US Pressure Has Forced Panama To Quit China's Belt And Road Initiative It Could Set The Pattern For Further Superpower Clashes

(MENAFN- The Conversation) Following Donald Trump's repeated claims that the US needs to“take back” the Panama canal from Chinese control, the US secretary of state, Marco Rubio, visited Panama to demand the country reduce China's influence. On the surface, it seems Rubio has succeeded.

On February 3, the Panamanian authorities withdrew from the China's international infrastructure programme, the Belt and Road Initiative (BRI). This makes Panama the first Latin American country both to endorse and to end cooperation with the BRI.

On February 4, local lawyers urged the country's supreme court to cancel the concession given to Hong Kong-based CK Hutchison Port Holdings which allows it to operate two ports at either end of the Panama canal. They say it violates the country's constitution since it contains excessive tax breaks and cedes significant land areas to the port company. The Panamanian authorities are reportedly still considering this.

But what is the reality of China's presence in the canal, and what does increased US scrutiny mean for Xi Jinping's signature project?

The Panama canal is a key passage for US trade and military. The US accounts for 74% of canal cargo . However, while Trump's fears of losing the canal may be understandable, his assertions about China's influence are exaggerated.

The Panamanian government administers the canal through the Panama Canal Authority. Since 1997, CK Hutchison Port Holdings Limited , a Hong Kong-listed conglomerate with interests in over 53 ports in 24 countries, has operated the Port of Balboa and Port of Cristobal on either end of the canal. These are two out of five ports in the vicinity.

CK Hutchison Holdings Limited is one of the world's leading port investors and is owned by billionaire Li Ka-shing . The company and projects have no direct ties with the BRI.

Business as usual: billionaire Hong Kong tycoon Li Ka-shing with Chinese president, Xi Jinping, in 2017. EPA/Bobby Yip/pool

The primary risks concerning China's influence over the canal, as outlined by the US , are the potential for the Chinese Communist Party (CCP) to control the canal and“shut it down”.

Washington has also expressed concerns that the CCP's access to dual-use port technology allows it to gather intelligence about US ships, such as transshipment patterns and naval routes. It also fears that China can exert an“economic chokehold” on the US in terms of the imposition of rate hikes on transit fees.

The first two points encompass the potential for China to use ports for naval purposes. But while the People's Liberation Army navy has access to Chinese-owned ports under domestic laws and policies, they require host country permission to use Chinese-operated foreign ports. These ports are also often ill-suited for military support and operations.

So the most probable risk concerns intelligence. If the CCP deems it necessary to national security, it may use the 2020 national security law to gather sensitive data from Hong Kong-based companies.

As for rate hikes, there have been recent increases in response to droughts, maintenance investments and demand. Following Rubio's visit, the US has claimed it is allowed to transit without paying fees.

This has been denied by Panama's President, José Raúl Mulino. The fees are equally imposed due to neutrality principles initiated in 1977. There is no evidence that China has played any role in these rate hikes.

Panama's 'BRI-xit' and Trump's geopolitical gamble

In the unlikely event that CK Hutchison's concession is cancelled, what would that mean for China's presence in Panama? China's investments in Panama precede the BRI, even if they have increased since the initiative's launch.

The country holds geostrategic importance due to its location and role in international trade. So it's a critical link for China's establishment of a regional gateway for its economic and political influence.

This includes securing raw material and energy resource imports and enhancing export capabilities. China's engagements in Panama include foreign direct investments (FDI), which amounted to around 0.8% in 2023 (compared to 3.6% by Spain and 19.6% by the US), primarily in the logistics, infrastructure, energy and construction sectors.

Most have been promoted as part of the BRI and faced renegotiation or cancellation for various – often geopolitical – reasons.

Donald Trump's intervention prompted angry demonstrations in Panama during the visit by US secretary of state, Marco Rubio. EPA-EFE/Bienvenido Velasco

Since BRI projects in the canal are already quite limited, withdrawing from the initiative is unlikely to result in significant short-term changes. CK Hutchison will only be“slightly affected” in case of a contract cancellation.

What's more, as the case of Brazil shows, a country can remain unaffiliated with the BRI and still receive Chinese investments.

Therefore, Chinese engagements will probably resume outside the BRI framework. Still, even though China has shown restrained disappointment and argued that Panama has made a“regrettable decision ,” Sino-Panamanian relations may cool until Trump's attention has turned elsewhere.

Trump's rhetoric over the Panama canal may be exaggerated to appease a domestic audience rooting for a“strongman president”. But it also reflects decades of US concerns about China's growing clout.

So the administration's focus on containing China is hardly surprising. Instead, it demonstrates Trump's broader“make America great again 2.0” strategy. Therefore, Panama's“BRI-xit” may bolster US resolve on“reclaiming” the Americas.

The Panamanian authorities seem caught between US pressure to limit China's influence and the economic boost provided by Chinese“pragmatic” investments. So like other BRI countries, they face tough choices in the coming years.

As the largest provider of FDI – US$3.8 billion (£3.05 billion) per annum – and the canal's biggest customer, US influence and economic leverage over Panama is substantial. Conversely, China's interests and engagements in the country have increased, and the CCP has made it clear that it is patient and wants to continue cooperation and “resist external interruption” .

Protests have erupted in Panama over Trump's “muscular approach” , and residents have expressed strong reluctance to return to US rule. Therefore, the question remains whether this is the“great step forward” for Panama's ties with the US that Rubio suggests or whether Trump's actions will ultimately push Panama closer to Beijing.

MENAFN07022025000199003603ID1109181716