Two Chinese are trying to establish a state within a state in the Marshall Islands. Now they are on trial in New York. Were the two acting on their own authority – or on behalf of the Chinese government?
by Angela Köckritz published on 18th November 2022 in Die Zeit
In 2016 Cary Yan and Gina Zhou arrive with a grandiose plan in the Marshall Islands, a state of 58,000 inhabitants whose islands and atolls cover an area the size of Mexico in the vastness of the Pacific Ocean, halfway between Hawaii and Papua New Guinea.
Yan and Zhou, both Chinese citizens, vigorously promote their project, making special efforts to establish contacts with politicians. Giff Johnson, a prominent journalist in the country, remembers well what it was like when he first met the two for an interview. Cary Yan, a man of 50, is the director of a New York-based non-governmental organisation (NGO) that holds consultative status with the United Nations. He speaks no English, but his assistant Gina Zhou, 34, translates.
Yan has big plans. He wants to create a special economic zone in the northwest of the island nation, on Rongelap Atoll. A place of low to non-existent taxes and liberal immigration regulations. A place where offshore companies are allowed to settle and where one day a tax-free port is to be created. A project from which the poor inhabitants should also benefit. And who knows, maybe one day they will have enough money to clean up the islands from the nuclear contamination that the Americans once left there?
“Their idea was to create a place that would be exempt from pretty much all the laws of the land,” says Johnson.
A state within a state.
Six years later, the dream of the “Rongelap Special Administrative Region” or RSAR, as the project was abbreviated, has turned into a huge scandal. Details can be found in the indictment, as Yan and Zhou are currently on trial in New York. Prosecutors accuse them of money laundering and offering and paying bribes to Marshall Islands government officials. The NGO is registered in New York, so although Yan and Zhou are not US citizens, they are subject to US law.
Potentially, however, there is much more at stake in this case, namely the greatest geopolitical challenge of our time: the struggle between the two superpowers, the USA and China. As remote as the Marshall Islands may be, they lie at the centre of a region that has become the arena of a power struggle for dominance in the Pacific. The USA still dominates here, but China has massively rearmed in recent years. The People’s Liberation Army now has the largest navy in the world – by number of warships – although the US ships are much larger and the US also operates more aircraft carriers. The power struggle is about allies and zones of influence. And one thing is certain: if China succeeds in bringing part of the Marshall Islands under its influence, that would be a major geostrategic trump card.
And finally, it is also about this simple question: Who are these two Chinese actually? Businessmen? Fraudsters who wanted to create a money laundering paradise? Or are they even agents of the Chinese government who were supposed to establish a state within a state on behalf of the state in the Marshall Islands, a close ally of the USA?
At least that is the assumption of Hilda Heine, the former president of the Marshall Islands, who opposed the plans of the two Chinese at an early stage and was almost toppled by their allies for it.
Starting in 2016, the indictment says, Yan and Zhou invite Marshall Islands government officials to New York to convince them of their plan. They generously pay for flights, hotels and entertainment. In April 2018, they fly several government officials to Hong Kong for an event. In front of more than a thousand participants, they tout their plan as a Hong Kong-style project: one country, two systems. Under this slogan, the Chinese government assured the citizens of Hong Kong that they would be allowed to keep their own liberal system for 50 years after reunification in 1997. A promise that it broke in 2020 at the latest with the introduction of a draconian security law.
Back in 2018, journalist Giff Johnson recounts, the US Embassy in the Marshall Islands also learns of the project. Agents in Hong Kong falsely market the RSAR under the slogan: Invest in the Marshall Islands, and get a green card. Journalists then inquire at the US Consulate in Hong Kong. The diplomats there call their colleagues at the US Embassy in the Marshall Islands. There, says Johnson, “the alarm bells” would have gone off at that time.
A geopolitically extremely important position
He was suspicious of the Chinese from the start, Johnson says. “I thought they were frauds.” Of which Johnson has experienced many, his home being such a remote place, it attracts “people like that”.
In August 2018, one of the politicians allied with Yan and Zhou files a bill in the Marshall Islands parliament to pave the way for the special economic zone. From that point on, Yan and Zhou try to bribe several government officials to advance their plan. One they offer an interest-free “loan” of $22,000, another they try to send $10,000. In all, there is talk of bribes being offered by six “government officials”, with one refusing the offer.
But the then president, Hilda Heine, opposes the bill. She says the planned special economic zone is not in line with the constitution and the rule of law. It also violated international pledges her country had made on financial transparency to avoid money laundering.
In November 2018, Yan’s and Zhou’s allies mount a no-confidence vote against Heine, which she narrowly survives. As a result, one of the allies sends an email to Yan and Zhou vowing “revenge” on the president, according to the indictment.
In the following elections in 2019, Heine is voted out of office. Afterwards, Yan and Zhou again lure government officials with money. On 20 March 2020, parliament finally votes in favour of the “RSAR Law”, which means that in principle nothing stands in the way of the special economic zone. But things turn out differently: a few months later, Yan and Zhou, who in the meantime have also taken on the citizenship of the Marshall Islands, are arrested in Thailand at the instigation of the USA. In 2022, they are transferred to the USA, where they stand trial from September onwards.
The Marshall Islands have been part of the American sphere of influence for many years. After the Second World War, the USA took over trusteeship for the island state. In the 1940s and 1950s, they carried out 67 atomic bomb tests there. In 1954, the atoll of Rongelap was devastated by a hydrogen bomb – the most powerful atomic bomb ever detonated by the USA, a thousand times more powerful than the atomic bombs dropped on Hiroshima and Nagasaki. No one had warned the residents of Rongelap, they were evacuated far too late – but then soon sent back to Rongelap because the Atomic Energy Authority wanted to study the effects of radioactive radiation.
Large parts of the atoll are still radioactively contaminated. The Marshall Islands have been independent since 1986, but they remain a close ally of the USA. Citizens are allowed to live, work and study in the USA. In return, the US has extensive access to Marshall Islands land and water. On Kwajalein Atoll, the US operates one of its most important missile test stations, in addition to a radar and space monitoring station. All systems that transport nuclear warheads are tested there – as well as the corresponding defence systems. During the Cold War, the Soviet Union always had a spy boat cruising off the coast at intervals of twelve nautical miles.
To this day, the Pacific island states have an extremely important geopolitical position: they lie on the so-called second island chain. The Pacific Ocean, at the respective ends of which are China and the USA, covers one third of the earth’s surface. But only 20 islands larger than 10,000 square kilometres are spread over this huge area. Military strategists call this “the tyranny of distance”. Each islet thus acquires great strategic importance.
This was recognised by the Americans, who developed the plan to dispute Japan’s Pacific territories as early as 1911. During the Second World War, they advanced piece by piece towards the Japanese coast. After the end of the war, the USA took over the trusteeship of several Pacific islands, including the Marshall Islands.
China looks for allies in the Pacific Ocean
A little later, US Secretary of State John Foster Dulles developed the theory of island chains. With the help of military bases, the USA wanted to encircle the Soviet Union and China in order to restrict their maritime access. The US commander-in-chief in the Pacific War, Douglas MacArthur, once described the importance of the islands as follows: “From this chain of islands we can dominate by sea and air every Asian port from Vladivostok to Singapore and prevent any enemy movement in the Pacific.”
And that is precisely why the US, which had long neglected the Pacific islands, watched in dismay as Chinese Foreign Minister Wang Yi travelled to the region in May this year because he wanted to strike a far-reaching agreement with the Pacific island states. Wang Yi did not succeed in uniting them behind him. Nevertheless, he signed several agreements with the Solomon Islands, including a security agreement, the contents of which are secret. All that is known is a draft that was made public in March. According to it, China is allowed to send security forces to the region to quell unrest and secure its own investments.
In other ways, too, China is looking for allies in the Pacific by granting loans, making investments and providing scholarships. According to its own figures, China has invested a total of 2.72 billion US dollars in the island states in recent years (this is likely to include loan commitments).
But the Marshall Islands are interesting to Beijing for another reason. They are one of only 13 countries in the world that recognise Taiwan instead of the People’s Republic of China, which wants to isolate Taiwan internationally.
In a hurry, other countries are now trying to get back into the game. Australia has opened new embassies on the Pacific Islands, the USA wants to do the same. In September, US President Joe Biden invited the leaders of the Pacific islands to the first joint summit in history. The island states play a significant role in the new US Indo-Pacific strategy. Germany has also recently appointed an ambassador for the Pacific islands, currently based in the Australian capital Canberra.
Residents view the sudden interest in their homeland with mixed feelings. On the one hand, it offers them more room for negotiation and investment potential, but on the other hand, they fear once again becoming the grass over which struggling elephants trample.
“For a long time we have been used for the geopolitical strategies of foreign powers,” says Sandra Tarte, Director of the Department of Politics and International Relations at the South Pacific University in Fiji. To avoid being mere pawns, the Pacific islands have now joined forces to form the Blue Pacific Alliance “to collectively communicate to the world where our interests and priorities lie”.
In the end, the question remains who Cary Yan and Gina Zhou, the two enigmatic Chinese on trial in New York, really are.
Perhaps – yes, probably – they are indeed simply fraudsters who acted on their own account. But if their special economic zone had been realised, it would have created a place where laws apply little. This would probably have attracted money launderers, tax evaders or other criminals. But such a place would also have been an ideal springboard for a government like China’s, which uses civilian actors in many places to pursue state goals. Fishermen driving fishermen from other nations out of disputed sea areas. Students conducting industrial espionage abroad. Or private companies advancing Beijing’s interests.
Perhaps the mystery of Yan and Zhou’s identities will never be finally solved – the outcome of the court case against them should be interesting in any case.