Yap is having serious second thoughts about Chinese tourism [Updated]

January 26, 2018

Mysterious Chinese investor Deng Hong is out

of prison and back to making plans for the island

 The land on which Yap's Village View Resort sits was leased by its owners to ETG a few years ago. Today, the property is littered with trash and debris and the buildings that were damaged in a storm prior to the lease agreement continue to deteriorate. Families use the beach-side location for picnics but it is not being maintained by the Chinese developer and the landowners have no rights to the property according to the 99-year lease. (Photos: Joyce McClure)

 

  Colonia, Yap -- The coconut wireless has been buzzing in Yap with the arrival on Jan. 22 of Deng Hong and his party on a large private jet. Deng, once one of China’s richest men, is chairman of Chengdu’s Exhibition and Travel Group (ETG) and was charged in 2013 by the Chinese government with corruption.  Rumors about the reason for his visit started flying even before the traditional dancers from Nimar village began rubbing turmeric and coconut oil on their bodies as they prepared to provide the evening’s entertainment at the Pine Restaurant and Bar next to the lagoon in Colonia. The restaurant was closed to the general public for the private dinner that was hosted by Yap Gov. Tony Ganngiyan.  

 

  Representatives of Deng first arrived in Yap several years ago and began offering leases to private landowners.  The mega-resort and casino developer wanted to build what the company heralded as a 10,000 room hotel and several golf courses on the 38 and a half square mile island.  Groups of Chinese tourists would be flown in on charter jets and land on a new runway extended and upgraded by ETG to accommodate the planes.

 

  A few landowners entered into the 99-year leases but some are now attempting to void them after realizing that payment was not a lump sum upwards of $200,000 or more, but spread out over the 99 years.  In one case, two brothers had built a hotel in the municipality of Maap, but with few tourists and a storm that destroyed the property, they were struggling to pay the mortgage. The ETG representatives were “very friendly, very sympathetic and they offered to pay off the loan for us and do a deal," the brothers said according to a May 2016 article on the Australian Broadcasting Corporation website. 

 Deng Hong and party arrive on Yap in style

 

  After much public outcry by the Yapese about the Chinese company’s plans to take over more and more property, ETG scaled back its plans to 5,000 rooms and eventually to 2,500 rooms, according to reports. Yap proper has a population of only 7,000 and there was no guarantee of jobs or cash flow into the community. Rather, ETG said it intended to bring in Chinese workers to build and staff the resort since they would need to speak the Chinese language. The Yapese would be relegated to entertaining the Chinese tourists who would be flown in on charter flights, as has been done in Palau.

 

  Yap’s residents and leaders have been watching Palau closely to see what the effect has been on both the environment and the people.  Despite the increase in cash flow, many agree that it has not been as beneficial as hoped.  Palau is now scaling back its tourism goals due to environmental concerns as well as the increase in housing prices combined with a lack of availability due to the takeover of apartment buildings and other accommodations on the island. Upon entering a Chinese restaurant in Palau last week, one American visitor who was accompanied by Yapese friends, reported a less-than-positive welcome by the owners, staff and patrons. 

 

  Palau recently announced the implementation of a “Pristine Paradise Environmental Fee” of $100 that is the primary financing mechanism for the Palau National Marine Sanctuary.  In addition, prior to being allowed entry, every visitor is required to sign a “passport pledge” that they will protect the environment while on the land and in the water.  This action was taken due to the impact of tourists arriving with Chinese package tours and the damage caused by their lack of education in how to be a responsible, respectful tourist and in preserving and protecting the environment. 

 

  At one point, ETG’s local agent in Yap, Yang Gang, who is also general manager of Yap Dive Resort, ETG’s only operating hotel on the island, denied that ETG has links to the Chinese government or military.  Deng’s biography indicates otherwise.  He joined the People’s Liberation Army while still in his teens. In 1985, he left the army and started a property business. In the early 1990s, he immigrated to the United States but returned to China when the country’s economic growth began to accelerate.  Deng persuaded the local government in Chengdu that he could draw both Chinese and foreign tourists and businessmen to the city. “I really don’t have anything to do with my fellow businessmen,” he told the Washington Post in 2002. “My business depends on the government.”

 

   In 2013, Deng suddenly disappeared. He was last seen at a meeting with a Shanghai official on Feb. 12 in Chengdu. When asked about his disappearance, no one at ETG or at InterContinental Hotels, which listed ETG as its Chinese partner for several large development projects in Tibet and other locations, knew where he was. It was later confirmed that he had been arrested by the Communist Party’s anti-corruption officials during a major crackdown in the country. In late 2013, a Beijing newspaper said that he was being held in Xianan detention center and was facing a series of charges relating to business dealings that were linked to land deals.  Specific charges focused on illegally acquiring and selling land, invoice forgery and tax evasion, and engaging in fraudulent loan schemes.  One source connected to the local government in Chengdu said, “Deng Hong had ties to almost every official in Sichuan.” He resurfaced sometime in 2017, returned to ETG and resumed his place as chairman. He now has his sights set on the Pacific Region for development.  After the stopover in Yap, it was said Deng was heading to Melbourne where he is also developing property.

 

   Deng has continued to assert his intention to invest and build in Yap, according to James Lukan, director of Yap State Resource and Development.  The company currently has an estimated 50 or more 99-year land leases on Yap; however, many of those leases are for parcels that have multiple owners since they are in the hands of families and are passed from generation to generation.  One parcel may be as small as the size of a room with multiple owners due to the tradition of family ownership.  Most of this property is in the municipality of Fanif but also includes the beachfront property in the municipality of Maap that was leased from the two brothers.

 

   No development plan has been received from ETG for this or any other property despite rumors to the contrary, and no foreign worker permits have been applied for or issued.  Any rumors about the intent of ETG to build a hotel are just “colorful talk,” according to Lukan.  All applications must go through his department. None have so far.

 

   Deng and his representatives have been told by the Yap State Government that, according to state law, any and all developers or foreign investors must present a business plan for approval by the state before they can build on the property.  When the plan is approved, a business license is required that also must be approved before construction can begin.  “The government wants to know what any investor is investing in and approve it before the development of the land begins,” Lukan added.

 

   “The reason the government requires developers to take these steps is not for the revenue that the fees provide the state, but to advocate for the land owners and ensure they have proper legal counsel before entering into a long term lease,” explained Lukan. When ETG first came calling and began signing leases, the landowners often did not consult attorneys or read the contracts thoroughly. The state is trying to help protect the landowners by putting certain stopgaps in place for their benefit.  Unfortunately, the government does not have the resources to help those who have already signed leases. “But this should not continue to be only a government responsibility,” said Lukan. “The local communities and residents must be educated in these matters, as well, so when an investor approaches them, they’re informed before they sign anything. The government is striving to bring out the facts so people can be informed and give them support in the process.”

 

   Requiring a development plan and business license from large developers and investors is closely aligned with both the national government and state government’s foreign investment laws. The Yap State Government is currently working with a law firm in Pohnpei to assess its foreign investment laws.  The first draft of the firm’s findings and recommendations is due this month.  However, FSM’s four states are at a crossroads on the issue. The national government wants to centralize foreign investment and receive all proposals for review before allowing the states to proceed.  The states are protesting such a mandate; they do not want to give up the right to manage their own development and make their own laws. However, some outside of FSM believe that only those countries that are willing to use cash envelopes to ease the path for investors are willing to work through individual state systems. Those that have consistent, centralized national laws are said to greatly increase the likelihood that legitimate investors would see their country and its states as a productive nation for economic engagement.  For now, the state and national governments are at a standstill so Yap is moving ahead on its own to assess its foreign investment laws and strategy. Watching and waiting on the sidelines are investors not just from China but from Japan, South Korea and other countries.  “The four states in FSM are distinctive,” said Lukan. “We want to be able to choose what is in our best interest and decide which opportunities to bring to our states. We want flexibility and autonomy for our foreign investment policies and choices. We agree that many things like interstate commerce should be handled at the national level. But we are suffering at the state level with things like the national immigration policy that has only a ‘post office’ role here. The same would hold true of foreign investment for Yap.”

 

   While Deng was visiting Yap, another rumor was making the rounds on social media sparked by an article on www.seafoodsource.com stating that earlier this year Shenzhen Lian Cheng Yuan Yang Fishing Co., a major Chinese fishery firm, signed a deal with the government of Micronesia to build a fishing port on the island of Yap.

 

   This is “fake news” according to Lukan. The government does have an initiative in place to improve and upgrade the dock area and come into compliance with the International Ship and Port Facility Security (ISPS) Code, which is an amendment to the Safety of Life at Sea (SOLAS) Convention (1974/1988) on minimum security arrangements for ships, ports and government agencies. “But many options are being presented and considered,”  Lukan said. “There is no agreement with China or any other entity currently for the dock.”

After this article was published, additional research revealed the following information about this port “deal.” Photos were provided by SeafoodSource.com that appeared on the website of Liancheng Oversears Fishery (Shenzhen) Company (LOFC) of Governor Tony Gannigyan, FSM Ambassador to China, Carlson Apis, and other Yap officials with officials of the LOFC during the lease signing ceremony in China.

 

Liancheng Overseas Fishery (Shenzhen) Company, listed as a partner of Luen Thai Fishing Company on the latter’s website, announced on April 2, 2017 that a “deal” had been signed with the FSM government “to build a fishing port on the island of Yap.” However, the “deal” is only for a short, five-year land lease and does not include the right to develop the land. Only the State of Yap, not FSM National, can approve business and development plan applications from foreign investors since foreign investment laws are not centralized. The states maintain their own foreign investment laws.

 

“The company’s press release is misleading,” said James Lukan, Director of the Yap State Department of Resources & Development. “We agreed to a five-year lease on the land. They have not presented the required business or development plan which must be approved by Yap’s leaders before the the company can apply for and, upon approval, be awarded a business license.”

The land lease agreement is for parcels that are next to and across from the Yap State Fishing Authority building at the marina in Colonia, Yap’s only town and the seat of its government. The company’s stated uses for the buildings are for processing, transshipment and other related services.

 

When the company submits its plan, all of Yap’s leaders must agree to the plan and approve it before construction can begin. In addition, the company must agree to specific conditions included in the agreement. If the leaders do not agree with the plan or want something additional included in it, the company must agree to the changes or additions. At that time, the five-year lease may then be extended to ten years and the final “deal” signed by both parties. Then, the company can apply for a business license. 

 

However, Luen Thai Fishing Ventures, one of the largest fishing and seafood companies in the Asia-Pacific region, has an existing National Investment Permit (NIP) on file with the Yap State Government to construct a building for processing, transshipment and other uses. The executive branch of the government is the only entity that can award a lease agreement to a foreign investor and the leases are limited to five years maximum.  The government has requested and is awaiting a development plan from Luen Thai to develop land next to and across from the Department of Fisheries building on both sides of the lagoon east of Colonia, the island’s only town. If Luen Thai wants to fish in the waters surrounding Yap, they must apply for a new permit and submit a new development and business plan. If it is approved, they must then apply for a business license. “So far they have done neither,” noted Lukan.

 

   “Business licensing must be aligned with foreign investment so when investors come knocking on our door, laws are in place and proper reviews are done before anything is approved,” Lukan continued. The requirement for all developers to provide a business plan to the government for review and approval and obtain a business license is not just to collect fees as some believe,” he explained, “but to insure the agreements between the land owners and the investors are reviewed properly by legal counsel. “Some people think the government is trying to impose its will and just take the revenue. But that is not the point. The point is to protect the landowner. That’s why the plan and license are law.”

 

   “Investment is a way to get capital to flow into the state, but Yap must protect the best interest of its citizens and until they have the knowledge and experience to insure that they are protected, the state wants to provide them with that expertise and protection,” Lukan asserted.

 

   In the meantime, the Chinese government is pressuring large companies like ETG, specifically in sectors like real estate, hotels, entertainment and sport, to limit overseas investments. After years of aggressive, debt-fueled investments, the country’s officials are concerned that the flood of money pouring out of the country could destabilize its financial system. They also want to reduce the risk of Chinese companies making irrational or risky investments abroad, according to a recent CNN report.

 

  During Deng’s visit, it was reported by a source close to ETG that, even though Deng was here to reinforce the company’s interests in Yap, he is now reluctant to go forward since Yap’s Foreign Investment Law requires an annual review.  He does not want to invest millions only to be stopped by an annual review. He is also concerned that the paperwork for the large number of Chinese workers who would be coming to the island would be too slow.  Perhaps his concern is more with his government’s crackdown on foreign investment than an annual review or paperwork. Either way, more than a few Yapese will welcome this news.

 

Read related story

Mainland China lavishes ‘sports diplomacy’ money on Yap

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