Has China’s winning streak in Panama ended?

The US noted Beijing’s advances in Panama and Laurentino Cortizo has put the brakes on China and its contractors’ trade and infrastructure deals

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Former Panamanian president Juan Carlos Varela with Xi Jinping on his state visit to Panama in December 2018. (Image: Alamy)

Frozen trade talks, failed infrastructure bids and cancelled projects suggest that Chinese companies’ winning streak in Panama has come to an abrupt end. US diplomatic pressure on the government of Laurentino “Nito” Cortizo, which took office in May last year, appears to have been effective in Latin America’s most geopolitically strategic nation. 

Even before previous president Juan Carlos Varela’s June 2017 decision to establish diplomatic relations with Beijing that seemed to blindside US diplomats, Chinese firms, both state run and private, had won tenders for port concessions, power projects and convention centres. In the following 18 months the process went into overdrive. Dozens of political and commercial deals were signed, free trade talks progressed at break-neck speed and Chinese Premier Xi Jinping made a December 2018 state visit.  

But that visit was the high-water mark for Sino-Panamanian relations. In the US state department, the pushback had already begun. 

Washington warnings

In September 2018, Washington recalled its heads of mission to Panama, the Dominican Republic and El Salvador, whose governments had also recognised Beijing in recent months. A month later US Secretary of State Mike Pompeo visited Panama City to warn against the “predatory economic activity” of Chinese firms. US pressure put an end to China’s plans to build a giant embassy at the mouth of the Canal.

In Cortizo, the US found a more malleable ally. Despite hailing from the same political party as General Omar Torrijos – the national hero who negotiated the handover of the Canal from the US to Panama – Cortizo’s administration appear to have heeded Washington’s overtures. 

“The positions have flipped and the US is once again is the dominant foreign player in domestic politics,” says Rodrigo Noriega, a political analyst and journalist. 

China has fallen out of the news and Foreign Ministry briefings. And a string of commercial decisions suggest a diminishing role.  

Infrastructure derailed

A Chinese proposal for a US$4.1 billion high speed train linking Panama City with the north of the country was dismissed in September. A major electrical transmission project on the Caribbean coast – in which a Chinese group was amongst the two qualified bidders – was cancelled and recast as a public-private partnership.  

In February, Panama Metro, the capital’s rapid transport system, confirmed that Korea’s Hyundai Engineering would build the third Metro line, a US$2.5bn 25-kilometre elevated monorail linking the centre with the western suburbs. 

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3 of the 6 countries that formally established diplomatic relations with Beijing in the last 10 years were in Latin America

The losing bidders, including two consortia with Chinese companies, challenged the decision, originally made in November. China Railway Group Limited offered a lower priced project but were disqualified for not meeting minimum technical requirements.

“In January, no one had the slightest doubt that a Chinese firm would win the Metro tender,” says Fernando Aparicio, professor of history at the University of Panama. “It’s another indicator that the government wants to maintain a distance from China, or at least negotiate with China from a stronger position.”     

A few days after the metro announcement, the Ministry of Public Works confirmed that a new bridge over the canal, awarded in July 2018 to a consortium led by China Harbour Engineering (CHEC) and China Communications Construction Company (CCCC), would be scaled back. Instead of running over the bridge, Metro line 3 will run through a tunnel 50 metres under the canal. 

Rafael Sabonge, the Minister of Public Works, says the decision was made due to the discovery of a geological fault under one of the bridges’ key pillars that would have led to a delay in construction and incurred larger compensation payments to third parties. 

However, many remain sceptical that a tunnel under the Canal would make sense economically.

“I think there are two factors at play,” says Noriega. “The government can’t afford a delay on the bridge and there are real operational challenges for running the metro on it. But there is also a political element. The Japanese underwriters don’t want to finance a project of this size for a Chinese firm to build it and the US don’t want Chinese firms building directly over the Panama Canal.” 

the US still maintains huge clout over individual politicians, through the threat of visa denial or inclusion on the “Clinton list”

Hong Kong-owned Hutchinson Ports, the “third party” operators of a port that would be most affected by the bridge’s construction, publically denied it had requested compensation from the government for losses incurred during delays to the Chinese consortium’s project.  

The port has its own problems to deal with. In 1998 the company, then known as Hutchinson-Wampoa and with 10% investment from a Chinese state firm, won the concession to operate Panama Ports Company. US Admiral Thomas H Moorer told the Senate Foreign Relations Committee that the “Communist Chinese” had “virtually accomplished…a stronghold on the Panama Canal.” 

In February this year, the Cortizo government announced it would audit Panama Ports. “There is a strong current in the government against renewing Panama Port’s concession [which expires in 2022],” says Aparicio. 

Trade deal stalls

Meanwhile the free trade agreement, which many assumed would be rushed through by Varela before leaving office, remains unsigned and the Chinese embassy has no long-term home. The presence of Chinese engineers and businessmen has diminished. In April 2019, the first Air China flight – from Beijing via Houston – arrived in Panama City. In February the service was suspended

How has the US achieved such a turn around?

According to Richard Koster, an author and journalist based in Panama since the 1950s, the US still maintains huge clout over individual politicians, through the threat of visa denial or inclusion on the “Clinton list” – a who’s who of companies and individuals that profit from money laundering and drug trafficking, leading to potentially severe sanctions by US prosecutors.

In May 2016 Panamanian businessman Abdul Waked’s inclusion on the list swiftly led to his bankruptcy, and, Koster says, local politicians haven’t forgotten it. 

“Anyone on the list has a type of financial leprosy,” he says. “Panama’s politicians all come from money and have US dealings. Through visas and the Clinton list the US knows how to keep its client states honest.”