The recent court ruling giving the United States a win in a tussle for control of the Panama Canal is expected to prove an important “test case” for how China responds to the challenge to its interests and influence across Latin America.
Analysts said there were a range of tools it could use, including diplomatic pressure on Panama, using its economic might to seek support from friendly countries and backing a legal challenge to the ruling.
Last week, Panama’s Supreme Court voided a 25-year contract held by a subsidiary of Hong Kong conglomerate CK Hutchison Holdings to run the Balboa and Cristobal ports on the Panama Canal. The firm is now challenging the decision.
In his inaugural address last year, US President Donald Trump vowed to regain control of the canal, which Washington handed over to Panama in 1999, alleging it was “operated by China”.
He has since made clear his goal to assert US dominance in the Americas as part of his National Security Strategy.
“Instead of relying on traditional diplomatic measures, the Trump administration is showing it is not afraid of using pressure tactics to achieve its goal in the western hemisphere,” William Yang, a senior analyst at the International Crisis Group, said.
Squeezing Chinese interests out of the canal would be “a serious setback” to Beijing’s regional infrastructure projects, and Yang predicted it would invest a lot of resources in defending its interests.
“[The case] would certainly serve as an important test case for China in terms of how to safeguard its strategic interests and maintain access to key infrastructure across Latin America,” Yang said.
Zhao Minghao, deputy director of the Centre for American Studies at Fudan University in Shanghai, warned that the ruling could set a troubling precedent for China.
“Countering Chinese influence over key ports, infrastructure and critical waterways has clearly become a top strategic priority for Washington,” Zhao said.
“Some countries may grow increasingly cautious in their dealings with Beijing and, in some cases, they might even choose to deliberately distance themselves from China.”
Other Latin American countries that are home to key infrastructure projects backed by China – such as Peru, which hosts the strategically important Chancay Port – would monitor developments in the Panama Canal case very closely, according to Yang.
Since the court ruling, Beijing has vowed to “firmly protect the legitimate and lawful rights and interests” of Chinese companies.
“Who is seeking to monopolise the canal? And who is undermining international laws in the name of the rule of law? That’s quite clear in the international community,” foreign ministry spokesman Lin Jian asked on Wednesday, without directly accusing the US.
The previous day, Beijing’s Hong Kong and Macau Affairs Office said the ruling was “self-sabotaging” for Panama and would damage its creditworthiness and business environment.
“Should [the Panamanian authorities] persist in their course of action and remain obstinate, they will inevitably pay a hefty political and economic price,” it said.
On Thursday, Panamanian President Jose Raul Mulino expressed hope that the legal dispute over the operations of Panama Canal ports by a Hong Kong-based company would “not escalate”. But he said the government stood resolute in upholding the court’s decision.
“Panama is a dignified country and will not allow itself to be threatened by any country on Earth,” Mulino said in his morning press briefing, responding to rebukes by the Chinese government.
Yang said there were a “wide range of countermeasures” Beijing could consider, including isolating Panama by rallying support from its neighbours, as well as providing legal and political support for CK Hutchison’s arbitration.
“China could also consider introducing targeted sanctions against specific individuals or institutions in Panama or leverage its deep trade and economic ties with Panama to impose pressure on [it],” he added.
In its latest response, Beijing was asking state-owned firms to halt talks over new projects in Panama, Bloomberg reported on Thursday.
For Chinese firms investing overseas, the ruling was a profound lesson and in future they would have to weigh the US factor as the “most critical external variable”, according to Ma Bo, an associate professor at the school of international studies at Nanjing University.
“Even in countries that have no desire to disrupt cooperation with China, they may be forced to shift their stance under US pressure. This ‘external interference risk’ will be systematically incorporated into their investment evaluations,” Ma said.
“It is also a lesson for the Chinese government: the importance of systematically assessing potential risk exposure and sustaining prudent oversight over infrastructure and critical projects in regions where its military and political presence may be relatively limited.”
He added that countries with long-standing economic ties with Beijing and that did not wish to be coerced would try to strengthen ties with China as a hedge against the US.
Panama only established diplomatic relations with China in 2017, but last year it pulled out of Beijing’s flagship international infrastructure programme, the Belt and Road Initiative.
CK Hutchison Holdings, through its subsidiary Panama Ports Company, has operated two of the canal’s five ports since the 1990s.
Last year, it agreed to sell a majority stake to a consortium led by US investment giant BlackRock for US$23 billion.
Roughly 5 per cent of global maritime trade passes through the canal each year, with the largest user being the US, which accounts for over 40 per cent of container traffic through the waterway, a US Senate hearing heard early last year.
Zhu Feng, dean of the school of international studies at Nanjing University, said the ruling was a timely reminder to Beijing of the growing US scrutiny of its strategic infrastructure investments.
“Going forward, China’s expansion of overseas interests is facing a challenge in how to build a more reliable safeguard based on its effective geopolitical influence,” Zhu said.
Meanwhile, Zhao from Fudan, said the issue had to be properly handled to prevent a further rift ahead of the meeting between Trump and his Chinese counterpart Xi Jinping in April. -- SOUTH CHINA MORNING POST
