Panama’s President Jose Raul Mulino has relented and announced that his country will examine its participation in China’s Belt and Road Initiative (BRI) that it joined in 2017. This announcement comes after US Secretary of State Rubio conveyed to President Mulino that any Chinese involvement in the Panama Canal should reduce; otherwise Panama could attract retaliation from the US including re-imposing US control over the canal through force. The Panamanian government has approached the UN Security Council and filed complaint over US’ threat that it could use force to gain control over the Canal. Rubio had previously pointed out that the Chinese the Chinese company CK Hutchison Holdings which includes Hutchinson Ports is overseeing the operations at two ports on either side of the canal in the Pacific and the Atlantic Oceans. He also said that China had established “control over the entry and exit points” which was “completely unacceptable” to the US.

Meanwhile, Panamanian authorities have already begun a security audit of port operations being conducted by CK Hutchison Holdings. However, President Mulino noted that until the audit is completed, it is difficult to ascertain the legal implications of telling the Chinese companies to wind up their operations. It is to be noted that the Chinese company already has global operations in 53 ports in 24 countries, including the US allies i.e. the UK, Australia and Canada.

President Donald Trump, before taking office in January 2025, had threated Panama that the US will rescind from the 1977 treaty under which Panama had gained control of the Canal on the condition that the manmade strategic waterway remained neutral with provisions that the US could “intervene militarily” should its operations were disrupted by internal conflict or a foreign power and in this case it is China that President had in mind.

The Chinese foreign ministry official clarified that “China does not take part in managing or operating the Canal” and emphasised that Beijing recognizes Panama’s sovereignty over the Canal which is “not negotiable”. Furthermore, China is committed to respecting the “permanent neutrality of the canal” and is a “cornerstone of China's foreign policy”. 

In an article "US, please learn to respect" published in Panama in Spanish language by Xu Xueyuan, the Chinese Ambassador to Panama, has accused the US of blocking the canal in the past; “The only time the canal was blocked in history was not by a foreign adversary, but by the US itself." Furthermore, Xu recalled “Operation Just Cause” wherein 27,000 US military personnel arrived in Panama and captured Manuel Noriega to reestablish a democratic government. Xu also mentioned that people of China and Panama have a “longstanding historical connection” of over 170 years of cultural ties.

At the heart of the current tensions between the US and Panama over the canal is the Chinese influence in Central and South America. As many as 22 of 26 eligible countries have joined the BRI and Chinese are active in the continent through foreign direct investment, energy sector, infrastructure lending, etc. For instance the outward foreign direct investment (OFDI) from China into Latin America and the Caribbean in 2023 totaled nearly $ 9 billion which is about 6 percent of total Chinese OFDI.

Meanwhile, during President Xi Jumping’s visit to Lima, Peru for the Asia-Pacific Economic Cooperation (APEC) forum in November 2024, he inaugurated a $3.5 billion deep water mega port in Chancay, north of Lima. The port will be an important node in the maritime-land corridor and result in direct shipping between South America to mainland China. Apparently, Chancay has the potential for both commercial and military use by the Chinese Navy and this dimension has raised the concerns of the U.S. Southern Command. At another level, Peru could also potentially join Venezuela and Cuba which now have a well-established mechanism for defence and security ties with China.

The war of words between Panama and the US continues including President José Raúl Mulino dismissing a US State Department claim that the US warships were being allowed to use the canal for free.

Dr. Vijay Sakhuja is Professor and Head, Center of Excellence for Geopolitics and International Studies (CEGIS), REVA University, Bengaluru and is associated with Kalinga International Foundation, New Delhi.