What China Wants in Panama: More Trade, Projects and Influence

There was talk of a high-speed rail line that China would build in Panama. A new subway line in Panama City. A modern container port.

China has been working to build ties and influence in Panama for years, part of its broader ambition to expand its footprint in Latin America. The effort has had some successes, but also plenty of setbacks.

In 2017, China scored a major victory when Panama cut diplomatic ties with Taiwan, the self-governing island that China claims as its territory, and recognized Beijing instead. Panama had been one of the few countries worldwide to recognize Taiwan as a sovereign state.

The following year, Panama became the first Latin American country to sign onto the Belt and Road Initiative, the Chinese leader Xi Jinping’s signature global infrastructure program, which is aimed at enlarging China’s geopolitical heft and countering American influence.

Promises

A flurry of ambitious promises followed. China proposed to build a 250-mile high-speed rail line from Panama City, the capital, toward the western border with Costa Rica. It offered to help build a new subway line in Panama City. A consortium of Chinese companies, led by the conglomerate Landbridge, began developing a container port that was promised to be Panama’s most modern one.

A Chinese state-owned company also won a $1.4 billion contract to build a fourth bridge over the Panama Canal. Eventually, the two countries said they would negotiate a free-trade agreement.

Beijing made clear that it wanted to solidify its support in Panama City. In early 2018, a visiting Chinese official told then-President Juan Carlos Varela that “the establishment of diplomatic relations with Panama was the most important diplomatic achievement for China during 2017,” according to a Panamanian government news release. Later that year, Mr. Xi became the first Chinese leader to visit.

China also stepped up its soft-power efforts, opening a Confucius Institute to promote Chinese culture and language, and donating health care supplies during the Covid pandemic.

Setbacks

But as China’s influence grew, so did wariness among Panamanians, as well as pressure from the United States for Panama to distance itself from Beijing. After Mr. Varela left office, his successor, Laurentino Cortizo, suspended the proposed railway project. The trade negotiations have stalled.

The Panamanian government revoked Landbridge’s rights to the container port project in 2021, after an audit found that the company had violated the terms of its contract, investing less money and employing less local labor than had been promised.

Still, China has also had some successes. The new Panamanian president, José Raúl Mulino, has revived the idea of the railway, and Chinese diplomats and companies have made clear that they want to participate. Construction has resumed on the fourth bridge over the Panama Canal, after a pause.

In 2021, the Hong Kong company CK Hutchinson won a 25-year extension of its control over two ports at the canal’s entrances.

CK Hutchison is a publicly listed conglomerate whose largest owner is a family of Hong Kong billionaires. It is not a Chinese state-owned company. But Beijing has tightened its control over Hong Kong in recent years, and it has the power to compel private companies to comply with its demands in the name of national security.

Panama has been the focus of special attention from China, because of the canal and its previous ties to Taiwan, but China has also been working to expand its influence in Latin America more broadly. It has positioned itself as an alternative to the United States in global leadership, casting itself as a fellow developing country more attuned to such nations’ needs.

Beijing has also invested heavily in Peru, where it opened a new Chinese-funded port in a city 40 miles north of Lima in November. China is South America’s top trading partner and the second-biggest, after the United States, for Latin America as a whole.

Going Forward

In response to accusations from President-elect Donald J. Trump, Chinese officials have denied having any interest in infringing on Panama’s sovereignty or bending it to its own interests against Washington. They have said that China would always respect the canal as a permanently neutral international waterway.

Chinese scholars have denounced American concerns about Beijing’s growing presence in Latin America as smear campaigns.

Zhou Bo, a retired colonel in the People’s Liberation Army of China who is now a senior fellow at the Center for International Security and Strategy at Tsinghua University in Beijing, said Mr. Trump’s recent remarks about a Chinese military presence in Panama were so absurd as to “not deserve a specific reply” from Beijing.

“China has many investments around the world. They’re not limited by region, or whether it’s supposedly ‘America’s backyard,’” he said.

Cui Shoujun, director of the Research Center for Latin American Studies at Renmin University in Beijing, expressed confidence that China’s relations with Panama would keep growing, despite American efforts to stymie them.

Mr. Trump might even push Panama closer to Beijing, he added. “You have an extremely domineering American president, and a pragmatic Chinese partner,” he said. Faced with that choice, he said, “the answer is self-evident.”