Recent statements by U.S. President Donald Trump and Special Envoy for Latin America Mauricio Claver Carone, as well as the trip by Secretary of State Marco Rubio to Central America, have focused attention on the risks posed by the activities of China in Panama.
Two points should be made clear at the outset. First, the United States turned the canal over to Panama through a properly ratified series of two treaties whose legal validity is generally not in question, however much some may question the wisdom of the U.S. government in agreeing to them.
Second, since Panama assumed responsibility for operations on December 31, 1999, the Panama Canal Authority (ACP) has done a reasonably good job administering the waterway. The ACP has generally charged rates for canal passage that do not discriminate by the country owning the ship, although U.S. warships receive special priority, while military ships from Colombia, by a separate treaty, pass through the canal for free.
With respect to China, the People’s Liberation Army (PLA) does maintain relationships with Panama’s Border Protection service, its Air and Naval Service, and its National Police, including training members of those organizations in China. In 2023, Beijing also donated over 6,000 military vests and helmets to Panama’s security services, although in the wrong color for Panama’s uniforms, and many have since broken down.
Aside from China’s low key military engagement with Panama, the real issue is the scope of its commercial presence there. For example, China-based logistics giant Hutchison operates ports on both the Atlantic and Pacific sides of the canal, two of the five port operations there. Beyond just the ports, China’s economic engagement and development of networks of personal influence and benefit in Panama have arguably facilitated its use of the country as a global logistics and financial hub to promote its commercial advance in the region under conditions of limited transparency, with numerous shady dealings.
Shortly after then-Panamanian President Juan Carlos Varela’s decision to recognize the People’s Republic of China (PRC), documents reportedly leaked from his WhatsApp account showed a financial windfall in China for the liquor export business owned by his brother, although a quid pro quo regarding the family liquor business was never proven. Varela quietly worked to limit China’s presence in other areas, such as the electricity sector.
Varela’s successor, Nito Cortizo, initiated a review of projects with China-based companies begun by his predecessor, which ultimately limited these deals in important ways. However, in 2021, the Cortizo government renewed Hutchison’s concession to operate the Cristobal and Balboa ports under extremely generous terms and under non-transparent conditions. That raised serious questions about Hutchison’s influence with Panama’s governments and its ability to exploit it, whether to support China’s commercial advance or (hypothetically) in a time of war.
Beyond ports, the China-based logistics giant COSCO, which has supported the PLA in Libya, Yemen, and elsewhere throughout the world as part of China’s military-civil fusion concept, has a significant, longstanding relationship with the ACP as one of the Panama Canal’s biggest users and most important customers.
China-based companies are active across the country in construction projects, including construction of an enormous convention center by China Construction Americas, which was subject to a $1.6 billion civil judgment for corruption and malfeasance on a separate project. Chinese projects also include a new cruise ship port near Panama City, and a new $1.52 billion bridge over the canal. China-based Huawei has its regional headquarters in Panama and a major role in the digital infrastructure in the country. Numerous other China-based companies also have major regional logistics operations in special zones near Colon and Panama Pacifico, among others.
The China-based company Jiangxi was the purchaser of more than two-thirds of Panamanian copper from the Cobre Panama mine, which accounted for 5 percent of the country’s GDP. The mine closed in 2024, but there is the possibility that it will be reopened by the current government.
Under the Varela government, Panama began negotiating a free trade agreement (FTA) with Beijing, which would have expanded China’s commercial presence, influence, and people-to-people networks even further. Although the talks did not continue under Cortizo, the present government of Jose Raul Mulino has indicated an interest in re-opening FTA negotiations with China.
As suggested by the aforementioned examples, beyond Panama’s government, virtually all of Panama’s most influential families have business dealings with PRC-based companies. Since the Varela government recognized the PRC in 2017, Chinese organizations have issued invitations to individual Panamanian academics, businesspeople, politicians, journalists, government officials, and others to travel to China, while the International Liaison Department of the Chinese Communist Party has actively courted businesspeople, government officials, and others in Panama. China’s efforts have created a worrisome web of relationships of interest, with the potential to be exploited by Beijing for information, favors, or other purposes. I personally knew former Panamanian officials, the same people responsible for negotiating their country’s interests with Beijing, whose own education in China was paid for by Chinese government (Hanban) scholarships.
Beyond supporting Beijing’s commercial and political objectives, China’s combination of presence, influence, and compromising relationships within Panama’s government and business community gives it numerous opportunities that it could exploit to shut down the canal in deniable ways, or otherwise use against the United States in a time of conflict.
The Panamanian government and the United States both take their responsibilities under Article IV of the 1977 Carter-Torrijos Treaty to protect and defend the Panama Canal very seriously, as evidenced by the annual Panamax exercise, focused on protecting canal operations, one of the biggest multilateral exercises in the region, involving 20 nations. However, China’s access to the canal – from its significant number of commercial operations and personnel in the country – and associated technical knowledge available to Chinese companies from their operations in Panama, simply creates too many opportunities for Beijing to target the canal in wartime. It’s impossible to completely protect against them all.
Examples include staging an accident to sink or disable one of the numerous vessels transiting the canal in a narrow passage such as the Culebra Cut, destroying one of the bridges spanning the canal (just as the March 2024 collapse of the Francis Scott Key bridge in Baltimore blocked access to the city’s for days), sinking a ship in the locks themselves, or detonating explosives concealed in a ship’s hull while transiting the locks. China could also attack lock control systems, or associated water management systems, through either physical or cybernetic attacks. Groups deniably independent from Beijing could mine part of the canal zone, or present risks to ships awaiting transit through the canal, just as the Houthis did to significantly impede transits through the Red Sea and Suez Canal in 2024. These methods could allow for plausible deniability as well, claiming accidental damage.
Managing the risk of attacks against the canal requires limiting the access and knowledge of parties such as China with an interest in shutting it down in wartime.
The 1989 U.S. military intervention to remove Panamanian narco-president Manuel Noriega reminds Panamanians that there is precedent for U.S. action when it perceives its core strategic interests regarding the Canal Zone are at stake, aside from the legal issues. Military action, however, would be a tragedy in terms of Panamanian and U.S. lives, costs and economic impacts, as well as in its long-term costs. Action against Panama could incentivize other countries to hedge against the United States, possibly deepening their embrace of adversaries such as China, Russia, and Iran.
There is a clear path to protecting U.S. and global interests in fair and unimpeded operation of the Panama Canal, while also respecting Panama’s sovereignty, international law, and treaty commitments: The U.S. and Panama must together double-down on reinforcing transparency and good governance, which are already at the heart of Panama’s success as an international logistics and financial hub.
Past actions that both reflected and facilitated China’s advance, such as the questionable, non-transparent 2021 renewal of Hutchison’s port concessions in Cristobal and Balboa, should be thoroughly investigated. The audit of those operations begun by President Mulino is a good start in that regard. If appropriate, contracts tainted by corruption should be rescinded.
Beyond Hutchison, with supervision of an international body – not unlike the Commission Against Corruption and Impunity in Guatemala – a broad review of benefits obtained by Panamanian officials with decision-making authority through trips to, speaking engagements in, or other business in China, should be conducted. Where corruption is found, Panama’s government should move to impose criminal penalties and invalidate any resulting contracts.
The conflict over the Panama Canal should not overshadow Panama’s enduring role as a key friend and partner to the United States, bound by ties of history and family, as well as by the Canal. Indeed, the Trump and Mulino governments share interest in a broad range of issues from commerce to management of immigration flows that should make the Panama-U.S. relationship one of the strongest in the region. It would be a tragedy not to find common ground.
