China’s diplomatic links with Panama likely to drive major economic benefits

Closer ties mean Chinese firms now clear front-runners for development contracts around Panama Canal

PUBLISHED : Thursday, 15 June, 2017, 7:03am
UPDATED : Thursday, 15 June, 2017, 7:03am

Panama’s diplomatic shift from Taipei to Beijing could mean that what China scored was not just a diplomatic victory, but also a major advance in economic interest in the region, according to analysts.

The Central American nation on Monday announced that it has switched formal diplomatic ties to mainland China and broken with Taipei.

Panama establishes diplomatic ties with Beijing in blow to Taiwan

It is the third country to sever ties with Taiwan since the island’s president Tsai Ing-wen was elected last year.

But Panama’s decision in particular is a serious blow to Taiwan, which is not only facing increased diplomatic isolation, but also a significant threat to one of its pillar industries: shipping.

Both Chinese and American analysts believe that China’s newly established ties with Panama could provide Beijing with an edge as it seeks to expand its influence over the historically US-controlled Panama Canal.

Over the years, both China and Taiwan have vied for use of the canal, which provides a key route for international trade and military transport between the Atlantic and Pacific, and diplomatic recognition from Panama itself.

President Tsai attended a ceremony last year to mark the opening of the expanded Panama Canal in an effort to shore up Taiwan’s ties with its Latin American ally.

Taiwan’s Tsai Ing-wen tries to shore up ties with Panama to counter Beijing’s influence in Latin America

But the tide has turned as China is now the Panama Canal’s second-biggest client.

The Panama Canal Authority will by the end of this year officially open a tender to develop land around the waterway into a logistics park. A top executive with the authority said Panama has already been in touch with Chinese state firms that had expressed an interest in the project.

Ross Feingold, an Asia-based political risk analyst, said “the likelihood of a Chinese company winning a bid in Panama is enhanced in the near term”.

“Ultimately, the enhanced communication channel between the Panamanian and Chinese governments following diplomatic recognition can only be a positive for Chinese logistics and infrastructure companies that operate in the canal zone,” he said.

Meanwhile, China’s envisaged alternative to the Panama Canal – the US$50-billion interoceanic canal through Nicaragua, which was supposed to be completed by 2020 – has been delayed.

The mega-plan, backed by Chinese businessman Wang Jing, faced huge controversy and opposition from local residents and environmentalists concerned about the impact on Central America’s largest lake.

The collapse of Wang’s fortunes has also made it more difficult for him and his Hong Kong Nicaragua Development Group to finance the project.

Chinese company postpones US$50 billion canal project in Nicaragua as chairman’s personal fortune tumbles

The stalled progress in the Nicaragua Canal has made China rethink its infrastructure strategy in the region, said Xu Shicheng, a research fellow in Latin American studies at the Chinese Academy of Social Sciences.

As the second-largest user of the Panama Canal, China has maintained a strong economic presence in the region over the years and exchanged trade representatives with the Central American country.

“Both political and economic exchanges between China and Panama will increase significantly after (Panama’s diplomatic shift),” he said.

China is currently the largest trading partner of Brazil, Chile and Peru, three of the biggest economies in Latin America.

China’s rising influence also comes at a time when the US has turned its back on relations and trade with the region, most notably when US President Donald Trump called for a renegotiation of the North American Free Trade Agreement, of which Mexico is a member.

Trump signs executive order to withdraw US from Trans-Pacific Partnership

Trump is also expected to roll back portions of Obama-era policies softening relations with Cuba, CNN reported.