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Using Economic Muscle, Beijing Sways Panama over Taiwan

Using Economic Muscle, Beijing Sways Panama over Taiwan

President Tsai Ing-wen arriving in Panama City on her first overseas state trip in June 2016 (photo: The China Post)

The days of countries paying tribute to China, in order to stay in China’s good graces, may long be gone, but nowadays the tribute appears to flow in the opposite direction.  Since opening up its economy in the late 1980s, China has grown into an economic behemoth – capable of flexing its economic muscle to influence not only its own backyard, but far-flung countries in Central America such as Panama.  

Last month, Panama became the latest country to cut diplomatic ties with Taiwan and instead recognize China and its “One China” policy, presumably influenced by promises of economic aid and investment.  Beijing is not the only country to lavish extensive economic aid in exchange for a country’s political allegiance (“dollar diplomacy”), but it is one of the countries which has the most to offer financially.

Taipei’s efforts at autonomy depend on the international recognition of its Republic of China (ROC) government in Taiwan, and have suffered in recent years as more countries fall under the economic spell of Beijing.  To date, only 20 countries recognize the Republic of China’s government in Taiwan, down from 30 countries in the mid 1990s.  And the pressure from Beijing is also growing on other countries which do not even have formal diplomatic relations with Taipei  – the UAE, Bahrain, Ecuador, Jordan, and Nigeria have been asked by Beijing to rename Taiwan’s representative offices, such as “Taipei Trade Office”, that do not suggest Taiwanese sovereignty.

The linkage between withdrawing diplomatic recognition of Taiwan and receiving economic gifts is not lost on the Panamanian government – countries which vote with China at the U.N. usually receive more aid than other countries, according to AidData.  China is the second heaviest user of the Panama Canal, and Chinese companies such as Landbridge Group and COSCO Shipping have been scouting investment opportunities around Panama.  Landbridge paid $900 million in May 2016 for Panama’s largest port, Margarita Island Port in the Colon Free Trade Zone, and other Chinese companies seek contracts to upgrade the port for handling larger container ships, as part of Chinese President Xi Jinping’s “One Belt, One Road” infrastructure project.  COSCO is expected to bid on a tender proposed later this year to develop some 1,200 hectares of land adjacent to the Panama Canal.

Panama was the first overseas visit of President Tsai Ing-Wen since assuming office in May 2016.  Following Panama’s reversal, she denounced the decision as a betrayal, arguing, “Oppression and threats are not going to help in cross-strait relations. It will on the contrary increase the discrepancy between the people” of Taiwan and China, and vowing, “We will not compromise and yield under threat”.

Panama is the second country this year to succumb to Beijing’s riches on offer, and Taipei can expect further pressure from Beijing on the diplomatic front in swaying other nations to choose Beijing.  And the pressure is mounting on other fronts as well – while Taiwan is routinely blocked from United Nations events (except with permission from Beijing), last month a Taiwanese professor and three Taiwanese students were blocked from using their Taiwanese passports as proof of identification when visiting the public gallery at the United Nations (UN) human rights office in Geneva.  Staff at the Office of the High Commissioner for Human Rights (OHCHR) told them only documents issued by Beijing would be acceptable, with one staffer arguing ‘Taiwan is not a country. Please present an identity document from a country recognised by the UN’”.

Incidents such as these, and further deserter countries like Panama, can be expected as strongman Xi Jinping tightens the reins on Taipei, which is being driven further away.  Nationalistic distractions like Taiwan will prove useful as Xi attempts to deal with domestic economic and security worries in the run-up to the critical 19th Party Congress in October.  



Gary Sands

Gary Sands is a Senior Analyst at Wikistrat, a crowdsourced consultancy, and a Director at Highway West Capital Advisors, a venture capital, project finance and political risk advisory. He has contributed a number of op-eds for Forbes, U.S. News and World Report, Newsweek, Washington Times, The Diplomat, The National Interest, International Policy Digest, Asia Times, EurasiaNet, Eurasia Review, Indo-Pacific Review, the South China Morning Post, and the Global Times. He was previously employed in lending and advisory roles at Shell Capital, ABB Structured Finance, and the U.S. Overseas Private Investment Corporation. He earned his Masters of Business Administration in International Business from the George Washington University in Washington, D.C. and a Bachelor of Science in Finance at the University of Connecticut in Storrs, Connecticut. He spent six years in Shanghai from 2006-2012, four years in Rio de Janeiro, and is currently based in Ho Chi Minh City, Vietnam. Twitter@ForeignDevil666