Chinese Investment in Central America is Growing

Chinese investment in Central America, as well as its interactions with the countries of the region,  is growing at a significant pace.    A sign of this was the occurrence of a recent “milestone” in Panamanian aviation: the first direct flight between that country and the People’s Republic of China (PRC).  This is a very visible sign that China is moving increasingly into one of the main geographic spheres of US influence.  Analysts contend that the Asian giant’s investment in Central America, as a whole, will continue to expand over the coming years. 

A New Business Partner

Beijing is currently the second or third largest trading partner with the countries of Central America.  Chinese investment in Central America is present in infrastructure projects in Honduras, Nicaragua, Costa Rica, and Panama, and there are plans for further investment in El Salvador and Guatemala.  Excluding a contemplated US $50 billion dollars in a canal project in Nicaragua, Chinese investment in Central American infrastructure has totaled approximately US $2 billion thus far. 

In a further demonstration of growing ties between the PRC and the countries of Central America, Costa Rica, Panama, and El Salvador have each broken relations with Taiwan to establish diplomatic ties with China.  Other countries in the region could soon follow suit.

Panamanian “Panda Bonds”

Sino-Central American investment is being actively pursued in Panama.  The country is one of the nations in Latin America that is part of an ambitious program that Beijing has undertaken in the region. 

The PRC’s “Silk Road” initiative is a trading and infrastructure plan that aims to connect Asia, Europe, Africa, and Latin America in the same way that the trade route existed during ancient times.  In addition to this initiative, further Chinese investment in Central America will result from the Panamanian government’s issuance of US $500 million of “Panda Bonds” in 2018.  Panda Bonds are Chinese renminbi-denominated bonds from a non-Chinese issuer that are sold into the Chinese market.  Panama issued them in order to take advantage of China’s lower borrowing costs.

Chinese Investment in Central America Has Huge Potential

Growing Chinese investment in Central America can be characterized at present by an uptick in trade relations and foreign direct investment.  The countries in the region see greater economic ties with the Asian power as a means by which to address infrastructure shortcomings in areas such as hospitals, dams, roads, and telecommunications facilities. 

Chinese investment in Central America can help the governments of the region to overcome serious limitations in their abilities to provide for their nations’ growing needs.

Some Chinese Investment in Central America is Already Underway

Chinese investment in Central American infrastructure is already making its mark.  For instance, the Costa Rica China Harbor Engineering Company (CHEC) is responsible for having extended the main road that links the country’s capital, San Jose, to the Caribbean.  The extension consists of roadwork on 107 kilometers of highway and represents an investment of US $450 million.  

In addition to adding to improvements made on the road that leads from the capital to the Port of Limon, CHEC also has rebuilt 9 of the 32 bridges that are located on that stretch of Costa Rican highway.  It is also in the plans to create a Special Economic Zone at Puerto Limon in which Chinese products can be manufactured. 

Finally, Costa Rica has received other benefits from its growing relationship with China such as a non-reimbursable loan for US $300 million, and the remodeling of Chinatown in the country’s capital.

Chinese Investment in Central America Beyond Costa Rica

The lack of formal diplomatic relations with some of the country’s in the region has not prevented Beijing from investing in them.  Honduras is one such nation.  Chinese partners were involved in constructing the Patuca III dam which is located 180 kilometers east of the country’s capital, Tegucigalpa.  The cost of the project was US $350 million. 

Another example is Nicaragua.  In that country, Xinwei wireless installed stations for cell phone communication.  The price tag of this Chinese investment in Central America was US $1 billion.  Panama, however, is the Central American nation that has received the most Chinese support. 

After establishing a diplomatic relationship with China in June of 2017, the China Harbor Engineering Company built a cruise and container port in the Colon Free Zone.  Chinese companies also competed for contracts to build bridges over the Panama Canal and for contracts to build a railway line from the border of Costa Rica to Panama City.

The Central Purpose of Chinese Investment in Central America

The importance of Central America to the Chinese government is the region’s geographical position, which enables it to ship goods to both the East and West Coasts of the United States.  Chinese investment in Central America also creates a linkage to African and European markets to create a new Silk Road.

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