China Halts Projects in Panama Following Supreme Court Ruling

Business media outlet Bloomberg reported that anonymous sources have indicated the Chinese Communist Party has instructed a pause on projects in Panama. This decision came after Panama’s Supreme Court ruled that a contract which granted Hong Kong companies significant authority over the Panama Canal was unconstitutional.

The Hong Kong-based Panama Ports Company (PPC) entered two agreements with Panama, allowing control over extensive areas adjacent to the canal for the development of new ports. Some estimates suggest that these ports manage around 40% of the canal’s traffic.

PPC is a subsidiary of CK Hutchison Holdings, a conglomerate led by Li Ka-shing, known to have sympathies towards the Chinese Communist Party. Concerns regarding the Party’s influence over this critical waterway have been expressed for years, particularly by the conservative government of President Jose Raul Mulino and the U.S. government, which was instrumental in constructing the canal.

Last week, after lengthy litigation, Panama’s Supreme Court deemed two contracts awarded to PPC in 1997 and 2021 unconstitutional, citing they significantly disadvantaged Panama’s interests in favor of companies affiliated with the Chinese government. The ruling was met with approval from the U.S., while CK Hutchison has hinted at pursuing arbitration for financial damages related to the court’s decision.

Bloomberg noted that the measures against Panama from China might escalate further.

According to the report, “China has requested state-owned companies to halt discussions on new projects in Panama.” This announcement is part of Beijing’s larger reaction following the annulment of the contract with CK Hutchison Holdings to manage two ports along the canal.

Although the Communist Party has only currently prohibited new agreements, there are concerns that existing projects could also face disruption, which could endanger billions in investment. All enterprises in China, given its communist structure, must align closely with the Party, leading to potential risks for businesses that stray from these directives.

During a routine press briefing, China’s Ministry of Foreign Affairs responded to the report but did not deny the Party’s instructions. Spokesman Lin Jian emphasized, “China’s stance on issues regarding Panama’s ports is clear.” He recalled a previous statement from the Chinese government’s Hong Kong office, which criticized the Supreme Court’s ruling as a serious violation of the rights of Chinese-Hong Kong businesses.

In response, President Mulino asserted Panama’s commitment to the rule of law, highlighting the independence of the judiciary. He plans to issue a statement through the Ministry of Foreign Affairs and take necessary actions regarding the situation.

The Mulino administration’s actions have dealt a significant blow to Chinese interests in the country. After a visit from U.S. Secretary of State Marco Rubio last year, the conservative president announced Panama’s withdrawal from the Belt and Road Initiative, which has been characterized as a debt trap aiming to undermine the sovereignty of participating nations. Mulino has been vocal about fostering stronger ties with the U.S., and with U.S. support, Panama’s prosecutors have initiated legal actions against PPC.

Bloomberg suggested that while the withdrawal of the Communist Party from engagements in Panama poses risks to Chinese investments, it’s unclear how much economic damage it will induce since Panama recently distanced itself from China.

The report noted that the U.S. still wields considerable economic influence as Panama’s largest trading partner and investor, despite China’s attempts to assert its dominance in the region over recent years. Even though Panama’s agricultural exports constitute a minor share of total exports to China, shifting away from the Panama Canal might lead to higher costs and delays.

The Mulino administration has received backing from former President Donald Trump’s government to lessen ties with China. U.S. Ambassador to Panama, Kevin Cabrera, celebrated the Supreme Court ruling, contending it would enhance Panama’s national security and investment environment by fostering predictability and fairness.

“Investors will have confidence that valid contracts will be upheld, while inappropriate agreements will be corrected, making Panama more appealing for durable, high-quality investments,” Cabrera remarked, implying the potential for increased U.S. investment in the country’s future.