China Rewards Panama With Trade, Investment Deals

President Xi Jinping signed a raft of agreements with Panamanian counterpart Juan Carlos Varela on Monday, increasing China’s influence in a region the U.S. considers its own backyard.

The two leaders announced during a televised address (video in Spanish) that they signed 19 agreements, including an extradition treaty, an arrangement for nonspecified Chinese aid for projects in the country, as well as deals on trade, infrastructure, banking and tourism, details of which have yet to be published.

Recalling Xi’s previous comment to him that China’s economy is an ocean, Varela said in the address, “I want to complement those words by saying Panama connects two oceans, and his visit consolidates our country as China’s commercial arm and gateway to Latin America.”

Xi’s one-day visit followed his participation in the G-20 Summit in Argentina over the weekend and marks the first state visit by a Chinese leader to the Central American country. Relations have flourished since Panama broke off official ties with Taiwan in June 2017 and shifted its allegiance to Beijing.

Since then, Chinese companies have won contracts to develop a new port, a convention center, and a fourth bridge over the 50-mile-long Panama Canal. In January, Panama became the first Latin American country to join China’s Belt and Road infrastructure development initiative, and talks for a free trade deal began in June.

Growing influence

Analysts say the warming ties are being viewed with suspicion by Washington, which has viewed Latin America as its backyard at least since the 19th century, when then-U.S. President James Monroe set out a policy of opposing European interference in a region that was rapidly slipping out of Spanish control. The U.S. intervened directly in Panamanian politics during the Cold War in a bid to thwart the spread of communism in the region.

A COSCO container ship sails through the Panama Canal’s newly completed Cocoli locks during the visit of Chinese President Xi Jinping to the Central American waterway on Monday. Photo: VCG

The U.S. has also expressed concern over China’s growing influence in the country, which is home to the Panama Canal, a vital waterway that is a link between the Pacific and Atlantic oceans. Around two-thirds of cargo ships going to and from the U.S. pass through the canal, as do one-fifth of those going to and from China, according to Brown Brothers Harriman, a U.S. investment bank.

Behind the scenes, the U.S. has already pressured the Panamanian government into rescinding an offer of a plot of land overlooking the mouth of the canal to China to build its embassy, according to British newspaper The Guardian.

But “a bigger concern for the U.S. should be China’s increasing presence across the region as a whole,” said Lucia Caamano, head of intelligence at London-based consultancy AKE International.

“This year the Dominican Republic and El Salvador have both broken off relations with Taiwan in favor of Chinese money. While Panama is the most important country to China, there’s undeniably a big shift taking place across Latin America, with Chinese investment pouring in not just into raw materials but across the wider economy. On the other hand, the U.S. under Trump is doing little to retain regional governments’ support,” she said.

The warming relations could be the final nail in the coffin for the “Grand Nicaraguan Canal Project,” Caamano said. In 2013, Wang Jing, a low-profile Chinese telecom magnate, announced a $50 billion deal with the Nicaraguan government to build a new waterway to challenge the dominance of the Panama Canal.

However, reports emerged in 2017 that construction had not yet begun on the project. In April, Bloomberg News reported that the Hong Kong offices of the company responsible for the project, HK Nicaragua Canal Development Investment Co., had been abandoned. While the Nicaraguan government has not yet officially annulled the project, Panama’s embrace of China is likely to spell the end of Chinese support for a competitor to the Panama Canal, Caamano said.

Contact reporter David Kirton (davidkirton@caixin.com)