Which China card?

Fellows Spring 2002

By Vanessa Hua

June 05, 2009

COMPARED with the other two dozen or so mini-states that recognise Taiwan, Panama--with its vital canal linking Atlantic and Pacific--is a diplomatic colossus. Or so Taiwan thinks. In return for such gestures as sponsoring Taiwan's forlorn efforts to re-enter the UN, Panama has received $450m in investment from Taiwanese firms in the past five years, and generous aid. But mainland China's commercial presence in Panama is now growing fast. Will diplomacy follow trade? Panama's appetite for closer ties with China was whetted by the return to the mainland of Hong Kong, which had banks and shipping lines already in the isthmus. Following the 1997 handover, China became the third-largest user of the canal, after the United States and Japan, and now accounts for 20% of the cargo entering the Colon Free Zone, a huge trading entrepot. A Chinese shipping line has joined the board of the Panama Canal Authority, the agency that oversees the waterway.

In 1996 Panama's government awarded a contract to modernise and manage the ports at each end of the canal to Hutchison Whampoa, a Hong Kong-based conglomerate, which has spent more than $120m so far. China's trade representative in Panama reckons his country now has $200m tied up there, and Hutchison Whampoa has recently promised to invest $240m more.

Inevitably, China is now trying to use its commercial heft to change Panama's diplomatic loyalties, and hopes the six other Central American countries will follow suit. China's trade representative argues that Chinese companies will hesitate to invest in Panama without diplomatic protection (though such qualms have not stopped Taiwanese firms from pouring money into China). A local business group, headed by Oyden Ortega, a former foreign minister, is lobbying for the mainland. "Panama was blind, not knowing the importance of China," he says.

Officials say that Panama has no plans to switch recognition. And China's case may have been weakened by a row over Hutchison's concession. After the company witheld payments, in May Panama agreed to waive $22m in rent and cut its future fees. In fact, Panama's shrewd calculation may be that it benefits from being wooed by both Chinas. And after celebrating the handover of the canal from the United States in 1999, it does not want to be bossed around by another big power.