Diplomatic ties with Panama a huge boost for B&R

By Chris Dalby Source:Global Times Published: 2017/6/21 22:53:39

Illustration: Peter C. Espina/GT

The news that Panama and China had opened diplomatic relations came as no surprise. When the expanded Panama Canal reopened in June 2016, the first ship to go through it was a Chinese ship. So now that the deal has been formalized, the two countries will focus on education, maritime affairs, and the Belt and Road (B&R) initiative.

But what does this all mean? For China, this is a highly strategic anchor point. Firstly, these relations mean China can set up dedicated infrastructure along the canal. A planned logistics park is being discussed with two companies already. China Ocean Shipping Company (COSCO) has pitched the idea of a concession for available land. The deal also comes just in time for Chinese firms to bid for a roll-on, roll-off port terminal to be tendered in 2017.

The possibility of Chinese companies developing land en masse around the Panama Canal is now set to become a reality, especially given their track record at winning infrastructure tenders in the rest of the region.

The Panama Canal Authority (PCA) is set to put up for a tender an area of 1,200 hectares around the canal in 2017 to be developed into a logistics park. PCA Chief Executive Jorge Quijano said in March that "we have been talking to people here in China." He indicated that China Communications Construction Corp, China Harbor Engineer Company and China Railway Group had all shown interest. Quijano added that COSCO, which has bought into ports such as Piraeus in Greece, has also made inquiries.

However, China's presence on Panamanian territory already began last year. China's Landbridge Group bought Panama's biggest port, Margarita Island, for $900 million. That key purchase, made before diplomatic relations were settled, is emblematic of why Panama is hoping for Chinese investment. The government has not been able to maintain the upkeep on its own facilities, which Landbridge pledged to do.

Although Landbridge is ostensibly a private company, its management is directly tied to the Chinese government, making it a good stepping stone toward diplomatic ties. For China, the deal makes complete sense.

The canal was expanded to allow passage for Post-Panamax ships, the largest cargo container ships in the world. China has been investing heavily to increase this fleet category, to reduce transit time, fuel consumption and logistics complications. These titans of the sea, however, need plenty of support.

Landbridge is planning to turn Margarita into just such a support point. Located near the Atlantic entrance of the canal, it will build a deepwater port capable of harboring Post-Panamax vessels. This port will have four container ship berths and have a yearly capacity of 300 million twenty-foot equivalent units.

When combining this footprint with the aforementioned plans to develop the Chinese presence along the waterway, concerns that the canal may favor Chinese interests are understandable. Despite making a new friend, it will be up to Panama's government and the PCA to offer reassurance that the canal will remain a neutral playing field.

This new deal is also likely to finally scupper the controversial and troubled plans to build a new canal through Nicaragua. Developed by billionaire Wang Jing and his Hong Kong Nicaragua Development Group, the hype for this canal caught on like wildfire. Some saw it as a chance to rival the US-dominated Panama Canal; others saw it as a massively wasteful boondoggle that had little chance of succeeding. Wang talked up the project regularly but he lost much of his fortune during the stock market crash of 2015 and there has been no recent evidence that the project is underway. The Chinese authorities did not formally back Wang's project, and with the expanded Panama Canal presenting all the more opportunities, it would appear unlikely for them do so at all.

As media reports pointed out at the time, bringing Panama and its canal officially into China's diplomatic relations orbit is also a huge boost for the B&R initiative. While the B&R's impact on Latin America can still appear foggy at times, in Panama, its potential is crystal clear.

The author is a Mexico-based analyst of Chinese politics and economics. bizopinion@globaltimes.com.cn

Posted in: INSIDER'S EYE

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