What's China Up to in Central America?

Few regions in the world wobble the tension of the tightrope governments walk between raw interests and principle in foreign and strategic policy more than Central America. And few have mattered less to Canberra over the decades, generally for sound, realist reasons going to Australia’s negligible commercial and strategic interests there.

The notion of giant powers pursuing spheres of influence might be an uncomfortable and unacceptable one for Australians thinking about China in the Western Pacific or Russia in its near abroad. But anyone who doesn’t think that Washington has long regarded Central America in this light, and often with terrible consequences, hasn’t been paying much attention to history and international affairs.

The Mexican dictator toppled in the 20th century’s first great revolution, Porfirio Diaz, best expressed the region’s relationship with Washington in describing the state and fate of his own North American nation. ‘Poor Mexico,’ he lamented, ‘so far from God, and so close to the United States.’

That said, Washington’s record in the region is also not without beneficence, idealism and practical benefit. Historically, its two-way trade, investment flows and development assistance have dwarfed all others’. The U.S. is the principal source of much-needed remittances from its large Central American diaspora. Its support for democratic reforms and better governance has often been strong and practical. U.S. administrations have used carrots at least as often as sticks. It has helped remove thugs from power, just as sometimes it has propped them up.

China’s relationship with Central America, however, has historically been insignificant. As recently as 20 years ago, China’s volume of trade with all of Latin America amounted to just U.S.$12 billion. Central America’s share was paltry.

Yet much has changed, especially since 2007, when Costa Rica became the first Central American nation in the millennium to break from Taiwan and recognise the People’s Republic of China. The move saw Costa Rica benefit from higher trade flows with China, increased Chinese investment and a new national sports stadium, among other infrastructure and development projects.

Panama offers a similar story. In 2001–02, its exports to the PRC totalled U.S.$2 million; its imports from China amounted to just U.S.$41 million. After recognising the PRC in June 2017, however, the Panamanian government opened negotiations on a free-trade agreement and became the first in the region to sign up to the Belt and Road Initiative. Two-way trade accordingly multiplied by a factor of 22. Panama’s exports to China rose to U.S.$33 million by 2019, its imports from China mushroomed to 27 times that figure.

Panama’s BRI affiliation promised much and soon delivered. Twenty-one major infrastructure projects have either happened or been touted, ranging from container ports and terminals linked to the Panama Canal to a fourth bridge over the waterway, rail lines, electricity transmission lines and telecommunications. Chinese commercial interests were soon sniffing around Panama’s largest commercial operation, a copper mine that ranks among the world’s largest (owned by a Canadian company with foundational links to Australia).

More recently, El Salvador and Nicaragua have abandoned Taipei. In the former’s case, this happened in August 2018 under El Salvador’s left-wing government, led by Salvador Sanchez Ceren, a former guerrilla leader who had waged a civil war against a U.S.-backed junta from 1979 to 1992.

In 2019, seeking U.S. President Donald Trump’s favour, Sanchez Ceren’s successor, the self-styled ‘coolest dictator in the world’, Nayib Bukele, initially flirted with reinstating ties to Taiwan. But whatever hopes of greater transparency and good governance his ascension to power might initially have raised have largely been dashed. As President Joe Biden’s administration has increasingly bridled at his blatant authoritarianism and alleged deals with criminal gangs, Bukele has lurched towards a more accommodating Beijing, signing deals for U.S.$500 million worth of development financing for everything from a new sports stadium to a national library and his cherished plan to turn part of El Salvador’s Pacific coast into ‘Surf City’.

Bukele also endorsed an earlier agreement for China to build a new deep-water port in the Gulf of Fonseca to service a special economic zone and logistics hub originally designed to privilege Chinese business interests (and well-connected Salvadoreans). He is rolling out 5G technology in a manner set to benefit Huawei and looking to boost bilateral trade.

The only surprising aspect of Nicaragua’s recognition of the PRC last December is that it took so long. The country’s president, Daniel Ortega, another former guerrilla, first cut ties with Taiwan in 1985 after overthrowing the U.S.-backed Somoza regime and winning the subsequent election. His successor reverted to Taipei in 1990, however, a move that Ortega chose not to overturn when he was re-elected in 2006. Initially careful to maintain constructive ties with Washington and his own business community, he grew increasingly autocratic, which culminated in the bloody suppression of anti-government protests in 2018. Already rocky in the Trump era, Nicaragua’s relations with the Biden administration have deteriorated badly.

The quid pro quo is again set to be Chinese promises of infrastructure projects and higher trade flows (albeit with a massive imbalance in China’s favour). It seems unlikely, however, that it will come with a commitment to revive a grandiose U.S.$50 billion scheme to construct a new cross-isthmus canal that a Chinese billionaire set in train before his own economic fortunes nosedived, and which the U.S. Treasury has alleged has been used by Ortega’s family and cronies to launder money and acquire land.

The most recent Central American nation to flag defection is Honduras, whose departing president, Juan Orlando Hernadez, enjoyed some support from Trump in exchange for suppressing migration flows, despite highly credible allegations of his involvement with narco-traffickers. After winning the presidential election last November, president-elect Xiomara Castro raised the prospect of recognising the PRC. Since then, however, she has come under U.S. pressure to maintain the status quo. Both U.S. Vice President Kamala Harris and Taiwanese Vice President William Lai are slated to attend Castro’s inauguration on 27 January, which suggests that Taiwan might yet stay in favour in Tegucigalpa provided the right arrangements for financial and developmental support can be made.

Indeed, the PRC’s failure so far to nail down a Honduran deal is just another pointer to the limits of its reach in Central America. If Beijing offers distinct benefits to corrupt, undemocratic or proto-autocratic regimes like those of Ortega and Bukele that are facing the Biden administration’s sanctions or censure, it has a far more difficult task in maintaining influence over administrations in the more democratic and accountable polities of the region, especially Costa Rica and Panama.

And for different reasons, it’s hard to see Guatemala—whose president seems to be intent on keeping Washington onside by, inter alia, proposing to introduce 30-year jail terms for people-smuggling—and its local rival, the British Commonwealth nation of Belize, dumping Taipei for Beijing.

At times, China’s own clumsy behaviour makes that objective harder still to attain, as its failure to build a vast embassy on a strategic location at the entrance of the Panama Canal exemplifies. The symbolism of such a construction was not only intolerable to Washington, which lobbied successfully to stop it. It also aroused nationalist sentiment among Panamanians, for whom the Panama Canal and its zone—until 1999 the property of the U.S.—stand as the exemplar of national sovereignty.

China, in short, is posing significant new challenges and competition for the U.S. in its sphere of influence, and Washington has grounds for viewing Beijing’s behaviour cautiously, especially when it comes to port construction and telecommunications. Most of the region welcomes the economic opportunities that China’s influx of development financing and cheap goods can bring. They may well enjoy the emergence of a counterweight of sorts to a traditional hegemon whose pre-eminence has often been far from benevolent, not least in its Reagan and Trump incarnations.

But the PRC is hardly about to displace the U.S. as the most consequential external actor in Central America, however many deep-water, potentially dual-use ports and football stadiums it might construct. Cooler than ever, Bukele may have made his country the first to adopt bitcoin as an official currency—with prospectively disastrous results—but the nation’s actual currency remains the U.S. dollar. Others have their own currencies, but the greenback is accepted happily in marketplaces everywhere bar Costa Rica, a privilege the renminbi is not about to gain. And U.S. embassies dwarf those of China (and everyone else), even in Managua.

Many Central American authorities (especially the region’s U.S.-educated elites) are not oblivious to the price that Beijing too often also exacts, not least their countries’ dramatically widening trade imbalances. States like Panama and Costa Rica are only too aware that China is wooing them not just to degrade Taiwan and profit commercially. They understand their place in China’s geostrategic and geoeconomic calculus, and most have no interest in flaring problems with Washington, with all the consequences that can follow, by conceding too much to its great competitor.

Even Ortega, should Nicaragua ever gain a Chinese-built deep-water port of its own, will probably think twice before allowing Beijing’s navy to use it for anything other than symbolic purposes.

David Engel is the head of ASPI’s Indonesia program. He is a former Australian ambassador to Mexico and the countries of Central America and the Spanish-speaking Caribbean, and served twice in Australia’s embassy in Jakarta.

This article appeared originally at The Strategist (ASPI).