maintained relations with Taiwan, possibly in deference to Beijing’s diplomatic truce with Taiwan’s Ma. During this period, Ortega’s government notably welcomed engagement with Chinese businesses.¹¹⁹ In 2013, for example, Nicaragua granted a Chinese company a concession to construct an interoceanic canal at an initial cost of $40 billion.¹²⁰ Despite Ortega’s increasingly repressive rule leading up to the 2021 election, Taiwan remained a loyal and financially generous supporter.¹²¹

Kiribati

“We are one family and we therefore call on an inclusive approach to have Taiwan participate in international processes and to allow it to contribute to address areas of concerns to this UN body and the implementation of the Sustainable Development Goals.” – Kiribati President Taneti Maamau speaking during the seventy-second session of the United Nations General Assembly in New York on September 28, 2018¹²²

Dates of switch: September 20, 2019 (break with Taiwan), September 27, 2019 (switch to China)
Reported ask of Taiwan: Commercial aircraft
Reported inducements from China: Commercial aircraft (Boeing 737), cash payments to parliamentarians
Post-switch agreements: MOUs on climate change, fisheries, tourism; integration of BRI in development plan
Relation to domestic politics: President Taneti Maamau sought support for Kiribati’s development plan prior to the June 2020 election, amid concerns over Chinese and Taiwanese funds supporting candidates on both sides of the general election

Kiribati President Taneti Maamau’s decision to switch recognition to China came as a surprise to many, though some concerns emerged in the lead-up. In November 2018, for example, a member of parliament—spurred by joint venture projects between Kiribati and Chinese companies—expressed concern that Maamau’s government might end diplomatic relations with Taiwan.¹²³ In the years preceding the switch, China had invested heavily in Kiribati’s tuna fishing industry, a key area of the government’s economic development strategy, Kiribati Vision for 20 Years: 2016–2036 (KV20).¹²⁴

First elected in 2016 with a pledge to retain ties with Taiwan, Maamau did not consult members of his party, the Tobwaan Kiribati Party, before switching recognition, prompting thirteen members to leave and form their own party.¹²⁵ Banuera Berina, the leader of the newly formed Kiribati First Party, ran on a pro-Taiwan platform in the June 2020 elections, which were widely seen as a referendum on the switch and which Maamau won.¹²⁶ The presidential vote was marred by accusations of Chinese meddling and interference from the opposition Kiribati First Party, though the cited examples included community and school visits from Chinese diplomats and the distribution of T-shirts and hats.¹²⁷ Post-election reporting quoted opposition candidates as claiming China “doled out A$250,000 [around 170,000] cash within weeks of Kiribati’s recognition of Beijing.”¹²⁸ Berina claimed that Maamau assured parliamentarians worried about losing their seats over the switch that “we will be getting campaign money from China.”¹²⁹ Maamau’s ruling party also feared that Taiwan would provide funds to Berina’s opposition during parliamentary and presidential elections. When previously in opposition (2003–16), the Tobwaan Kiribati Party had often complained that Taipei funded ruling party parliamentarians.¹³⁰

In response to the switch, Wu, then Taiwan’s foreign minister, highlighted a request from Maamau for “massive financial assistance” to purchase a commercial aircraft, which he said was inconsistent with Taiwan’s international aid law.¹³¹ Kiribati reportedly paid $60 million for one aircraft and was seeking a second, paid for with a Taiwanese grant.¹³² (Taipei countered with an offer of a preferential commercial loan, which was rejected.¹³³) Taiwan claimed that the Chinese government promised to procure several airplanes and commercial ferries for Kiribati in exchange for switching recognition.¹³⁴ A senior Taiwanese official said Kiribati had requested loans and a Boeing 737 aircraft from Beijing.¹³⁵

In October 2019, Maamau argued that Taiwan had done little to advance Kiribati’s development plan. The president stated that Taiwan had rejected many of his government’s proposals and should not have been surprised by the switch. He further claimed that the switch was conducted transparently, noting that the June 2020 general elections would give Kiribati citizens the opportunity to vote on the decision.¹³⁶ Soon after, Maamau embarked on a weeklong state visit to Beijing, where he signed a BRI MOU. The visit also included commitments to pragmatic cooperation on climate change, fisheries, and tourism, as well as the integration of the BRI with KV20.¹³⁷

Solomon Islands

“Despite the contributions of Taiwan towards the well-being of the citizens of the world, we continue to ignore the right of Taiwan to self-determination, as such, it is high time that this august body give due recognition to Taiwan as a legitimate member of the Family of Nations.” – Solomon Islands Prime Minister Manasseh Sogavare during the seventy-second session of the United Nations General Assembly in New York on September 22, 2017¹³⁸

Dates of switch: September 16, 2019 (break with Taiwan), September 22, 2019 (switch to China)
Reported ask of Taiwan: Possible bribes
Reported inducements from China: Possible bribes, $8.5 million in development funds to replace Taiwanese support, $500 million in aid, additional investment promises
Post-switch agreements: $825 million for gold mine, $110 million in assistance associated with hosting 2023 Pacific Games
Relation to domestic politics: Diplomatic ties with Taiwan reassessed after April 2019 elections

The Solomon Islands severed its thirty-six-year relationship with Taiwan in September 2019. The switch followed a change in leadership after the April 2019 elections and the reelection of Prime Minister Manasseh Sogavare for a fourth non-consecutive term. The move reignited inter-island disputes between the main island of Guadalcanal, where the capital Honiara is located, and the less-developed Malaita.¹³⁹

The change in diplomatic recognition came after a post-election review by a parliamentary bipartisan task force. Appointed in June 2019 and reportedly biased in China’s favor, the task force recommended the switch, in part because of the increased financial assistance and infrastructure development China could offer.¹⁴⁰ A competing report by the parliament’s Foreign Relations Committee, released on November 26, 2019, argued instead that the Solomon Islands should “deepen its relationship with the Republic of China (Taiwan) instead of severing existing ties.”¹⁴¹

There were numerous reports of Chinese offers to the Solomon Islands, underpinned by an already strong economic relationship, including China’s role as a key export market, investment from private businesses, and Chinese migrants.¹⁴² A Solomon Islands lawmaker reported that Beijing had offered $8.5 million in development funds to replace Taiwanese support.¹⁴³ Taiwanese sources claimed that China had promised $500 million in financial aid if the switch was completed before October 1.¹⁴⁴ A month later, Chinese companies announced a proposed $825 million gold mine and infrastructure project, led by the state-owned China State Railway Group.¹⁴⁵ A secretive deal between a provincial Solomon Islands government and a Chinese company to lease an entire island—signed just days after the switch—was quickly scuttled by the national government. However, it raised further questions about China’s ambitions and any negotiations that may have occurred before the change in recognition.¹⁴⁶

Before the switch, politicians in the Solomon Islands were reportedly offered large bribes from both Taiwan and China in exchange for their support.¹⁴⁷ Approximately 70 percent of Taiwan’s aid to the Solomon Islands was funneled through Rural Constituency Development Funds (RCDFs), which offered direct payments to individual politicians to be distributed to constituents at their whim. In 2017, these funds totaled $29.3 million.¹⁴⁸ RCDFs were viewed negatively in some quarters as meddling in the Solomon Islands’ political affairs.¹⁴⁹ China has established similar funds through the Rural Sustainable Development Program. However, experts note that recent reforms have redirected these funds through the Ministry of Rural Development, though concerns remain that money is still being allocated to politicians who support China’s policies.¹⁵⁰

In May 2018, Taiwan offered the Solomon Islands a loan of $30 million to support the hosting of the 2023 Pacific Games.¹⁵¹ At the time, Wu, Taiwan’s foreign minister, dismissed concerns from Taiwanese legislators that the government was restarting a diplomatic bidding war. After the switch, China took over assistance for the Pacific Games, developing seven sports facilities and contributing an estimated $110 million—about half of the total cost.¹⁵²

El Salvador

“We are grateful for President Salvador Sánchez Cerén’s ongoing support of Taiwan. Under his leadership, I am confident our friendship and cooperation with El Salvador will continue to deepen.” – Taiwanese Foreign Minister Joseph Wu during a meeting with the Salvadoran president on July 13, 2018¹⁵³

Date of switch: August 21, 2018
Reported ask of Taiwan: Loans for Port of La Unión development project, “astronomical sums,” funding for ruling party’s election campaign
Reported inducements from China: 3,000 tons of rice
Post-switch agreements: $150 million, plus investment promise for thirteen infrastructure projects (November 2018); loans for the Port of La Unión development project; funding for the ruling party’s 2019 election campaign
Relation to domestic politics: Switch occurred six months before February 2019 election, in which incumbent party lost

El Salvador recognized China in August 2018, with an initial delivery of 3,000 tons of rice, followed by a November promise of $150 million toward thirteen infrastructure projects.¹⁵⁴ The diplomatic switch occurred six months before a February 2019 presidential election, in which the incumbent leader, Salvador Sánchez Cerén (2014–19), lost to President Nayib Bukele (2019–). After the election, Bukele criticized Beijing for intervening in El Salvador’s politics and even threatened to cut diplomatic ties with China.¹⁵⁵

Wu, then Taiwan’s foreign minister, indicated that El Salvador had requested loans for the Port of La Unión development project, which Taiwanese engineers deemed economically unfeasible.¹⁵⁶ He claimed the request was an “astronomical sum” and included funding for the ruling party’s campaign in the 2019 election.¹⁵⁷ Sánchez Cerén, who lost the 2019 election, denied the accusations.¹⁵⁸

Overall, engagement between China and El Salvador has appeared underwhelming, though El Salvador received $500 million in infrastructure promises and gifts—including a stadium, a national library, and an improved water treatment facility—during Bukele’s state visit to China in December 2019.¹⁵⁹ Notably, just days after the switch in 2018, China began negotiations with the Port Executive Autonomous Commission of El Salvador, and a Chinese company expressed interest in investing $100 million in the port and surrounding area. However, El Salvador ultimately cancelled the planned development in January 2020 when Japan threatened to withdraw $102 million in development assistance.¹⁶⁰

Burkina Faso

“Taiwan is our friend and our partner. We’re happy and we see no reason to reconsider the relationship.” – Burkina Faso Foreign Minister Alpha Barry in January 2017¹⁶¹

Dates of switch: May 24, 2018 (break with Taiwan), May 26, 2018 (switch to China)
Reported ask of Taiwan: New hospital
Reported inducements from China: $50 billion, hospital, take over Taiwan’s projects
Post-switch agreements: Hospital and Taiwan’s former projects, plus highway project (total estimate of $1.3 billion to $1.75 billion)
Relation to domestic politics: Reports of reassessment of relations with Taiwan after the election of a new president in November 2015

Burkina Faso, which switched in May 2018, had a history of “yo-yo diplomacy.” The African country first established ties with Taiwan in the 1960s, changed to China in 1973, and returned to Taiwan in 1994.¹⁶² A 2014 uprising against then–President Blaise Campaoré (1987–2014), who had overseen the recognition switch to Taiwan in 1994, led to debate and reevaluation of Burkina Faso’s relations with Taipei.¹⁶³ The 2018 decision came as a surprise, though the government of then–President Roch Marc Christian Kaboré (2015–2022) had been attempting to extract benefits from both Taiwan and China.

Concerns about Burkina Faso’s position on Taiwan arose prior to the switch, including speculation in Burkinabé media, the president’s refusal to meet with Tsai the month before, and the African country’s unwillingness to advocate for Taiwan’s inclusion in the World Health Assembly.¹⁶⁴ Reports suggest that economic factors played a particularly important role in the government’s ultimate decision to switch. China’s expanding business and economic ties, including investments in Burkina Faso’s mining sector, undercut Taiwan’s largely traditional approach to official development assistance.¹⁶⁵

In April 2016, Huawei was negotiating with Burkinabé officials to deploy 5,400 kilometers of fiber-optic cables across the country, with around $82 million in financing, 60 percent of which came from the Bank of China.¹⁶⁶ Construction began in December 2017, targeting 2,000 kilometers in the first stage of development. ¹⁶⁷ Even as Chinese companies and Beijing exerted pressure on the new government, Taiwan continued offering inducements to maintain ties. In September 2016, Burkina Faso received $47 million in subsidies from Taiwan for sectors like education, agriculture, and defense. However, an additional $23 million in requested funding for five projects was subsequently refused by Taipei.¹⁶⁸ A June 2017 gift of two Huey UH-1H helicopters was received warmly by Kaboré.¹⁶⁹

In 2017, Burkina Faso’s foreign minister suggested that the country was being offered $50 billion to sign on with Beijing but asserted that there was “no reason to reconsider the relationship” with Taiwan.¹⁷⁰ However, this declaration of friendship did not last long. Beijing promised to build a new hospital, take over Taiwan’s ongoing projects (the latter pledge worth $32 million), and open an embassy in Burkina Faso.¹⁷¹ An account from Le Monde reported that Taiwan had, in fact, been approached by the Burkinabé government about a new hospital project in late 2017, but China ultimately agreed to donate €91 million to finance the project.¹⁷² Additionally, students from Burkina Faso enrolled in Taiwanese universities were allowed to transfer to institutions in Hong Kong.¹⁷³

Later that year, a Chinese state-owned construction company pursued a contract to build a highway with an estimated total cost of $1.75 billion.¹⁷⁴ These incentives were not the only factor in Burkina Faso’s decision; scholars also point to Chinese restrictions on regional assistance—and the subsequent peer pressure—as contributing to the government’s decision.¹⁷⁵ In a February 2018 meeting in Brussels, Beijing declared that Burkina Faso’s ties with Taiwan were an obstacle to funding and cooperation with the G5 Sahel.¹⁷⁶

Dominican Republic

“We bring a cordial and friendly message from our President Danilo Medina, in which he expresses to you, Madam President Wen, his firm will for the Dominican Republic and Taiwan to continue deepening their diplomatic and commercial relations, as a sign of the friendship that unites our peoples.” – Dominican Foreign Minister Andrés Navarro to Taiwanese President Tsai Ing-wen at her inauguration on May 21, 2016¹⁷⁷

Date of switch: May 1, 2018
Reported ask of Taiwan: “Billions of dollars”
Reported inducements from China: Promise of as much as $824 million in development projects in October 2017, and a $3.1 billion pledge from Beijing,
according to a Taiwanese official after the switch
Post-switch agreements: Eighteen agreements, $600 million loan for power distribution upgrade
Relation to domestic politics: N/A, switch occurred in the middle of the second term of President Danilo Medina (2012–20)

The Dominican Republic flirted with a diplomatic switch for at least a year before the final decision was made. Then–Taiwan Foreign Minister David Tawei Lee warned in July 2017 that the Dominican Republic should resist Chinese pressure, cautioning that Chinese infrastructure projects typically bring their own machinery, materials, and workers.¹⁷⁸ In September 2017, Lee asserted that China had offered “very high figure” projects to entice Santo Domingo to switch recognition—promises he dismissed as “a very unrealistic dream, promises without solid fundamentals, like a check without funds.”¹⁷⁹His visit to Santo Domingo was supplemented by other Taiwanese officials, including a deputy foreign minister and the defense minister.¹⁸⁰ In November, Taiwan’s embassy reported “rumors that Beijing was offering the ally ‘billions of US dollars’” to switch.¹⁸¹

Officials from the Dominican Republic cited the potential growth in economic and trade links as one factor influencing their decision.¹⁸² In October 2017, Chinese companies showcased products at an event where a Chinese commercial representative suggested that China could invest as much as $824 million in development projects. On the same day, Taiwan donated military vehicles and two helicopters, reportedly worth over $30 million.¹⁸³ In January 2018, the foreign ministers of China and the Dominican Republic, along with those of El Salvador and Haiti, gathered at the ministerial meeting of the Community of Latin American and Caribbean States to discuss trade and economic issues.¹⁸⁴

After the switch in recognition was announced, a Taiwanese official claimed that Beijing offered the Dominican Republic $3.1 billion in investments and loans to convince the Caribbean nation to make the change.¹⁸⁵ This package reportedly included $400 million for a new freeway, $300 million for a natural gas power plant, and $1.6 billion for infrastructure projects. A November 2018 visit by then–Dominican President Danilo Medina to Beijing yielded eighteen agreements on infrastructure, finance, trade, investment, education, and tourism, as well as a Memorandum of Cooperation on the BRI and the Maritime Silk Road. The two sides also announced a $600 million loan from the China Export-Import Bank to upgrade the Dominican Republic’s power distribution.¹⁸⁶. However, the delivery of investment and promised trade benefits has not met the lofty promises made to the Medina government, and the 2020 election of Luis Abinader (2020–) as president of the Dominican Republic yielded a more cautious approach to Chinese engagement.¹⁸⁷

Panama

“Panama and China (Taiwan) maintain a historic relationship of cooperation.” – Panamanian President Juan Carlos Varela on his Twitter account on the occasion of Taiwanese President Tsai Ing-wen’s June 27, 2016, visit to Panama¹⁸⁸

Date of switch: June 12, 2017
Reported ask of Taiwan: N/A
Reported inducements from China: $1 billion for port development (agreed on before formal switch)
Post-switch agreements: Nineteen agreements, Panama joined BRI, multiple billion-dollar investments
Relation to domestic politics: N/A. President Juan Carlos Varela (2014–19) had long expressed his desire for a switch

Panama’s path to diplomatic relations with China began under President Ricardo Martinelli (2009–14), who expressed his desire to expand commercial opportunities between Panama and China in 2009. However, as explained to Panamanian Foreign Minister (and future president) Juan Carlos Varela in January 2010, the diplomatic truce between Ma and Beijing prevented any change despite this desire. Varela was elected president of Panama in 2014 and continued to push for relations with China, despite declarations in favor of Panama’s strategic relationship with Taiwan and a June 2016 visit by Tsai, the newly elected president of Taiwan. Negotiations between the Chinese and Panamanian governments were carried out in secret and at the pace desired by Beijing, culminating in a surprise announcement in June 2017.¹⁸⁹

Before the switch, the Chinese consortium Landbridge bought control of the Margarita Island port in the Colón Free Zone for $1 billion and agreed to construct the Panama-Colón Container Port. Work on the project, near the Atlantic entrance to the Panama Canal, began on June 7, 2017, just a week before Panama’s switch.¹⁹⁰ More broadly, Taiwanese sources indicated that China invested as much as $8 billion in the three months before the switch (and $25 billion in infrastructure projects in the prior three years).¹⁹¹

Panama’s formal recognition of China was followed by a flurry of deals. A meeting in Beijing between foreign ministers—at which the switch was formalized—yielded pledges of cooperation on issues ranging from investments to marine cooperation. Additionally, a visit to Beijing by Varela in November 2017 saw the signing of nineteen agreements and MOUs.¹⁹² At the meeting, Panama became the first Latin American country to join the BRI. Chinese companies won bids to construct a $4 billion high-speed train, a $1 billion natural gas-fired power plant, and a $1.4 billion bridge over the Panama Canal, among other projects.¹⁹³

The 2019 election of Laurentino Cortizo (2019–24) as Panama’s president reversed some of China’s fortunes, and fresh scrutiny of Chinese projects led to the cancellation of several initiatives, including the Margarita Island port and high-speed rail projects, as well as of negotiations on an FTA.¹⁹⁴ Other loans and investments, such as the Panama Canal bridge, have continued roughly as planned.

Panama’s recognition of China came as a wake-up call to Washington, where concerns over Panama’s expanding relations with Beijing led to recriminations and warnings. The US ambassador in Panama was alerted to the switch only hours before its announcement.¹⁹⁵ In the years since, as US-China competition in Latin America has increased, so too has US attention to Panama’s geopolitical position.

São Tomé and Príncipe

“São Tomé and Príncipe supports … initiatives which will make it possible for the people of Taiwan to make a significant contribution to international issues, without neglecting the necessity for the two parties in the Straits of Formosa to work peacefully to agree to, frame and normalize their relations.” – São Tomé and Príncipe’s Prime Minister Patrice Trovoada during the sixty-seventh session of the United Nations General Assembly in New York on September 28, 2012¹⁹⁶

Dates of switch: December 21, 2016 (break with Taiwan), December 26, 2016 (switch to China)
Reported ask of Taiwan: $140 million to $200 million
Reported inducements from China: $400 million to $800 million for deepwater port
Post-switch agreements: Minimal
Relation to domestic politics: July 2016 election of President Evaristo Carvalho (2016–21)

The West African island nation and former Portuguese colony changed its diplomatic allegiance in December 2016, the first to terminate relations with Taiwan under Tsai. Taipei was notified just five hours before the announcement was made.¹⁹⁷ Taiwanese officials accused Beijing of engaging in “dollar diplomacy,” taking advantage of São Tomé’s “financing black hole” to push its “One China” principle.¹⁹⁸ In its statement, Taiwan’s Ministry of Foreign Affairs pointed to the African country’s “excessive financial difficulties and demands beyond those the ROC could meet” as the reason São Tomé had “ignored 20 years of friendly diplomatic relations, playing both sides of the Taiwan Strait while holding out for the highest bidder.”¹⁹⁹

The switch came months after a contentious July 2016 presidential election in São Tomé and Príncipe, in which the opposition candidate, Evaristo Carvalho, defeated the incumbent Manuel Pinto da Costa (2011–16). Carvalho (2016–21) was a close ally of Prime Minister Patrice Trovoada (2014–18), both of the Ação Democrática Independente party. At the time, this suggested greater political stability as well as continued ties with Taiwan. The outgoing president had sought closer ties with Beijing and had visited China in 2014.²⁰⁰

Taiwan claimed that São Tomé and Príncipe requested $140 million (or perhaps as much as $200 million) to maintain relations with Taipei.²⁰¹ The African country had previously established diplomatic relations with Taiwan in May 1997. Taipei estimated aid to São Tomé at €155 million (approximately $170 million) since 1997 and signed an agreement in 2015 to provide €10 million (approximately $11 million) per year.²⁰² Carvalho campaigned on a promise to fight poverty and improve education and job prospects (São Tomé and Príncipe was 90 percent dependent on international aid) and later stated that the country could not miss out on Chinese development funds.²⁰³ At the time of the switch, Carvalho had two children enrolled in graduate education in Taiwan.²⁰⁴ Trovoada—the leader of the government—later signed a five-year cooperation agreement with Beijing in April 2017.²⁰⁵

The diplomatic truce during the Ma administration did not prevent China and São Tomé from expanding economic ties, allowing Beijing to showcase the possible benefits of a diplomatic switch. In 2013, China established a trade mission to promote projects, including a planned $400 million deep-water port.²⁰⁶ São Tomé signed an MOU with China in October 2015 for an $800 million port, though the project never got off the ground.²⁰⁷ Trovoada said about the project: “I need revenue to provide health and good quality education. We said let us go to a model where, if we have to raise some debt, it is a sustainable debt …. That is why we engaged with this Chinese company.”²⁰⁸

The Gambia

“Let me reiterate that The Gambia’s commitment to cementing the ties that bind our two nations and our resolve to stand steadfastly by your side in your quest to take your rightful place within the global community of nations will never wane.” – Gambian President Yahya Jammeh in an undated quote from a November 18, 2013, article describing Gambia-Taiwan relations²⁰⁹

Dates of switch: November 14, 2013 (break with Taiwan), March 17, 2016 (switch to China)
Reported ask of Taiwan: Increased foreign aid
Reported inducements from China: N/A
Post-switch agreements: N/A
Relation to domestic politics: Recognition of Beijing came before the December 2016 election, won by opposition candidate Adama Barrow (2017–) in an upset

The Gambia was the only country to break diplomatic ties with Taiwan during the Ma administration, reportedly after Taipei refused to increase foreign aid.²¹⁰. The move did not appear to be orchestrated by Beijing but was instead a personal decision by the authoritarian President Yahya Jammeh (1996–2017) and came despite Taiwanese funding of $1.15 million in August 2013 for a rehabilitation project and for six Gambians to study aeronautics in the United States.²¹¹ The Gambia had relations with Taiwan from 1968 to 1974, with China from 1974 until 1995, and Taiwan again from 1995 until 2013.²¹²

Beijing did not want to be seen as pressuring Taiwan during the Ma administration, waiting until March 2016 to formalize relations with The Gambia.²¹³ This date came after Tsai’s election in January but before her inauguration in May. This was likely meant as a signal that Beijing would take a hard line against Tsai and the DPP, which China perceives as pro-independence.²¹⁴ The reestablishment of ties also came months before a presidential election in The Gambia, which was both the freest in its history and surprisingly lost by the autocratic incumbent Jammeh. With the country in recession, the government was in desperate need of economic development.²¹⁵

Taiwan’s current partners and future prospects

China’s actions leave Taipei with eleven diplomatic partners, as well as Vatican City. The majority of these countries are in Latin America and the Caribbean: Belize, Guatemala, Paraguay, Haiti, Saint Kitts and Nevis, Saint Lucia, and Saint Vincent and the Grenadines. Taiwan has lost three of its six partners in the Pacific Islands but retains diplomatic ties with the Marshall Islands, Palau, and Tuvalu. In Africa, Eswatini is Taiwan’s only remaining partner. The Vatican is the only partner based in Europe. As Taiwan’s list has dwindled, these countries have faced continued and increasing pressure from China to switch relations.

When asked, Taiwan’s remaining partners are steadfast in their commitment to maintaining ties, but the statements of countries that have switched should prompt a degree of wariness. Sao Tomé, for example, had received substantial funds from Taiwan just months before it announced its switch. Nauru had been a staunch partner of Taipei until 2024. China has also taken advantage of long-standing domestic political strife in the Solomon Islands and electoral shifts in other countries.

Europe

The Vatican, though not enticed by the same economic benefits as other governments, has been rumored to be considering a switch if Beijing loosens its grip on Catholicism in communist China.²¹⁶ Pope Francis has sought rapprochement with Beijing during his time as pope, and China’s Catholics are divided between those loyal to the Vatican and those who subscribe to the state-controlled Catholic Patriotic Association. A 2018 agreement recognized seven excommunicated Chinese bishops who had been appointed by Beijing without the Vatican’s approval. The deal granted the Vatican input on the naming of bishops and gave the pope veto power over candidates.²¹⁷ More recently, in 2024, the Vatican sought to establish a permanent office in China and has been in talks to recognize the state-controlled Council of Chinese Bishops.²¹⁸ The Vatican’s recognition of Taiwan carries significant symbolic meaning, as it highlights the island’s commitment to religious freedom, provides moral backing, and makes the Holy See Taiwan’s only diplomatic partner in Europe.²¹⁹

Africa

In Africa, Eswatini—Taiwan’s last remaining diplomatic partner on the continent—has maintained relations with Taipei since gaining independence from the United Kingdom in 1968. Bilateral ties rely heavily on the personal rule of King Mswati III, who has thus far been a strong supporter of Taipei. Eswatini and Taiwan signed a bilateral economic cooperation agreement in 2008, renewing it in 2018 and again in 2023. The most recent extension included commitments by Eswatini to support Taiwan’s bid to join international organizations, alongside continued economic development assistance from Taipei.²²⁰ At the same time, Eswatini has cultivated economic ties with China, seeking trade and investment opportunities. Some media sources have characterized Taiwanese aid to Eswatini as a bribe to the king in exchange for his advocacy on Taiwan’s behalf at the UN General Assembly.²²¹ Future relations between Taiwan and Eswatini remain heavily dependent on King Mswati’s support—his crackdown on pro-democracy protests in 2021 elicited little reaction from Taipei, while the Eswatini opposition has expressed a preference for diplomatic ties with Beijing.²²²

Pacific Islands

Map 1. Taiwan’s current partners and countries that have recognized the PRC since 2016 (Pacific Islands)

In the Pacific Islands, Beijing has adopted a more aggressive playbook, including coercive tactics against Palau’s tourism industry. Palauan President Surangel Whipps Jr. (2021–)—reelected in November 2024 elections—seeks to expand tourist access by increasing flight routes to reduce reliance on Chinese visitors.²²³ In November 2017, Beijing banned state-run travel agencies from offering group package tours to Palau, resulting in a 22 percent decline in Chinese tourists that year.²²⁴ In subsequent years, Palau has accused Chinese actors of launching a cyberattack against its government systems, stealing tens of thousands of documents, and carrying out naval incursions into its exclusive economic zone.²²⁵ “I think if you want to be a partner with Palau, a friend of Palau, you don’t do it by force,” Whipps said.²²⁶

China’s actions toward Palau offer an opportunity for Taiwan, the United States, and others to strengthen their ties with the Pacific Island nation. Interviews with Palauan representatives highlighted the need for greater economic development initiatives from Taiwan and Western partners, especially in the face of Chinese pressure campaigns. Inattentiveness opens a door for Beijing or Chinese actors to meet Palau’s economic and development needs. In late 2023 and early 2024, as the US Congress debated and delayed the passage of new Compacts of Free Association (COFA) with Palau, the Marshall Islands, and the Federated States of Micronesia, Whipps made clear in a February 2024 letter that some politicians in Palau were open to accepting Chinese economic inducements and switching diplomatic recognition.²²⁷ China had reportedly offered to “fill every hotel room” and “$20 million a year for two acres for a ‘call center.’”²²⁸

The Marshall Islands has also been targeted by coercive and corrupt tactics through a complex scheme to establish a special administrative region.²²⁹The government of Marshallese President Hilda Heine (2016–20, 2024–) refused to back the plan, and she barely survived a vote of no confidence afterward. At least five Marshallese officials were accused of accepting bribes to support the no-confidence vote.²³⁰ Heine has been a strong supporter of Taiwan, declaring that “the bedrock of our relationship is our shared commitment to democracy and the rule of law. China has neither.”²³¹

These episodes were highlighted during negotiations with the United States over renewed COFA agreements. However, the delay in ratifying the agreements was poorly received—Heine went so far as to warn that relations with the United States were “gradually being destroyed by party politics.”²³² While the final ratification of the COFA agreements might suggest that Palau and the Marshall Islands are unlikely to switch diplomatic recognition to China, the Federated States of Micronesia has both a COFA agreement and relations with Beijing.

The third Pacific Island country that recognizes Taiwan is Tuvalu. It, too, has come under pressure from China, including through a $400 million project to build artificial islands to protect against rising sea levels.²³³ Relations with Taiwan were a campaign issue in the January 2024 elections, with the eventual winner, now Prime Minister Feleti Teo, proclaiming his commitment to Taipei. One incumbent member of parliament—and a contender for the prime minister role—had called for a review of Tuvalu’s relations with Taiwan, though not necessarily a full break.²³⁴

An agreement between Tuvalu and Australia—the Falepili Union, signed in November 2023 under Teo’s predecessor—underscores the importance of support beyond Taiwan and the United States countering China’s influence. The agreement promised Tuvalu resettlement rights due to climate change and provided investment in infrastructure projects, including an undersea telecommunications cable, and assistance in response to natural disasters, pandemics, and military aggression. In return, Australia secured a veto over any security or defense-related agreements Tuvalu might seek with other countries.²³⁵ Teo’s government negotiated a follow-on agreement in May 2024 to ensure Tuvalu’s sovereignty, with the agreement coming into force in August 2024.²³⁶

Current Taiwanese President Lai Ching-te (2024–) traveled to Taiwan’s three Pacific Island partners in late 2024, tagging on a trip to Hawaii and Guam.²³⁷ The trip carried added importance as Taiwan’s diplomatic partners have supported Taipei’s participation in the Pacific Islands Forum (PIF). The annual PIF Leaders Meeting is to be held in the Solomon Islands in 2025, where, in past fora, Beijing—and the Solomon Islands—have sought to sideline Taiwan despite its status as a “developmental partner.”²³⁸

Latin America

The government of Paraguay—Taiwan’s last partner in South America—is under growing pressure to switch allegiance. The administration of President Santiago Peña (2023–) and the conservative Colorado Party have expressed strong support for Taiwan, but commercial pressures and domestic politics raise questions about the future of the bilateral relationship. As part of its “One China” policy, Beijing does not trade directly with Paraguay, which exports beef and pork to Taiwan. Instead, Paraguay has to export these products to China through Brazil and Argentina. As discussed in an interview with a Paraguayan official, China has used its economic importance in Brazil to pressure Paraguay to switch recognition and has restricted Chinese engagement with Mercosur, a regional customs union, to build political pressure against Paraguay’s relationship with Taiwan.²³⁹

This economic pressure may be opening the door for China to exert more influence over Paraguayan politics. In August 2024, Peña expressed openness to trade deals with China via Mercosur.²⁴⁰ China’s nationalist Global Times advocated for a trade deal as well, stating: “The advantages that the Chinese mainland market and manufacturing can offer to Paraguay will significantly surpass the impact of Taiwan’s financial support. We trust that the Paraguayan government will make a prudent and wise decision.”²⁴¹ For the moment, Paraguay’s government has resisted the allure of Beijing’s offer of increased trade and a market for Paraguayan exports—but the domestic political strain on the Colorado Party is building.

Soon before leaving office, former President Mario Abdo Benitez (2018–23) stated that the Paraguayan people needed to see more benefits from their country’s partnership with Taiwan, advocating for a $1 billion investment in Paraguay. He contrasted this figure with an estimated $6 billion that he claimed Taiwan invested in countries that do not have diplomatic relations with Taipei.²⁴²

China’s economic and commercial pressure on Paraguayan firms and the Peña administration has built an opposition coalition in favor of abandoning relations with Taiwan. The current government’s main political opponent, Efraín Alegre, has called for a review of Paraguay’s relations with Taiwan.²⁴³ Barring an unexpected change by the current government, presidential elections in 2028 will be the next likely decision point for Paraguay’s citizens.

This dynamic makes US support for Paraguayan industries particularly important. Taiwan’s ability to import Paraguayan products is naturally limited compared to China’s, and the United States and other partners can help sustain the status quo by bolstering the South American country’s economy. Crucially, the goal is to support Paraguay’s relations with Taiwan—not to ensure the continued electoral success of the Colorado Party. In 2023, the US Department of Agriculture (USDA) completed a scientific review process and food safety audit, lifting restrictions on Paraguay beef imports that had been put in place due to a previous foot-and-mouth disease outbreak.²⁴⁴ In response, US senators from cattle-producing states raised concerns about health inspection standards of the imported beef, putting in danger Paraguayan beef exports to the US market.²⁴⁵ Underlying the health issue was anxiety over the economic impact of Paraguayan imports on domestic producers. Dismay over the possible overturning of the USDA rule was a key theme in interviews with Paraguayan officials conducted for this report in early 2024. However, since that time, the Senate resolution was not taken up by the House of Representatives, and Paraguayan beef imports exceeded expectations in 2024.²⁴⁶ Paraguayan government officials have expressed hope that the Trump administration will grant Paraguayan beef an import quota with preferential tariff treatment, as well as in areas such as technology investment. US Secretary of State Marco Rubio gave Paraguay reason for optimism when he stated during his January 2025 confirmation hearing that “it’s important to recognize allies in the region, like Paraguay, that have not flipped” their diplomatic ties from Taipei to Beijing.²⁴⁷

Guatemala is another partner that could be a candidate to switch.²⁴⁸ The country’s reformist government, under President Bernardo Arévalo (2024–), has committed to maintaining relations with Taiwan, but his administration faces pressure on both political flanks to shift allegiance to China.²⁴⁹ Guatemala hopes to expand trade with China; and Beijing has sought to leverage the limited trade that exists to pressure the Guatemalan government, including by suspending purchases of nuts and coffee from the Central American country in May 2024.²⁵⁰ China’s coercive measures provided Taiwan with an opportunity to help Guatemala, and Taiwanese officials subsequently called on businesses to buy Guatemalan coffee in support of their partner.²⁵¹

The government of Belize—geographically in Central America but part of the Caribbean Community—continues to support strong ties with Taiwan, which offered significant support during the pandemic. The two governments signed an Economic Cooperation Agreement in September 2020 (effective starting January 2022) that offers preferential treatment for each other’s exports.²⁵² Belize has advocated for Taiwan’s inclusion in the World Health Assembly and continues to host Taiwanese officials.²⁵³

The Caribbean

In the Caribbean, Taiwan’s status has received less media attention, even though the region has the greatest concentration of Taipei’s diplomatic partners. Haiti’s challenges with natural disasters, gangs, and governmental collapse have ensured that the contest between Taipei and Beijing is not top of mind, though both Taiwan and China have offered aid and investment.²⁵⁴ Taiwan’s relations with Saint Kitts and Nevis appear to be on firm ground, as politicians from both governments have exchanged visits in the past year.²⁵⁵ Saint Lucia has switched between China and Taiwan in the past, most recently recognizing Taiwan in 2007 following a change in government, just as its switch to Beijing in 1996 had occurred after a similar transition.²⁵⁶ Taiwan’s development projects there are well-received, though ultimately, Saint Lucia’s government is interested in which country has the most to offer the small island nation.²⁵⁷

In Saint Vincent and the Grenadines, the current government of Prime Minister Ralph Gonsalves (2001–) has expressed continued support for relations with Taiwan, and the country has maintained these relations under the leadership of both major political parties since 1981.²⁵⁸ However, in 2016, the opposition New Democratic Party announced that, if elected, it would switch diplomatic relations to China. (The party’s leader appeared to reverse this decision in 2023.)²⁵⁹ Gonsalves had expressed his own desire for increased private sector investment from Taiwan in 2017, noting that there was more investment from private Chinese firms than those from Taiwan.²⁶⁰ In 2023, Taiwan’s Export-Import Bank contributed $62 million in funding for a Port Modernization Project in Kingstown Port, together with the Caribbean Development Bank and the British government.²⁶¹

What does Taiwan have to gain?

There are important reasons to question the continued value of competing with China over Taiwan’s formal diplomatic partnerships. A (non-exhaustive) list of arguments includes the following: Taiwan should focus its efforts on protecting its international space in multilateral fora; non-partners are effective protectors of Taiwan; Taiwan should focus its diplomatic and geoeconomic efforts on non-allied countries through such initiatives as the New Southbound Policy;²⁶². it cannot afford to compete with Beijing financially; and some of Taiwan’s partners are illiberal regimes that do not align with Taiwan’s democratic standards.

This section will engage with three of these arguments, beginning with economic considerations in line with the focus of this report. It will then explain why Taiwan should actively seek to retain its existing formal partnerships. Lastly, it will discuss the deterrent value of Taiwan’s diplomatic ties for the United States and why Washington should work to galvanize economic and political support for Taipei and its diplomatic partners where appropriate.

Economics: Taiwan cannot compete with China economically and should not try to.

The argument most relevant to this study—and often highlighted in Taiwanese reporting and official statements—emphasizes China’s economic weight, which enables Beijing to offer overwhelming economic packages to entice diplomatic switches. As a much smaller entity, Taiwan is unable to compete with Beijing’s offer to its development-seeking partners. And if diplomatic ties are only about money, asked one KMT legislator back in 2016, “should we continue to spend large sums of money on those ties?²⁶³ There is no doubt that Taiwan’s economy pales in comparison to China’s, which makes Beijing’s restrictions on market access and its offers to expand trade and investment ties particularly potent. This underlying dynamic—the size and importance of China’s market for exports and as a source of investment, loans, and aid—is hard to discount and makes Beijing’s promises more enticing. At the same time, the economic benefit Taiwan derives from its diplomatic partners (in terms of trade) is small, especially when compared with its relations with other countries.²⁶⁴

A look at the amounts requested by Taipei’s former partners suggests that they are not completely out of reach: $83 million in aid for Nauru, an aircraft for Kiribati, and a new hospital for Burkina Faso. Some of the more outlandish figures reported as Chinese offers—“billions of dollars” in the Dominican Republic or “astronomical sums” in El Salvador—represent political messaging and exaggerated bargaining positions more than reality. Splashy investment promises from Chinese institutions are awarded over an extended period—such as promises of an FTA or increased trade flows, large infrastructure investments with long time horizons—and aid commitments often end up within shouting distance of the amounts requested from Taiwan. While fully acknowledging the risk of further extortion, meeting these demands—which often, but not always, serve legitimate development needs—can ensure that current diplomatic partners see economic value in retaining ties with Taipei. Taiwan has much to offer in trade and investment, particularly in concert with its larger informal partners, including the United States, Japan, Australia, European partners, and others. These countries have an interest in forestalling Beijing’s expanding influence and supporting Taiwan’s status on the world stage.

Much of Taiwan’s economic aid, development assistance, and technical support to its diplomatic partners is channeled through the International Cooperation and Development Fund (ICDF), which aims to promote socioeconomic development, enhance human capital, and provide humanitarian assistance in developing partner countries while strengthening ties with both diplomatic and unofficial partners.²⁶⁵ The organization focuses on cooperative projects in areas such as public health, education, information and communications technology, the environment, agriculture, and small and medium-sized enterprises.²⁶⁶ Taiwan’s model of foreign aid—including permanent technical missions—is commendable, and the ICDF deserves full credit for its work, not only with diplomatic partners but also in other countries.²⁶⁷ According to the November 2023 “White Paper on International Cooperation and Development Policies,” the “Taiwan Model” seeks to engage with local governments to assess their needs, deploy professional teams, and leverage domestic expertise to improve living conditions in partner countries.²⁶⁸

In recent interviews, Taiwanese Foreign Minister Lin Chia-lung has reinforced the importance of the “Taiwan Model” and rejected “checkbook diplomacy.” His vision for Taiwan’s foreign policy includes a commitment to values, expanding Taiwan’s involvement in supply chain resilience efforts—particularly in semiconductor technologies—and, of course, a focus on providing benefits to diplomatic partners.²⁶⁹

However, some of Taiwan’s partners, both current and former, feel that Taiwan could be doing more. The ICDF’s staff numbers only in the hundreds, and while its distributed aid is valuable, it remains relatively small—totaling $432 million in official development assistance in 2022.²⁷⁰ China’s investment in infrastructure and trade is viewed as a more likely path to domestic economic growth, and the Chinese government can direct state policy banks and encourage SOEs to pursue certain investments. When combined with the electoral and legitimacy concerns of those in power in Taiwan’s partner countries, Beijing’s offer can appear even more appealing.

Geopolitics: Taiwan has enough support from nondiplomatic partners that it does not need formal recognition.

Taipei has a robust set of informal relations that could blunt the impact of losing recognition from its remaining partners.²⁷¹ According to the Lowy Institute’s Global Diplomacy Index, Taiwan operates 110 overseas posts, ninety-six of which are unofficial trade and/or cultural offices.²⁷² Taiwan’s international legitimacy and status stems from these informal relationships, not its dwindling set of diplomatic relations with tiny states.²⁷³ These countries can also help Taiwan expand its international space and advocate for its inclusion in multilateral fora, making the presence of diplomatic partners less relevant. Taiwan or Taiwanese individuals have been blocked from participating in the World Health Assembly, the International Civil Aviation Organization Assembly, and a host of other UN meetings.²⁷⁴ However, both Taipei’s formal and informal partners have spoken up for its inclusion. Given that Taiwan’s diplomatic partners are relatively small, developing countries, support from non-official partners carries greater significance.

Still, there is both a moral and practical weight to this support. It is easier and more credible for China to dismiss US and Western backing for Taiwan when these countries do not formally recognize it. While the United States and other nations sometimes speak on Taiwan’s behalf, competing priorities and the fact that most governments do not recognize Taiwan blunt the impact of such statements. The countries that do recognize Taiwan have become its strongest advocates on the world stage and are the only ones willing to push for its inclusion in the UN General Assembly.²⁷⁵ There is value in continued focus and attention on this issue.

Values: Taiwan should focus on its own liberal democratic values.

Lastly, Taipei has a laudable commitment to liberal democratic norms and values-based foreign policy, which does not always match with the politics and actions of its diplomatic partners. This argument raises important questions about the geopolitical value of economic diplomacy and the trade-offs between preserving Taiwan’s status quo and benefitting illiberal regimes. Taiwan is well-established as a liberal democracy and is notably the only Mandarin-speaking entity that can make such a claim. Yet, at the same time, several of its diplomatic partners do not share this commitment to democratic norms. In the extreme, Eswatini’s monarchy and elites have greatly benefitted from relations with Taiwan, and Taipei’s only partner in Africa has remained steadfast despite Beijing’s efforts.²⁷⁶ In the past, Taiwan’s “dollar diplomacy” has been criticized for supporting corrupt, nondemocratic regimes or enriching those in positions of power.²⁷⁷ In the Solomon Islands, Taiwan has contributed to “constituency development funds” that can be seen as enabling corrupt practices, weakening criticism of China’s own funds—even as Beijing directs money only to politicians who support its policies.²⁷⁸

The reduction in Taipei’s diplomatic partners takes the sting out of some of these arguments, though an inherent dissonance can exist between a values-based foreign policy and national security concerns. Taiwan can and should continue to advocate for liberal and democratic norms—both through its existing relationships and as a national security necessity—while serving as a beacon to other governments that such change is worth pursuing. Taiwan’s approach to development aid, if supported by the United States and other nations that prioritize its international presence, offers one avenue through which to thread this needle.

Legitimacy and perception: The significance of retaining current formal diplomatic partners for Taiwan and the United States

Each of the arguments reviewed here independently suggests that Taiwan’s time and resources are better spent elsewhere. Together, they indicate that Taiwan should focus its economic, diplomatic, and geopolitical efforts on expanding its network of informal relationships. The legitimacy bestowed upon Taiwan by these formal diplomatic partnerships is perceived as not being worth the cost.

Given the growth of China’s economic engagement and geopolitical importance in the past forty years, it is no surprise that the trend of diplomatic switches heavily favors Beijing. Since Nauru’s switch in 2005, no country has recognized Taiwan at the expense of China, giving Taipei good reason to jettison “checkbook diplomacy.” Yet Beijing has updated its own policies, and though it retains a focus on leaders and elites—with the accompanying possibilities of corruption and coercion—China offers economic and development prospects that entice not only individuals in power but also the voters who (in some countries, at least) must elect those leaders.

The legitimacy that Taiwan gains from formal diplomatic recognition by other states in the international system is irreplaceable. Even though these partners represent only a fraction of the world’s population, their status as sovereign nations with full voting rights in the UN holds immense value in protecting and advocating for Taiwan’s shrinking international space. This is particularly significant given that most countries—including the United States—do not officially recognize Taiwan, even though many support Taipei’s status quo in other important ways, such as through arms sales, trade relations, and cultural offices.

Ultimately, Taiwan faces the prospect of state death through unification with China—peaceful or otherwise—and international legitimacy has been a key factor in determining state death or survival in previous eras. The more legitimate a state, the greater its likelihood of survival.²⁷⁹ This finding suggests that “states fearing for their survival should seek greater levels of international recognition,” with the author specifically pointing to Taiwan.²⁸⁰ Equally important, Beijing places high value on Taiwan’s diplomatic recognition. Cutting off Taiwan’s government from international legitimacy is just one more step in China’s long-running effort to claim the island as part of the CCP’s “One China” principle. Unification with Taiwan is a central legitimating and aspirational goal for the CCP, and the party must be seen as making progress on this front to maintain its domestic political grip on power.

For the United States, the significance of Taiwan’s diplomatic partners lies in their deterrent value. Deterrence relies on both the capability and resolve of the defender. A key factor in cross-strait deterrence—preventing Beijing from deploying the People’s Liberation Army (PLA) to forcibly seize control of Taiwan—is the military capability necessary to resist such an action. Taiwan cannot achieve this alone, making US and allied involvement essential to deterring China, whether through deterrence by denial or deterrence by punishment. Taiwan’s diplomatic partners—though small and geographically dispersed—would not play a central role in a crisis or conflict in the Taiwan Strait.

At the same time, the success of deterrence relies on the perceptions of the potential aggressor—in this case, China. To the extent possible, Beijing must come to the subjective perception that Taiwan and the United States have both sufficient capability and credible willingness to defend Taiwan or otherwise bear the costs of maintaining the status quo. China’s poaching of Taiwan’s diplomatic partners is just one more salami-slicing tactic, “using a long series of low-level aggressions to change the facts on the ground without ever taking action that would justify a major response.”²⁸¹ Chinese military forces have employed similar tactics in the South China Sea and around Taiwan itself. While not martial in nature, poaching diplomatic partners presents a similar conundrum. Taken together, these actions slowly erode Beijing’s belief that Taiwan, the United States, and their partners have a credible commitment to protecting Taiwan from PLA encroachment.²⁸²

From a broader geopolitical perspective, most of Taiwan’s remaining partners are in regions of great interest to the United States—Latin America, the Caribbean, and the Pacific Islands. In the former two, US policymakers fear China’s growing influence in the United States’ backyard, harkening back to the Monroe Doctrine.²⁸³ The Pacific Islands hold significant strategic value should armed conflict ever arise, and both the United States (along with its allies) and China have increasingly focused their attention on the region—for better or worse.

For this reason, the monetary cost of increasing aid and development assistance to Taiwan’s current diplomatic partners is outweighed by the benefits to Taiwan—and the United States—of maintaining these relationships. China is steadily closing Taiwan’s international space, not only by reducing diplomatic recognition but also by limiting Taipei’s ability to participate in multilateral fora. Taiwan’s partners speak out in support of Taipei at the UN, the World Health Organization, and other international organizations. At the 2024 Summer Olympics in Paris, fans of Taiwan had signs confiscated for displaying innocuous messages in support of Taiwanese athletes.²⁸⁴ From Beijing’s perspective, no issue is too insignificant.

Washington has taken important action during this period through both executive and legislative measures. The Global Cooperation and Training Framework, launched in 2015, has provided health assistance and facilitated coordination on economic development.²⁸⁵ The United States Agency for International Development (USAID) and the ICDF have conducted joint trainings and signed cooperation agreements to improve both organizations’ ability to deliver on their programs.²⁸⁶ The US International Development Finance Corporation (DFC) has likewise strengthened collaboration with the ICDF and other Taiwanese agencies to catalyze private sector investment opportunities.²⁸⁷

In Congress, passage of the TAIPEI (Taiwan Allies International Protection and Enhancement Initiative) Act in March 2020 supported Taiwan’s diplomatic partners and other countries that have increased engagement with Taiwan.²⁸⁸ The Taiwan Enhanced Resilience Act, part of the fiscal year 2023 National Defense Authorization Act of December 2022, amended the TAIPEI Act to further clarify intent to “support Taiwan’s diplomatic relations with governments and countries.”²⁸⁹ In 2024, members of the House Select Committee on the Strategic Competition between the United States and Chinese Communist Party introduced the Taiwan Allies Fund Act to authorize “$120 million over three years for the State Department and USAID to provide foreign assistance to Taiwan’s official and unofficial partners subjected to coercion and pressure from the CCP.”²⁹⁰

How should Taiwan approach its relations with its diplomatic partners

These recommendations are derived from the broader set of suggestions in the concluding chapter of this report, applied specifically to Taiwan’s diplomatic challenges.

Avoid copying China. Dollar diplomacy in its past form is a losing prospect. However, this doesn’t mean Taiwan and the ICDF can’t supplement their current development assistance. Trade and investment efforts in diplomatic partners can be pursued transparently, supporting both these countries and the values that Taiwan stands for.
Set clear goals. The goal is clear: prevent Taiwan’s current diplomatic partners from switching to China. At the same time, countries that do switch should not necessarily be punished afterward, particularly because Taiwan has nurtured positive relations in these nations over many years—relationships that can continue to hold value. These states are simply (and unfortunately) like the vast majority of countries in the world.
Identify opportunities and risks. The loss of Taiwan’s diplomatic partners frequently correlated with local electoral politics. Cultivating ties with multiple sectors and constituencies is key to maintaining long-term partnerships.
Address financing and economic development needs. Taiwan has much to offer, not only through development assistance but also as a financier for development projects. Taiwan’s Exim Bank has already done so, contributing to a port redevelopment project in Saint Vincent and the Grenadines, for example. Taiwan can also work to increase trade ties in important sectors, as it did with Guatemala’s coffee industry when the Central American country faced pressure from China. The overwhelming size of China’s economy can make these efforts appear miniscule by comparison, but such moves demonstrate Taiwan’s commitment to its diplomatic partners.
Collaborate with informal partners to ensure Taiwan’s continued formal partnerships. The United States, Japan, Australia, and other countries, as well as multilateral institutions like the ADB, can help bolster Taiwan’s economic engagement with its partners in ways that could reasonably rival China’s offerings. These collaborations should be a point of emphasis in Taiwan’s diplomatic strategy, and given the ICDF’s longstanding relationships, Taiwan is well-positioned to identify worthwhile projects and coordinate with development partners.
Assess effectiveness. Taiwan’s current approach is not working. Maintaining the status quo in cross-strait relations—including preventing Taipei from losing any more diplomatic partners—will require additional resources from both Taiwan and its network of informal partners. Through collaborative, transparent, and positive economic incentives, Taiwan can reinvent its formal partnerships to benefit all parties.

Chapter 4: Targeted inducements in other areas of Chinese foreign policy

This chapter highlights additional aspects of Beijing’s foreign policy through which China has sought to use positive incentives in service of its geopolitical goals.

China’s efforts to subvert ASEAN’s position on the South China Sea

Beijing has successfully used inducements to ASEAN to alter the organization’s proceedings in China’s favor. In Southeast Asia, China is often—and rightly—criticized for its belligerent tactics in the South China Sea. At the same time, Beijing has managed to forestall a strong regional reaction through the targeted use of inducements to key players in ASEAN, the region’s consensus-based organization.²⁹¹

The current regime in Cambodia and its elites have a long-standing relationship with China, stemming from Beijing’s support for Hun Sen’s political ascension in the 1990s. China’s aid and investment relationships—often nontransparent and corrupt—buttressed Hun Sen’s rule and secured Beijing’s support on any number of issues. Still, in some instances, a quid pro quo arrangement lurks beneath the surface. In 2009, for example, Cambodia deported twenty Uyghur asylum seekers to China. Two days later, then–Vice President Xi visited Phnom Penh and announced a new $1.2 billion package of grants and soft loans.²⁹² After the United States protested and cancelled a shipment of surplus military trucks, China supplied 257 vehicles of its own.

Phnom Penh supported Beijing’s position on the South China Sea at the 2012 and 2016 ASEAN summits. On both occasions, China offered inducements tied to specific policy positions, which came immediately before the summits. China claims most of the body of water through its “nine-dashed line,” which is contested by ASEAN members the Philippines, Vietnam, Malaysia, and Brunei through rival claims. In March 2012, Cambodia hosted then–Chinese President Hu Jintao, who asked then–Cambodian Prime Minister Hun Sen to not move “too fast” toward finalizing a Code of Conduct for the South China Sea, arguing that doing so could threaten regional stability.²⁹³ Hu promised to double bilateral trade to $5 billion and announced a new series of economic aid packages.²⁹⁴ That year, Cambodia held the rotating ASEAN chairmanship, giving it influence over the meeting’s agenda, and hosted several key meetings, including the ASEAN Foreign Ministers’ Meeting in July.²⁹⁵ That meeting marked the first time in ASEAN’s forty-five-year history that the group failed to issue a joint statement, as other countries lobbied for the inclusion of the South China Sea issue.²⁹⁶

A similar situation occurred before the July 2016 summit, which took place soon after the Permanent Court of Arbitration made a ruling against China’s position on the South China Sea, siding with the Philippines. Three days after the ruling, and just days before the ASEAN Foreign Ministers’ Statement, Hun Sen announced that Beijing was donating $600 million in aid over three years to support election infrastructure, education, and health projects.²⁹⁷ Cambodia vetoed calls to “respect [the] diplomatic and legal process” following the arbitration ruling, and the communique from the ASEAN meeting in Laos did not mention China’s loss.²⁹⁸ Manila reportedly agreed to remove references to the arbitration ruling to ensure the group released a joint statement.²⁹⁹ After the meeting, Beijing publicly thanked Phnom Penh and later announced it would finance Cambodia’s request for a $16 million administration building for the Cambodian National Assembly.³⁰⁰ Xi visited Cambodia in October and promised $59 million in new loans, $90 million in debt forgiveness, and $178 million in grants.³⁰¹

During this period, Hun Sen was also under domestic political pressure. In 2012, opposition leader Sam Rainsy, a longtime adversary of Hun Sen, formed the Cambodia National Rescue Party (CNRP) and subsequently exceeded expectations in the 2013 parliamentary elections. Although his Cambodian People’s Party remained in power, Hun Sen faced increasing domestic political pressure and sought external assistance from China to solidify his position. Following the dissolution of the CNRP in 2017, Cambodia and China grew closer, while the United States suspended military aid to Cambodia in 2018 over concerns of democratic backsliding.³⁰²

Seeking support for the BRI

Italy’s decision to join the BRI in March 2019 is a powerful example of China’s ability to use economic inducements to its advantage. Two factors are important to note. First, the size of China’s economy is an underlying dynamic that is impossible to ignore. The lure of its market and the possibility of closer trade and investment ties are significant, and the BRI promises improved relations with Chinese companies—although a nonbinding MOU on the BRI provides no guarantees.³⁰³ Second, Italy’s government, then led by populist Prime Minister Giuseppe Conte (2018–21), was desperate to boost a sputtering economy, with Chinese investments and trade as a key potential avenue.³⁰⁴ Moreover, the country felt that Europe had been of little assistance during pre-COVID-19 immigration and economic crises.³⁰⁵

Italy’s signing of an official BRI MOU—despite its vague and nonbinding nature—was an important geopolitical coup for Xi. Italy is a member of the G7, was the first G7 country to join the BRI, and is the fourth-largest economy in Europe.³⁰⁶ For China, buy-in from Conte’s government was a significant legitimizing factor for Xi’s signature initiative. In addition to those benefits, Beijing was able to drive a wedge within the EU, as well as between the EU and the United States. The move undermined efforts to find a common European stance toward China, and Italy ignored US warnings about signing on to the BRI.³⁰⁷

Italy’s membership in the BRI did not deliver significant benefits and has been touted as evidence that joining the BRI is no guarantee Beijing will follow through on its promises.³⁰⁸ Almost five years after Italy joined, the conservative government of Prime Minister Giorgia Meloni—who began serving as prime minister in October 2022 and called the decision to join the BRI “a big mistake”—indicated and followed through with Italy’s withdrawal from the initiative in December 2023.³⁰⁹ China was surprisingly restrained in its criticism of Rome’s move, and the two countries have since signed additional agreements and maintained economic relations.³¹⁰ China’s post-pandemic economic challenges have prevented Beijing from taking an aggressive diplomatic line on Italy’s departure, beyond the usual disappointment. Italian policymakers were also complimentary of China’s continued importance to Italy’s economy despite leaving the BRI.³¹¹

Other countries have had similarly varied experiences with the BRI. In the Philippines, the administration of President Ferdinand Marcos Jr. (2022–) announced in October 2023 that his country would terminate China’s large infrastructure projects—several of them under the BRI banner.³¹² This decision came partly in response to immediate tensions in the South China Sea (when a Chinese coast guard ship rammed a Filipino fishing vessel in contested waters), but also as Manila reassessed relations with Beijing. Marcos’s predecessor, Duterte (2016–22), had actively pursued closer economic and political ties with China early in his tenure, receiving promises of investment and boosted trade ties that aided his domestic agenda. At the same time, Duterte played down the South China Sea dispute and questioned his country’s relationship with the United States.³¹³ However, China’s promises to Duterte never fully materialized, were deemed a “pledge trap” by one analyst, and Marcos has sought support from other sources, such as Japan and the United States.³¹⁴

In South America, Brazil, Colombia, and Paraguay are the three remaining countries that have not joined the BRI. Due to its relations with Taiwan, Paraguay is unable to join the BRI. Both Brasília and Bogotá have contemplated joining in recent years, arriving at different conclusions. Colombia has indicated a willingness to join, though details still need to be worked out through a working group with Beijing. An FTA is one of the major incentives for Colombia to join, as the country has already received substantial infrastructure investment, and trade ties have grown in the past decade, highlighting that membership in the BRI is not a necessary condition for closer economic ties with China and Chinese firms.³¹⁵

Brazil has recognized that joining the BRI is not necessary to strengthen economic ties with China. Given its status as the largest economy in South America and its diverse range of partners, Brazil is not desperate for Chinese investment. Despite Beijing’s entreaties, the administration of President Luiz Inácio Lula da Silva (2003–11, 2023–), known as Lula, announced in October 2024 that Brazil would not sign on to the initiative, raising questions about support for China in the BRICS grouping (where now both India and Brazil have resisted signing on to the BRI).³¹⁶ Lula’s decision came as Xi was preparing for a state visit to Brazil and following requests from Beijing that Brazil join the BRI, including during Lula’s visit to Beijing in April 2023. At the 2024 meeting, the Brazilian government did, however, upgrade relations with Beijing to join China’s “community with a shared future,” signed dozens of agreements, and agreed to pursue synergies between the BRI and Brazil’s development strategy.³¹⁷ For its part, China’s nationalist media blamed the United States for Brazil’s decision.³¹⁸

Brazil, Huawei, and the pandemic

Beijing is creative in its use of inducements to achieve strategic goals, and the COVID-19 pandemic presented new opportunities for China to use public health assistance to gain influence. While not strictly economic in nature, China’s offers of help during the pandemic had monetary value and assisted countries in mitigating the worst of the global crisis. Much of China’s assistance was meant to develop goodwill and soft power, similar to non-conditional economic engagement in both purpose and result.³¹⁹ However, on some occasions, there was more behind Beijing’s public health measures.

This appears to have been the case in Brazil. In 2020, the United States pressured the Brazilian government to avoid allowing Huawei’s 5G network to expand its wireless services.³²⁰ The Trump administration initially saw success, with then–Brazilian President Jair Bolsonaro (2019–23) in close alignment with the United States; Bolsonaro’s son, a member of Congress, even pledged to create a secure system “without Chinese espionage.”³²¹ But in early 2021, COVID-19 was spreading widely in Brazil, with cases at their highest level. The Bolsonaro government had an agreement with AstraZeneca to manufacture the company’s vaccine within Brazil, but delays left the president desperate. (Bolsonaro had also previously rejected a vaccine from a Chinese firm, while a political opponent brought in the first vaccine administered in Brazil, undermining Bolsonaro’s popularity.³²²) During a trip to Beijing in February 2021, Brazil’s communications minister met with Huawei’s executives and asked for vaccines; the message reached the government, and China delivered. Two weeks later, Brazilian telecoms regulator Anatel allowed Huawei’s reentry into Brazil’s 5G auction.³²³

China’s “vaccine diplomacy” gave Beijing an advantage elsewhere in Latin America and the Caribbean as well. Similar to Brazil, the Dominican Republic at first restricted Huawei’s involvement in the country’s 5G networks but reconsidered after China sold one million doses of COVID-19 vaccines to the Dominican Republic. In May 2021, Honduras’s government suggested it might open a trade office in China to facilitate acquiring vaccines. In Paraguay, there were public calls to break ties with Taiwan to gain access to China’s vaccines.

Chapter 5: Conclusion and recommendations

China’s use of economic inducements is an underappreciated aspect of Beijing’s larger economic statecraft strategy. This project aims to provide a more comprehensive understanding of China’s economic incentives, particularly the development and initial pledge of inducements, which will, in turn, help reassess the balance of US economic statecraft between coercion and inducement. Beijing has used targeted inducements to gain influence over discrete policy issues in other countries that counter US interests, including successfully reducing Taiwan’s international space, undermining a free and open Indo-Pacific, and buying support for large-scale Chinese initiatives such as the BRI, which bolster Xi’s legitimacy both at home and abroad.

These insights position the United States to pursue its own interests through targeted bilateral inducements, multilateral economic initiatives, and partnerships with like-minded countries to put forward compelling alternatives for emerging economies. The US policy community is targeting China with robust anti-coercion measures to protect the United States and its allies, with good reason. At the same time, branding all Chinese economic activity as coercive limits the United States’ ability to effectively identify and focus resources on acts of Chinese economic statecraft that pose a significant threat to US interests. Such an approach risks deploying anti-coercion measures in suboptimal contexts while also alienating partners in the Global South who are in need of economic development.

Similarly, understanding the characteristics of recipient countries most receptive to Beijing’s inducements and how China communicates and identifies its offers of inducements can inform US efforts to put in place the institutions and mechanisms for channeling US economic inducements—with clear policy objectives—to signal US policy preferences to recipients. It will also help US policymakers identify areas of alignment between US interests and local needs in recipient countries, which in turn will inform decisions around economic engagement, inducements, and how best to bring in allied and like-minded partner governments in these efforts.

Recommendations

The recommendations for US policymakers that stem from this report do not focus on export controls, sanctions, trade restrictions, and other targeted coercive economic measures. To reiterate, these are important and necessary components of a holistic strategy to counter China’s economic statecraft. Still, the pendulum should swing more toward the use of economic incentives to achieve US strategic objectives. With four years at the helm, the Trump administration is in a strong position to develop a principled approach to US national security goals through the use of positive incentives, particularly in the Global South, where US influence is under pressure.³²⁴

There will be resistance to this approach. On one side, some view sending US money and resources abroad as not in the United States’ interest. However, national security interests extend beyond US borders and will impact national competitiveness and influence regardless. On the other side, a more transactional approach to foreign policy may be viewed as a betrayal of liberal values and, in some instances, as undermining the United States’ role as a champion of human rights. However, such an approach does not reject transparency, anti-corruption measures, environmental and social protections, or similar measures. Rather, it acknowledges the challenge of balancing these priorities against China’s offer of hands-off investment and involvement.

Avoid copying China’s approach while offering a positive vision for development that extends beyond past action.

While Beijing often leverages state-run banks, firms, and institutions to support its interests abroad, the United States primarily relies on its private sector to deploy capital, with private institutions often being more risk averse in emerging economies.³²⁵ The US approach to development has centered around USAID and other grant-making institutions as a foundation of US engagement. These institutions can bring great value and expertise to recipient countries while simultaneously supporting the extension of US influence—a goal that should remain unchanged, even as foreign aid programs undergo cost-cutting measures and reorganization. At the same time, both development assistance and private capital can be directed toward regions or sectors of outsized importance.
Likewise, a targeted approach to development assistance and financing should emphasize transparency and the relative sustainability of US and Western strategies. As the excesses of large-scale Chinese projects become increasingly apparent, the United States and its allies have much to offer, as demonstrated by the DFC’s transcontinental Lobito Corridor project in Africa.³²⁶
China’s approach to development cooperation often feels omnipresent across many countries and regions of the world and can appear fast, flashy, and relevant.³²⁷ However, US policymakers should not scold countries for every Chinese project they accept or threaten to reduce engagement. Developing countries in need of economic growth and development will find Chinese firms competitive for a number of reasons, and Washington should signal acceptance—along with appropriate warnings—of China’s economic presence.³²⁸

Set clear goals and identify opportunities.

Beijing has proven adept at identifying desired projects in Global South countries. To some extent, China’s outreach relies on elites rather than the countries’ citizens, but this does not inherently result in corruption. Dedicated outreach in capitals across the world would yield a list of possible projects that not only could inform US development financing or assistance but also alert US agencies to possible countries or sectors that China might target in the future. The State Department’s regional China officers, tasked with monitoring Chinese activity around the world, should continue their work.³²⁹
High-level diplomatic missions are important but insufficient for the task at hand. US delegations have been cancelled many times; this is unsurprising given the extent of US interests at home and abroad, but it can also set back US priorities in the slighted region. (Southeast Asia and the Pacific Islands, already not often top of mind, have seen several visits downgraded or cancelled.³³⁰) Nothing can replace well-resourced and well-staffed diplomatic outposts in pursuing US interests.³³¹ For the new Trump administration and Congress, quickly nominating and approving ambassadors across the globe would be an important start.
FTAs have gone out of style, and the Trump administration has levied tariffs and other trade restrictions against China, Canada, Mexico, and many others. However, trade has proven to be an effective inducement for Beijing in achieving some of its foreign policy goals, and increased trade is, in part, what has made the BRI and potential connectivity a potent tool of China’s economic statecraft. The United States remains an important trade market for many countries, and efforts to increase trade to specific countries in the Global South or in specific sectors could yield important benefits to US national security and foreign policy.³³²

Pursue avenues to reduce costs and risks to the private sector while meeting development financing needs in developing countries.

With the backing of the state, many Chinese entities that are pushing Beijing’s priorities abroad are willing to take risks regarding loan repayment or project failure.³³³ From a market perspective, these risks might not be worth taking, and US development financing and the private sector have generally been risk averse. This leaves many developing countries with unmet needs and with few, if any, alternatives to Chinese actors, who are generally more risk acceptant.
Targeted risk mitigation through insurance or other guarantees can help ensure that private sector partners are willing to commit to a sector or project. Not every project will demand or deserve extra protection, but those with demonstrated national security or foreign policy implications could be worth the extra effort. A recent RAND Corporation report, for example, suggests that Congress could raise caps on the overall percentage of US development financing efforts likely to lead to default.³³⁴
This will also require an assessment of effectiveness of US development assistance. A full accounting of past, current, and future projects—for their timeliness, effectiveness in achieving their development goals, and any strategic effects (intentional or not for past and current)—will help policymakers determine the next step in development cooperation.

Coordinate with allies and partners in the private sector and multilateral institutions.

The United States has developed a number of institutions and initiatives in response to China and the BRI. The Biden administration’s Partnership for Global Infrastructure and Investment (PGII) is an effort by the G7 countries to fund infrastructure projects in developing countries. In critical minerals, the Minerals Security Partnership seeks to strengthen critical minerals supply chains through cooperation with reputable mining companies and trusted governments.³³⁵ The DFC, constituted during the first Trump administration, has had success in funding private sector projects.
The DFC is up for reauthorization in 2025, offering opportunities to improve its model. This could include financing riskier projects in support of US interests abroad, shortening approval times, and increasing personnel funding.³³⁶ Building on the DFC’s successes—$4 billion in total approved projects in fiscal year 2025—and reforming the complex process for awarding foreign assistance contracts would increase the competitiveness of the DFC as a funding option.³³⁷
Collaboration with other agencies on technical assistance to vet prospective projects, feasibility studies, and export financing would further improve the US offer, as would increased information sharing between the public and private sectors.
Coordination with multilateral institutions will likewise be key, and this is an area where the United States has existing partnerships with peer institutions, including those in Taiwan, Japan, Australia, and other like-minded countries. Where the US private sector is lacking—such as in large-scale infrastructure development—US institutions should seek private sector project partners from these countries. Multilateral organizations like the World Bank, the Inter-American Development Bank, and the International Monetary Fund—while viewed with suspicion in some quarters—are also potential partners.

Get the message out and be proactive.

Beijing has been assertive in disseminating its message, and too often, the United States is seen as merely reacting to China’s moves (as in Panama or the Solomon Islands) or chastising countries for engaging with Chinese firms. China has made a dedicated effort at discourse power, co-opting local leaders and media outlets to “tell China’s story well.”³³⁸ The United States needs a public diplomacy strategy of its own.
This effort begins at the diplomatic level, emphasizing alignment between the priorities of the host country and the United States. From here, US agencies need public dissemination and marketing strategies at the onset of new projects that are centralized, rather than spread among various actors involved.
The United States should invest in its public diplomacy apparatus and could benefit from a US Information Agency, similar to the one that countered Soviet propaganda during the Cold War.³³⁹The State Department’s Global Engagement Center (which was closed in December 2024) aimed to counter foreign propaganda and malign influence, offering a mechanism to counter Chinese narratives. The US Agency for Global Media oversees five international media entities, including the Voice of America and Radio Free Asia, which have historically provided independent news coverage for overseas audiences.
Messaging is important in general, but it should be a particular focus for development projects with national security or foreign policy implications. Ensuring that the benefits of a project are well known—while maintaining appropriate transparency and environmental and social safeguards—will significantly enhance US influence. While China-based firms have improved their approach on some of these issues, they still represent a distinct strength of Western firms and an opportunity for added value from US and Western partners.

The lure of economic cooperation with the United States remains strong, and Washington should complement and build on existing initiatives, such as the DFC and PGII. The United States should pair these programs with diplomatic outreach, public diplomacy, and support for transparency and sustainability to advance a positive vision for developing countries and offer a compelling alternative to Chinese projects. Through targeted bilateral inducements, multilateral economic initiatives, and partnerships with like-minded countries, the United States can expand its arsenal of economic statecraft tools, reduce the appeal of Chinese economic engagement, and support US interests abroad.

About the authors

William Piekos is currently employed as an Analyst in Foreign Affairs with the Congressional Research Service (CRS). This report was prepared prior to his CRS employment. The views expressed herein do not represent those of CRS or the Library of Congress

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Image: Taipei, Taiwan. In photos taken on April 25, 2023, the President of Guatemala, Alejandro Giammattei, was received with the highest Military Honors by the President of Taiwan, Tsai Ing-wen. Pool / Latin America News Agency via Reuters Connect