Panama Canal
With several governments questioning the benefits of Chinese partnerships and the United States’ growing interest in intervening in Latin America, Beijing is losing influence in the region.
The Supreme Court of Panama invalidated, at the end of January, a contract that allowed the Panama Ports Company, a subsidiary of the Hong Kong-based company CK Hutchison, to operate two ports in the Panama Canal since 1997.
The decision, which considered the laws that allowed the company to operate the ports “unconstitutional”, comes a year after US President Donald Trump had threatened to take control of the channel to limit Chinese influence over the waterway.
Beijing reacted with outrage to the decision, calling it “absurd, shameful and pathetic” He also stated that the Panamanian government will pay “a high political and economic price” for expelling the company from the ports. The decision is the latest sign that China’s ambitions in the region are losing steam.
Chinese influence in Latin America is a relatively recent phenomenon. Since 1823, when President James Monroe declared the Western Hemisphere closed to European colonization, that the US largely maintains tight control over the region’s affairs.
But this changed after the end of the Cold War in 1991, with successive American administrations reduce their focus on Latin America. This has allowed emerging superpowers, such as China, to assert their influence in the region.
China is now the South America’s main trading partner and is becoming the largest for Latin America as a whole. It is also an important source of foreign direct investment and infrastructure financing for the region.
Chinese influence in what the US considers its own backyard has angered the Trump administration. Shortly after the operation to capture Venezuelan leader Nicolás Maduro in January, US Secretary of State Marco Rubio declared: “This is the Western Hemisphere. This is where we live – and we will not allow the Western Hemisphere to be a base of operations for America’s adversaries, competitors and rivals.”
The expulsion of the Panama Ports Company from the Panama Canal was celebrated as a victory in Washingtonwhich seeks to promote its own national interests in the region. But it is also possible that the incident will lead countries across Latin America to reevaluate their dependence on China. Over the past two decades, China has flooded Latin American and Caribbean countries with loans. However, unlike loans from the World Bank or the International Monetary Fund, which are conditional on structural and institutional reforms, Chinese loans come with few conditions. China generally requires governments to guarantee payment through future exports of goods such as oil.
At the same time, Chinese investments generally entail low environmental and labor standards. In a 2023 analysis of 14 Chinese mining, hydroelectric, fossil fuel, infrastructure and agricultural projects in Latin America, the UN Committee on Economic, Social and Cultural Rights identified patterns of serious rights violations. These included violations against the rights of indigenous peoples, as well as the rights to health, a healthy environment, water, food and housing.
Chinese investments also tend to be concentrated in areas that give Beijing the control over infrastructure criticism of a country. For example, China controls a majority stake in the strategically important port of Chancay in western Peru, and Chinese companies now control approximately two-thirds of Chile’s energy distribution. Under these circumstances, reducing dependence on China is probably in the interests of many Latin American countries.
In February 2025, Panama became the first country in the region to withdraw from China’s global infrastructure and investment project, the Belt and Road Initiative. The announcement came after a visit by Rubio, which drew criticism from Chinese authorities over what they saw as US attempts to “deliberately sow discord” between China and Panama.
At a press conference, Panamanian President José Raúl Mulino stated: “I don’t know what the intention of those who signed this agreement with China was. What has he brought to Panama all these years? What are the great things that this Belt and Road Initiative has brought to the country?”
China’s choices
China itself already appears to be deprioritizing Latin America as an investment destination, largely due to the region’s mediocre growth trajectory and frequent delays in loan payments. The country has reduced sovereign borrowing since 2020, while Chinese investment in large-scale infrastructure projects in Latin America has declined in recent years.
And it may be in China’s interest to accelerate this trend. Maduro’s capture by the US demonstrates the Trump administration’s willingness to induce drastic changes in the Latin American political environment. These changes could harm China’s ability to collect unpaid debts to governments in the region.
For example, analysts suggest that there is a risk that the new Venezuelan government will attempt to challenge the legitimacy of the approximately US$10 billion (R$7.3 billion) debt it owes to China, based on a legal doctrine known as “odious debt”. This doctrine arises when a government argues that debt incurred by a previous regime did not benefit the nation and, therefore, it is unenforceable.
The future ownership of the two ports formerly operated by the Panama Ports Company is uncertain. The company announced that it is starting a international arbitration proceedings against Panama due to the contractual decision, a process that will likely last years. But it appears that the height of Chinese economic domination in Latin America may be coming to an end.
