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With New Ambassador, a New Stage in Panama-China Diplomatic Relations 

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With New Ambassador, a New Stage in Panama-China Diplomatic Relations 

China has consolidated its influence in Panama through significant infrastructure projects linked to the quintessential global supply chain tied to the canal. 

With New Ambassador, a New Stage in Panama-China Diplomatic Relations 

On the night of March 11, 2024, the new ambassador of the People’s Republic of China to Panama, Xu Xueyuan, arrived at Tocumen International Airport in Panama City. Ambassador Xu is a career diplomat and the former deputy chief of mission in China’s embassy to the United States of America. She replaced Ambassador Wei Qiang, an eloquent, Spanish-speaking and highly regarded diplomat, who served in Panama for more than six years after the establishment of diplomatic ties in 2017. Xu brings an interesting set of experiences to the table. She served, more than 20 years ago, in Trinidad and Tobago and was, more recently, for five years the deputy chief of mission in the United States, acting as chargé d’affaires during the infamous 2023 balloon incident. Her appointment and the continuity of the ambassadorship signal the importance of Panama in China’s strategic outlook for Latin America. It also reiterates the growing influence Beijing is exerting in Panama.

A few hours after Xu’s arrival, on March 12, Panamanian President Laurentino Cortizo inaugurated the construction works of the fourth bridge over the Panama Canal, an investment of more than $1.3 billion operated by a PRC-controlled consortium (China Communications Construction Company Ltd. and China Harbour Engineering Company Ltd.). On March 13, the Chinese embassy released a video where Xu highlighted, in Mandarin, the accelerated growth and vigorous promotion of bilateral ties between Panama and China, while also emphasizing the pragmatic cooperation China offers. 

Panama is strategically located in the Americas and has remained important in the wider geopolitical landscape. It has also been a theater for geopolitical competition for many centuries, including competition with hegemons of the likes of Spain, France, the United Kingdom and the U.S. This history is not lost on China. But for Beijing, Panama’s importance goes far beyond the canal, touching upon its international services platforms, ports, and supply chains. It is particularly in these areas where China has sought to exert its influence after the establishment of diplomatic relations between the two countries.   

Upon his inauguration as president in 2019, Cortizo signaled his intent to ease up Panama’s ties with Beijing by, among other things, reversing and, sometimes, freezing significant infrastructure investments granted to Chinese companies by his predecessor (Juan Carlos Varela, 2014-2019). Among those investments were the fourth bridge over the Panama Canal, a cruise port in Amador in the Pacific side of the canal, a container port facility in Margarita Island, the “Panama-Colón Container Port” in the Caribbean side of the canal, and an electric power plant in Pilón Port.  Nonetheless, this expressed intent would prove to be futile and even empty. While these projects were initially halted and revised by the government, today they are well underway and still under PRC control. 

The first significant test for Cortizo’s China policy came in 2021, when Hutchison Ports (PPC), a subsidiary of the Hong Kong-based corporate group Hutchison Whampoa Ltd., successfully applied for a 25-year renewal of the concessions it had over the ports of Balboa and Cristóbal. These ports are strategically located at the Pacific and Caribbean sides of the Panama Canal, which gives PPC a de facto monopoly over the porting industry around the canal. Throughout these negotiations, Panama obliged most of PPC’s terms and conditions. Paradoxically, the Panamanian government did not raise a single concern over indirect control over PPC by the PRC. These negotiations also coincided with the deteriorating situation in Hong Kong and the national security law, which effectively curtailed the status quo enshrined in the Sino-British Joint Declaration. 

The PPC negotiations proved to be a blueprint for the PRC in managing their investments in Panama. Administrative litigation to secure monopolistic practices and curtail free market policies was also incorporated into the playbook. PPC would go on to successfully prevent the establishment of other ports close to the canal, such as the case of Corozal Port. Other Chinese-controlled companies engaged in similar administrative litigation in order to end the Panamanian government’s halt of the Margarita Island and Pilón Port projects. The PPC negotiation toolkit was used in First Quantum Minerals’ (FQM) copper mine contract renewal. Through its local subsidiary, Minera Panamá, FQM initially sought a contract renewal and afterward a new contract for 25 years. While FQM is a Canadian company, in November 2023, one of the largest Chinese state-owned mining companies, Jiangxi Copper, expanded its stake in the company to 18.5 percent interest, making it the second-largest shareholder.*

The only reason why the PPC strategy did not come to fruition in Minera Panamá was the Panamanian people taking to the streets in late 2023. While China’s participation in First Quantum was hardly the main driver behind the protests, it remains a relevant example of how PRC’s corrosive capital and influence can produce in the short and medium term a country-wide instability, undermining democratic governance, human rights and transparency.  Over the course of 43 days, hundreds of thousands of Panamanians demanded on the streets that the country exit the contract with the FQM subsidiary and be declared free from metallic mining. On November 28, 2023, the Supreme Court of Panama declared the contract unconstitutional, saying it breached 25 articles of the constitution. It was a unique event in Panama’s short democratic history and an exercise of self-determination, during which the demonstrators coined the phrase “the gold of Panama is green,” reflecting Panamanians’ commitment to a sustainable and green future.

In sum, the PRC has a wider strategy in Panama, which seeks to exert control over key infrastructure projects and supply chains. In this regard, China’s recent attempt to purchase the railroad that connects Balboa and Cristobal ports illustrates the vulnerabilities of Panama’s supply chain and its non-diversified port industry. It showcases the need for diversification and free market practices. The railroad in question was owned by Kansas City Railroad. After reports of Chinese interest in purchasing the operation, the company (not only the railroad) was acquired by Canadian Pacific, which has several railroad operations in Latin America. This acquisition makes it very unlikely that China will be able to exert some sort of control over it in the foreseeable future. 

One of Panama’s aims needs to be diversifying foreign direct investment, ensuring the participation of private companies from other key stakeholders, including but not limited to the United States, Canada, South Korea, Japan and India. More broadly, Panama also needs to develop a sound China policy to cooperate in areas such as climate change and compete where it needs to, including in terms of global supply chain resiliency.  

With the arrival of Ambassador Xu, Panama-China relations have entered a new and more complex stage. China has consolidated its influence in Panama through significant infrastructure projects linked to the quintessential global supply chain tied to the canal. Xu’s style and demeanor are certainly different from that of her predecessor, Wei. This could signal a more robust posture and assertive positioning from China.  The impact of the appointment and an eventual strategic shift in China’s policy in Panama will become evident sooner rather than later. 

*A previous version of this article mistakenly claimed that “the Chinese, through different companies, had an estimated participation [in FQM] between 20 to 40 percent.” This statement has been clarified, detailing that Jiangxi Copper holds an 18.5 percent interest in FQM.