As of June 12th, 2017, Panama has officially realigned their diplomatic relationship with China (dropping Taiwan). Expect updates on the situation as they come, but this could truly be a game changer for the economy of Panama.
For a relatively small country like Panama, a wave of new investment from Mainland China can have a tremendous impact. And on the heels of the recent US$1.8 billion infrastructure announcement by China-based Shanghai Gorgeous, Panama may now officially be on China’s radar as the new investment hub for Latin America.
Word on the street and within diplomatic circles are hinting that Panama is considering a realignment with the PRK and a subsequent end to the relationship with Taiwan. This official start to diplomatic relations could pave the way for major private and institutional Chinese investment that could have longlasting effects on Panama.
China’s Growing Presence in Panama: Under The Radar
In 2015, the world’s largest telecom company Huawei quietly opened its first distribution center near the free trade zone of Colon. The operation has been a success and Huawei executives are forecasting a 50% increase in operations over the next 12 months.
In addition to Huawei, the government-owned multinational China Construction America (CCA) also discreetly moved in in 2015, opening up their headquarters for the Latin American region in Panama and immediately began bidding on major jobs like bridges, ports, and mass transit projects.
CCA has since ventured into residential construction, won a job for a US$200M convention center, and is rumored to be starting a 50 story luxury high rise in the banking district of Panama City at some point this year.
Add that to the previously mentioned Shanghai Gorgeous who plan on allocating US$900 million for a new container port 40 miles north of Panama City, as well as an additional US$900 million for a thermoelectric plant, upping Panama’s expanding electric grid by 350MW.
Might this be the start of a trend? And what would happen to Panama’s relatively small economy if the Chinese actually start to take a serious interest?
Why the Chinese Interest in Panama?
For the five-year period between 2015 and 2019, China’s President Xi Jinping set ambitious goals for exchange with the Latin American and Caribbean region (LAC): US$500 billion in trade and US$250 billion in direct investment.
In 2017r, Chinese banks are now financing more infrastructure in Latin America than the World Bank and the IADB combined (The Brookings Institution, Feb 2017).
Given Panama’s healthy debt to GDP levels and its voracious appetite for public infrastructure projects, future financing needs could become a very interesting match for Chinese capital.
What Could Happen Next
Panama’s strategic location as the “hub of the Americas” and gateway to the Latin American market has been a relocation driver for multinationals like Caterpillar and Procter & Gamble, so it’s no surprise Chinese companies are starting to look at expansion in Panama.
If a Panama-China diplomatic realignment happens and Taiwan is officially “out,” China’s demand for dollarized assets, combined with an official Chinese government endorsement of Panama could be the biggest thing to happen to Panama since the Canal.