China’s growing ties with Panama not aimed at US

By Hu Weijia Source:Global Times Published: 2017/11/21 22:13:40

Illustration: Peter C. Espina/GT

Panama's geographical position as a trade transit and logistics hub gives it a certain global prominence. And following a series of economic deals sealed during the first official visit to China by Panama's President Juan Carlos Varela, Beijing's role in reshaping the two countries' economic ties has also drawn the attention of the outside world.

The Panama Canal, built by the US and operated continuously until it transferred control of the Canal to Panama in 1999, has fortified Panama's role as an international shipping hub connecting the Atlantic and Pacific Oceans in Central America. A considerable part of the US' seaborne trade still goes through the canal, which provides the US with a route to import strategic commodities. Given Varela's historic visit to China, it is understandable that some wondered what China's growing presence in Panama might mean for the region and what role the Chinese government will play in promoting economic relations with Panama.

In May this year, Panama's largest port was purchased by China's Landbridge Group. The company plans to build a modern deep-water port in Colon at the Atlantic entrance to the Panama Canal. Some observers have speculated that this might be an effort by China to dilute US influence, but what should not be overlooked is that Landbridge Group is a privately owned company without any government background. What's more, Panama had not yet established diplomatic relations with China in May, making it hard to imagine that Chinese firms could take advantage of Beijing's political support to become front-runners for development contracts around the Panama Canal.

Panama established diplomatic relations with China in June, but five months is not enough time to allow Chinese firms doing business in Panama to gain a strategic and political advantage in the economic competition with US enterprises, given that the US has kept up close ties with Panama over the past century.

Operations by Chinese companies in Panama are based purely on business and are driven by the market. Despite the lack of diplomatic relations between China and Panama in recent decades, China is currently Panama's second-largest trade partner and Panama is China's largest partner in Central America. As the largest trading country in the world, China is the second-biggest user of the Panama Canal after the US. It was not much of a surprise when private Chinese companies showed greater interest in development contracts around the Canal.

Some Chinese officials have said recently that China will spare no effort in assisting with Panama's economic development, but that does not mean the Chinese government will be directly involved in the business contracts between Chinese businesses and their Panama counterparts. Private firms are likely to remain an important force in developing a "new chapter" for bilateral economic ties between China and Panama.

The absence of institutional arrangements between the two countries had long been a hindrance for business operations by Chinese firms in Panama, and that's where the governments come in. During Varela's visit to China, the two countries announced the launch of a joint feasibility study for a bilateral free trade area between China and Panama. Varela also officially embraced China's Belt and Road initiative, which could perhaps serve as a prelude to further opening of Panama's infrastructure market to Chinese companies.

The US-Panama Trade Promotion Agreement (TPA), a comprehensive free trade agreement that provides elimination of tariffs and barriers for US services, entered into force in October 2012. Panama's newly established ties with China are also a reflection of Panama's efforts to diversify its economic partners by creating an equal competitive environment for companies doing business in the country. Beijing has no intention of making Panama a forward position for a collision with the US as Chinese enterprises increase their presence overseas, but US firms doing business in Panama will encounter greater competition from Chinese rivals as China seeks closer ties with Panama.

The author is a reporter with the Global Times.


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