Chinese Investments in Panama Draw Concerns About Corruption, Challenges to US Interests

Worries as Xi signs economic deals during Panama visit
By Frank Fang
Frank Fang
Frank Fang
Frank Fang is a Taiwan-based journalist. He covers U.S., China, and Taiwan news. He holds a master's degree in materials science from Tsinghua University in Taiwan.
December 4, 2018Updated: December 4, 2018

China and Panama signed multiple cooperation deals after Chinese leader Xi Jinping’s recent visit to the Central American country. However, experts are voicing concerns that the closer relationship between the two countries could be damaging to Panama’s interests, as well as those of the United States.

Xi arrived in Panama on Dec. 2 for a 24-hour visit during which he met with Panamanian President Juan Carlos Varela. The two leaders signed 19 cooperation agreements in trade, infrastructure, banking, education, and tourism, according to Reuters. One of the agreements calls for China to provide non-reimbursable aid to Panama for carrying out the different projects; the amount wasn’t disclosed.

Additionally, Varela expressed support for Panama’s continued participation in projects under Beijing’s “One Belt, One Road” (OBOR, also known as Belt and Road) initiative, according to China’s state-run media Global Times. Beijing first announced OBOR in 2013, a bid to build up geopolitical influence through trade networks, with billions of dollars worth of investments in countries throughout Asia, Europe, Africa, and Latin America.

Corruption Concerns

Panamanian economist Eddie Tapiero raised concerns about the relationship with China, while speaking at a news program run by Panamanian broadcaster TVN.

“It calls us to be more demanding in areas of transparency, corruption, and the law. If that doesn’t happen, the initiative [with Chinese investment] would not work out” because the money would be squandered, Tapiero said, and efforts “to boost Panama would not happen.”

While Tapiero didn’t elaborate on how corruption might take place, China’s OBOR has been known to foster corruption in countries with weak institutions, while benefitting the Chinese regime and harming local interests. One example involves Malaysia, whose newly elected Prime Minister Mahathir Mohamad canceled some $23 billion worth of OBOR infrastructure projects in August after his predecessor was charged with corruption and money laundering, in relation to funding for the projects.

Similar transparency concerns were voiced by Miguel Antonio Bernal, a law professor and a candidate running in Panama’s 2019 presidential election, who said, “They [China] have a colonization plan and we don’t have the professional capacity to resist it. We are like an ant wanting to be friends with an elephant,” according to a Dec. 2 article by U.S.-based Spanish-language cable news channel Univision.

China Investments

Chinese companies have invested heavily in Panama in recent years. For example, in May 2017, China’s Landbridge Group, under the OBOR initiative, was awarded the contract to expand Panama’s largest port, the Colón Container Port, for about $1 billion. The firm began construction in June 2017, according to China’s state-run media.

In July 2018, China’s state-run China Communication Construction and its China Harbor Engineering subsidiary won the bid to construct a new bridge over the Panama Canal, with a $1.42 billion contract.

In an article published Sept. 21, Global Americans, a nonprofit platform that provides news and analysis on Latin America, pointed out several cases of Chinese companies being awarded public contracts under dubious circumstances.

China Harbor Engineering, for example, was awarded the bridge contract following the “unexplained withdrawal of one of the competitors from the bidding process.” The company’s final design closely resembled one submitted by the competitor who lost the bid.

U.S. Interests

Both the United States and China are heavily dependent on the Panama Canal for trade. Thus, Panama’s geographic location is important for both countries. According to statistics by government agency Panama Canal Authority, for the fiscal year 2018, the United States was the top user of the canal, with about 68 percent of total trade going to or from the country. China was second at about 16 percent.

The U.S. congressional committee, China Economic and Security Review Commission (USCC), issued a report in October on China’s engagement in Latin America and the Caribbean, warning of the challenges posed by China’s investment in the region. It would reduce the United States’ strategic influence in the region, diminish U.S. regional security relationships, and undermine U.S. promotion of international norms such as democracy and fair labor practices, the report concludes.

China is currently constructing port facilities at both ends of the Panama Canal: Balboa Port and Amado Cruise Terminals near the entrance connecting to the Pacific Ocean; and the Colón Container Terminal and Panama Colón Container Port at the Atlantic Ocean entrance.

The USCC report includes comments by Navy Adm. Kurt W. Tidd, commander of the U.S. Southern Command, in February 2018, who stated that “increased reach to key global access points like Panama create[s] commercial and security vulnerabilities for the United States.”

The USCC report questions the economic feasibility of some of the Chinese projects, including the $167 million Amado Cruise Terminal, which is “not along any major cruise ship routes.”

Huawei, ZTE

Meanwhile, China’s top telecoms firms are making inroads in Panama. R. Evan Ellis, a professor of Latin American studies at the U.S. Army War College Strategic Studies Institute (SSI), predicts that Huawei and ZTE will be the dominant providers of telecoms infrastructure and services in Latin America and the Caribbean, with a “near-monopoly status” eclipsing local providers by 2050.

Such dominance, according to Ellis, would give China “virtually limitless capability to collect business intelligence or appropriate technologies to give an unfair position to PRC-based companies,” he said for a report published by U.S. think tank Center for Strategic and International Studies (CSIS) on Nov. 21.

The two firms’ dominance could also compromise “virtually any military, government, or business leader in the region, to obtain from them valuable political and military intelligence,” he said.

Huawei was even recently awarded a contract for installing a street-level surveillance system with facial recognition cameras linked to a data network based in the city of Colón—allowing the Panama government to mimic China’s mass surveillance system, where millions of cameras currently monitor citizens throughout the country and have been used to snuff out dissidents. Panama’s system would also be wired to government offices of defense, migration, fire department, and ambulance service.

Beijing has especially deployed advanced surveillance technology in Xinjiang as part of its efforts to monitor and persecute Uyghur Muslims and other ethnic minorities. Beijing is now exporting its surveillance technologies to other countries.

Many governments around the world, including the United States and Australia, have raised concerns about equipment and phones made by Huawei and ZTE. The Pentagon issued an order in May 2018 to remove all phones from these two companies sold at stores in U.S. military bases, on concern that those devices could be used to spy on U.S. military.