5 December 2018

Xi Jinping Visit and a $1.4 Billion Contract

Chinese President Xi Jinping visited Panama on 2 December 2018, the first time for a president of China to visit the Central American country, after Panama and China had established diplomatic relations last year following the interruption of diplomatic relations between Panama and Taiwan. In fact, on 7 September 2018, the United States summoned its top diplomats in the Dominican Republic, El Salvador and Panama over those countries’ decisions to no longer recognize Taiwan. Panama had cut diplomatic ties with Taiwan in June 2017 and then established diplomatic relations with China.

During the visit, Chinese President Xi and Panamanian President Varela sealed 19 deals, including one under which China will provide non-reimbursable aid to Panama to carry out various projects, although the amount was not disclosed. Furthermore, soon after the visit, the Central American country gave a Chinese consortium a US$1.4 billion contract to build a bridge over the Panama Canal. According to some Panamanian and Chinese media, this act is Panama’s official joining on to the Belt and Road Initiative (BRI), which is an ambitious 2013 Chinese plan offering loans to countries to finance infrastructure in order to create efficient logistic corridors on a trans-continental scale. BRI was originally limited to Eurasia to create a contemporary “silk road” but soon thereafter was opened to all countries, including Latin American ones.

During the 2 December visit, upon arrival at the International Airport of Panama, President Xi Jinping made a written declaration, where, inter alia, he said that: “more than 160 years ago, the first Chinese who arrived in Panama sweated blood for the construction of the Canal and railroad. More than five decades ago, the Chinese people stood in solidarity with the Panamanian people in their struggle to recover the sovereignty of the Canal and, a year and a half ago, China and Panama established diplomatic relations on the basis of the one China principle, inaugurating a new chapter in the centuries of the old history of bilateral ties. Since that moment, in the light of mutual respect, equality, reciprocal benefit, openness, transparency, inclusion and universal benefit, the bilateral ties have gained strength with fruitful results of cooperation in the various areas of trade, investment, maritime affairs, civil aviation, finances, infrastructure and human resources. The facts have shown that the developments of Sino-Panamanian ties correspond to the fundamental and the far-reaching interests of both countries and peoples, and bi-national cooperation has enormous potential”.

The strong anti-US-words of President Xi Jinping are worth noting.

A Forthcoming Free Trade Agreement   

China-Panama ties have been strengthening alongside a free trade agreement that both nations are negotiating since June 2018 and which is already at an advanced level. Officially, both countries highlighted that there is a complementary trade between them since Panama exports mainly coffee, bovine skins and fishmeal to the Chinese market, while China exports high technology products. Moreover, China is the third largest destination for Panamanian exports with more than US$42 million in 2017. If that might be true, it is, however, clear that the real interest for China is the Panama Canal which for the Asian giant and its powerful export machine can be a starting point to expand into Latin America as well as to exert control over one of the world’s most important logistic hubs. Panama, on the other hand, is looking for Chinese investment, given the mild attitude of the US administration, particularly under President Trump. According to John D. Feeley, US ambassador to Panama from 2015 to 2018, as he resigned due to policy differences with the Trump Administration, “the Chinese see in Panama what we saw in Panama throughout the 20th century; a maritime and aviation logistics hub”.

The Monroe Doctrine and the US Counterforce

Traditionally, the United States has viewed Latin America as its backyard. This was clearly expressed by President Monroe, in 1823, during his seventh annual message to Congress (later known as the Monroe Doctrine), where he said that Latin America was under United States control and patronage and no third-country intervention would be tolerated.

However, after the events of 9/11, the eyes of the United States have been directed towards the Muslim world and, in recent years, towards countries that could pose serious military and economic threats to America like China, Russia, Iran or North Korea.

Nonetheless, when the Chinese intervention in Latin America became much too active to be ignored, even the sometimes-unpredictable Trump Administration took a position on Chinese activity in Latin America. In particular, in mid-October 2018, Secretary Pompeo visited Mexico and Panama and, on that occasion, made clear public declarations in relation to the excessive Chinese influence in Latin America: “when China comes calling it’s not always to the good of your citizens” and “when they show up with deals that seem to be too good to be true it’s often the case that they, in fact, are”. Furthermore, he said that the Chinese, on many occasions, put in place a “predatory economic activity” and that “it’s simply the case that in parts of the world China has invested in ways that have left countries worse off, and that should never be the case”.

China is the second user of the Panama Canal after the United States.

Is Panama Shifting Under the Chinese Umbrella?

It is probably not right to state that Panama’s President Varela is abandoning the traditional links which connect Panama to the United States to jump on the Chinese ship, but the amount of investment which the Chinese have offered and will offer in the future is undoubtably a major factor of interest for President Varela’s government. In fact, the Chinese geopolitical influence over Latin America is being constructed by way of economic influence and, for the time being, as a mere side effect but, through the years, it will become the real substance of Chinese presence in Latin America and Panama, and given Panama’ unparalleled position, it could certainly be a most important hub for Chinese penetration into Latin America.

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