China has instructed its state-owned companies to halt negotiations on new projects in Panama after the Central American country revoked a contract with Hong Kong-based company CK Hutchison Holdings to operate two key ports along the Panama Canal. This move is seen as part of a broader response from Beijing to what it perceives as an alignment of Panama with U.S. interests.
According to sources familiar with the matter, this suspension could jeopardize billions of dollars in potential Chinese investments in Panama. Additionally, Chinese shipping companies have been advised to explore alternative port options, provided there are no significant cost increases.
Trade Escalations Between China and Panama
The Chinese response includes stricter customs inspections on Panamanian imports, such as bananas and coffee, potentially extending to ongoing infrastructure projects in Panama. However, no final directives have been issued regarding such actions.
The decision by Panama’s Supreme Court to revoke CK Hutchison’s port operations contract has been viewed as a victory for U.S. efforts to curb Chinese influence in strategic infrastructure across the Americas. China, the second-largest user of the Panama Canal after the United States, warned of “severe consequences” for Panama’s decision, accusing it of succumbing to U.S. pressure.
Economic and Political Implications
China’s reaction mirrors its response to a similar situation last year when CK Hutchison announced plans to sell its global port operations, including those in Panama, to a consortium led by Italy’s Terminal Investment and U.S.-based BlackRock. At the time, Beijing criticized the sale, calling it a result of American pressure.
Analysts remain uncertain about the long-term impact of China’s retaliatory measures on Panama. While the U.S. remains the country’s primary trade partner and investor, Chinese influence in Latin America has been growing steadily. However, Panama’s agricultural exports to China represent only a small fraction of its total exports, and avoiding the Panama Canal often leads to higher costs and delays for shipping.
Panama’s Withdrawal from China’s Belt and Road Initiative
In addition to revoking the port operations contract, Panama withdrew from China’s Belt and Road Initiative last year, further straining relations. Despite these tensions, Chinese companies have continued work on existing infrastructure projects in Panama, such as the $1.4 billion fourth bridge over the Panama Canal and sections of the country’s metro system.
CK Hutchison, which has operated the two Panamanian ports since 1997, is reportedly seeking compensation through international arbitration tribunals for the Supreme Court’s decision. Meanwhile, discussions regarding the sale of CK Hutchison’s port assets are ongoing, with the potential for assets to be divided into separate packages, allowing companies like China COSCO Shipping to secure larger stakes in ports geographically closer to China.
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