What China is doing to exert its growing control over the Panama Canal

Jeffrey A. Newman

China and Chinese firms are making substantial investments in Panama and the canal region. Two of theā€Æfive portsā€Æadjacent to the canal, Balboa and CristĆ³bal, which sit on the Pacific and Atlantic sides respectively, have been operated by a subsidiary of Hutchison Port Holdings since 1997.

The company is a subsidiary of the publicly listed CK Hutchison Holdings, a Hong Kong-based conglomerate founded by Hong Kong businessman Li Ka-shing.  In 2016, in a $900 million deal, the China-based Landbridge Group acquired control of Margarita Island, Panamaā€™s largest port on the Atlantic side and in the ColĆ³n Free Trade Zone, the largest free trade zone in the Western Hemisphere. The deal established the Panama-ColĆ³n Container Port (PCCP) as a deep-water port for megaships, and the construction and expansion was carried out by the China Communications Construction Company (CCCC), a company also active in Chinaā€™s island-building initiatives in the South China Sea, and the China Harbor Engineering Company (CHEC). The location of the port on the Canal has since allowed China to capitalize on Canal expansion. Additionally, in March 2021 the Panamanian government began the process of renewing the lease of Hutchison Ports PPC, a subsidiary of Hong Kongā€“based CK Hutchison Holdings, which serves as operator for the ports of Balboa and Cristobal, two major hubs of the Canalā€™s Pacific and Atlantic outlets, respectively.

.Following the Canalā€™s expansion in 2016, the waterway annually registers nearly 14,000 transits, a value equal to 6 percent of global trade. The Canalā€™s global shipping role has only increased amid the disruption of global supply chains during the Covid-19 pandemic and U.S. calls for nearshoring away from China., China is the main source of products going through the ColĆ³n Free Trade Zone and its increasing presence in and around the Canal has made the waterway a flashpoint for U.S.-China competition over spheres of influence. Chinaā€™s influence in the Panama Canal has only grown since 2017 when then-president Carlos Varela severed diplomatic ties with Taiwan and recognized China, further opening the door to Chinaā€™s expanded footprint in critical Canal infrastructure and laying the groundwork for alignment with the Belt and Road Initiative (BRI).

The Panama Canal has been fully owned and administered by the Republic of Panama since the transfer of management from the joint U.S.-Panamanian Panama Canal Commission in 1999. Today, the Panama Canal Authority (ACP) is charged with the administration and maintenance of the waterwayā€™s resources and security as an independent entity of the national government. Governed by the 11 members of its board of directors, the ACPā€™s members maintain overlapping terms to ensure independence from each presidential administration. Designated by Panamaā€™s president, the chairman of the board holds the rank of minister of state for Canal affairs and under the supervision of the board, the designated Canal administrator heads the ACP, implementing the decisions of the board. Through contract awards, the ACP in turn grants concession agreements to companies for port operations.

While much of the Canalā€™s original legislation expired upon turnover of the Canal to Panama, one key treaty relevant to U.S. and Chinese influence in the Canal remains active with no expiration date. The Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal, or the Neutrality Treaty, between Panama and the United States guarantees permanent neutrality of the Canal with fair access for all nations and nondiscriminatory tolls. Only Panama may operate the Canal or maintain military installations in Panamanian territory. The United States, however, reserved the right to exert military force in defense of the Panama Canal against any threat to its neutrality. Any interpreted Chinese threat to the Canalā€™s neutrality could activate the U.S. forces through this treaty, meaning current and future Chinese interventions should be calculated with this potential response in mind.

Chinese companies are now heavily involved in infrastructure-related contracts in and around the Canal in Panamaā€™s logistics, electricity, and construction sectors. Along with Panamaā€™s recognition of China, boosted Chinaā€™s footprint in the Canal, and Chinese companies have since positioned themselves at either end of the Panama Canal through port concession agreements.

In 2016, in a $900 million deal, the China-based Landbridge Group acquired control of Margarita Island, Panamaā€™s largest port on the Atlantic side and in the ColĆ³n Free Trade Zone, the largest free trade zone in the Western Hemisphere. The deal established the Panama-ColĆ³n Container Port (PCCP) as a deep-water port for megaships, and the construction and expansion was carried out by the China Communications Construction Company (CCCC), a company also active in Chinaā€™s island-building initiatives in the South China Sea, and the China Harbor Engineering Company (CHEC). The location of the port on the Canal has since allowed China to capitalize on Canal expansion. Additionally, in March 2021 the Panamanian government began the process of renewing the lease of Hutchison Ports PPC, a subsidiary of Hong Kongā€“based CK Hutchison Holdings, which serves as operator for the ports of Balboa and Cristobal, two major hubs of the Canalā€™s Pacific and Atlantic outlets, respectively.

In 2018, a Chinese consortium led by CHEC and CCCC said  it was awarded a $1.4 billion contract for the Canalā€™s fourth bridge, which then-president Varela called ā€œthe fifth most important project in the history of the country.ā€ Recently China Construction Americas finished the Amador Convention Center along the Pacific side of the Canal, a project contracted under the Varela government supported by Chinese loans. China has also invested in energy-related facilities along the Canal. For example, the Chinese group Shanghai Gorgeous invested $900 million to build a natural gasā€“fired electricity generation facility. As an economic foothold into Latin America, the Panama Canal is no doubt an important gateway for Chinaā€™s bid for broader presence and a logistical hub for Chinese goods entering the region.

From October 2023 to September 2024, China accounted for 21.4% of the cargo volume transiting the Panama Canal, making it the second-largest user after the US. In recent years, China has also invested heavily in ports and terminals near the canal.

Jeff Newman JD MBA, represents whistleblowers nationwide relating to customs and tariff fraud concerning imported Chinese goods as well as corporate whistleblowers in major claims under the False Claims Act (Qui Tam), and SEC, CFTC and FINCEN whistleblower programs. He can be reached at Jeff@JeffNewmanLaw.com or at 617-823-3217