Technically speaking, U.S. President Donald Trump’s allegations cannot be proved that China controls the Panama Canal and that Panama charges exorbitant transit fees for using the 50-mile waterbody connecting the Pacific and Atlantic Oceans, through which nearly 15,000 ships transit each year.
However, seen through geopolitical and geoeconomic prisms, Trump’s points underscore China’s increasing dominance in the global maritime trade in terms of volume, shipbuilding activity, and construction and ownership of ports around the world. And this dominance seems to have serious security implications.
Two of the five ports adjacent to the canal, Balboa and Cristóbal, which sit on the Pacific and Atlantic sides, respectively, have been operated by a subsidiary of Hutchison Port Holdings since 1997.
Hutchison Holdings is a Hong Kong-based conglomerate that does not come under Beijing’s control under Hong Kong-laws, unless one resorts to a far-fetched argument that as a Hong Kong company, it is ultimately subject to Chinese jurisdiction and that it co-owns a real estate joint venture with Aviation Industry Corporation of China, one of China’s largest defense companies.
It is true that the U.S. started building the Panama Canal in 1904, the year after Panama gained independence from Colombia with U.S. support. Washington wanted to cut the transit time for American commercial and military ships that previously had to go all the way to the tip of South America just to get from one U.S. coast to the other.
The U.S. completed the construction of the canal in 1914 and kept it under its control until December 31, 1999. It had to relinquish control under a treaty negotiated by President Jimmy Carter and ratified by the U.S. Senate in 1978, which Trump now calls “a terrible mistake.”
Since then, the Panama Canal Authority has held exclusive control over the operations of the waterway. However, under the treaty, the U.S. retains the “permanent right” to defend it by military means.
Trump is also not right in saying that Panama charges to transit the canal “exorbitant” fees, which are reportedly said to be lower than for similar shipping chokepoints elsewhere in the world, though they have increased because drought has lowered the water level in the canal and the number of ships that can pass through.
Panama charges container ships about $100,000 to $300,000 per transit — which is said to be just a fraction of what the Suez Canal charges, even before the recent shipping disruptions in the Red Sea.
However, when the factors of geopolitics and geoeconomics are taken into account, Trump seems to be voicing a global concern at Chinese President Xi Jinping’s introduction of “the Twenty-First Century Maritime Silk Road” and its manifestation of China’s overseas port investment and construction activities all over the world.
According to available data, Chinese entities have acquired varied equity ownership or operational stakes in as many as 129 port projects (9 of which are inactive). Apparently, China operates or has ownership in at least one port in every continent except Antarctica.
Chinese companies are said to have invested US$11 billion (A$17.7 billion) in overseas port development from 2010–19. More than 27% of global container trade now passes through terminals where leading Chinese firms hold direct stakes.
A discerning study reveals that “between 2010 and 2019, Chinese companies invested roughly $11 billion into overseas ports. China’s two main SOEs involved in port infrastructure are COSCO Shipping Ports, the world’s largest shipping company and port terminal operator, operating and managing 371 berths globally, and China Merchants Ports, the sixth-largest port terminal operator globally. Additionally, the China Communications Construction Company Limited (CCCC) is the biggest port design and construction enterprise in the world. It shapes more than 70 percent of the national standards for the water transportation industry and designed 7 of the top 10 ports. State support to Chinese shipping companies in their endeavors totaled an estimated $132 billion between 2010 and 2018”.
That these projects often come with unsustainable financing terms, a lack of transparency, and a clear disregard for environmental and social norms is a usual criticism of the Chinese policy. There seem to be some elements of truth in them, evident from the accumulation of more than $8 billion in debt to Chinese SOEs, of which $1.1 billion was used to construct Hambantota Port in Sri Lanka.
In 2017, when the Sri Lankan government was struggling to repay its debts, it had to agree to lease the port to China for 99 years in exchange for debt reduction.
Be that as it may, the fact remains that China’s emergence as a maritime and shipping power is central to Xi’s ambition for global economic dominance. China needs assured access to key trading routes for its imports and exports.
Controlling ports in this context adds to its maritime power because it enables China to create economic zones in other countries that give port owners and operators privileged access to commodities and products. This has been attempted in countries such as Togo, Tanzania, and Sri Lanka.
There are also military implications.
China is seeking to “weaponize” the Belt and Road Initiative. Incidentally, 14 of the 17 ports in which it has a majority stake have the potential to be used for naval purposes. It is feared that ports with drafts between 12 and 15 meters would be able to accommodate many Chinese naval vessels, including destroyers (which have 6.5 meters of draft), frigates (6 meters), aircraft carriers (11 meters), and cruisers (6.6 meters).
The U.S. is particularly worried as reportedly 90 [ninety] percent of its military cargo travels by commercial ships, giving port operators insight when the government steps up operations in certain places.
Port ownership can provide clues into how the U.S. government screens cargo for security risks, which could make it easier to evade these efforts. No wonder why legislation has been initiated in the U.S. Congress to require the Defense Department to monitor China’s influence over ports.
But more than anything else, the U.S. is worried about the way China has entered Latin America aggressively, becoming the region’s top trading partner.
China’s state-owned Cosco shipping giant has recently purchased a 60% stake in Peu’s deepwater mega-port called Chancay for US$1.6 billion, which gave the company exclusive use of the port for 60 years.
Similarly, last year, China Merchants Port Holdings signed a letter of intent with Portos do Paraná, the Brazilian state-owned enterprise, to expand Paranaguá Container Terminal, the second-largest terminal in South America. China is also expected to invest in even more Brazilian ports, as 22 terminals are scheduled to be auctioned before the end of 2025.
But what seems to be disturbing the U.S. the most is Panama’s increasing openness to China in recent years. It may be noted that in 2017, Panama broke diplomatic ties with Taiwan and established formal relations with China, a huge win for Chinese diplomacy.
Significantly, Panama became the first Latin American country to join China’s signature Belt and Road Initiative.
And it was Panama that showed the way to fellow Latin American nations of the Dominican Republic, El Salvador, Nicaragua, and Honduras to sever ties with Taipei in favor of Beijing.
Apparently, Chinese companies, both private and state-owned, have strengthened their presence in Panama through billions of dollars in investments, including a cruise terminal, a railway line, and a bridge to be built over the Panama Canal.
It is understandable why Trump is angry. China may not “own” the Panama Canal, but the “package of Chinese activities” in Panama has become a matter of deep concern to the U.S.
- Author and veteran journalist Prakash Nanda is Chairman of the Editorial Board of the EurAsian Times and has been commenting on politics, foreign policy, and strategic affairs for nearly three decades. He is a former National Fellow of the Indian Council for Historical Research and a recipient of the Seoul Peace Prize Scholarship.
- CONTACT: prakash.nanda (at) hotmail.com
