US Issues Sanctions Against China Communications Construction – The Belt & Road Initiatives’ Largest Infrastructure Contractor
Future Implications Over Panama Canal Trade As China Probes US Weak Spot
Op/Ed by Chris Devonshire-Ellis
U.S. State Secretary Mike Pompeo has issued sanctions against employees of the China Communications Construction Company (CCCC) calling it “One of the leading contractors used by Beijing in its global ‘One Belt One Road’ strategy, engaged in corruption, predatory financing, environmental destruction, and other abuses across the world. The PRC must not be allowed to use CCCC and other state-owned enterprises as weapons to impose an expansionist agenda.”
The Belt & Road Initiative’s geographical scope covers over 70 countries, accounting for about 65 percent of the world’s population and around one-third of the world’s Gross Domestic Product (GDP).
Pompeo said that the CCCC individuals named within the sanctions are now designated as inadmissible in the US and it may affect their immediate family members.
It is unlikely to impact on much of the Belt & Road’s projects as the United States is not party to the initiative and no BRI projects are taking place on United States territory. Neither neighboring Canada or Mexico have signed up to the initiative, although Panama has, and operation of the Panama canal is conducted by Hong Kong based Hutchison Whampoa.
That said, it remains unlikely that sanctions will affect US shipments of goods to Asia as the Panama Canal is owned by the Government of Panama, generates much of the national income, and the two countries enjoy good relations. Nonetheless it is important to be aware that the main Panama Canal trade routes link the U.S. East Coast to Asia, followed by the routes connecting the U.S. East Coast to South America’s West Coast, making Panama an important allay to Washington to keep US trade exports viable. Should that situation deteriorate at any time in the future, a slowdown of goods transiting Panama plus sanctions on Chinese operators could combine to have a problematic effect.
US Bilateral Trade With Panama (2018): US$7.3 billion
China Bilateral Trade With Panama (2018): US$3 billion
Currently the trade balance and income for Panama lies firmly to the United States advantage. However, Panama and China only established diplomatic relations with China in 2017, after years of favoring Taiwan. That stance diminished China trade potential during the preceding years. The resulting political about face towards China accounted for a 56% rise in Panama-China bilateral trade in 2018, and the two countries are currently negotiating a Free Trade Agreement – which if concluded will boost trade further.
China is also a major player in the Colón Free Trade Zone, a free port in Panama that is the largest of its kind in the Americas, and has committed to finance a feasibility study on a high speed railroad between Panama City and Costa Rica as well a grant Panama ‘most favored nation’ status, which reduces the import duty on Panamanian goods into China. The US$4.3 billion difference between US bilateral trade with Panama and China bilateral trade and investment is likely then to become an issue for US – Panamanian politics within the next few years as both China and the United States come closer to vying for control with Panama wanting to see national development take place. If the US doesn’t provide it – then China will.
US sanctions on CCCC could impact on Panama’s need to upgrade its rail infrastructure, in turn leading to regional infrastructure disruptions and conflict over the Panama Canal.
Washington’s latest sanctions on CCCC – should Panama decide to go ahead with Chinese offers to build national rail and port infrastructure – could therefore create a flashpoint and has the potential to disrupt US exports down the line. China wants trade and investment. The US is determined to stop it. Panama will eventually be in the firing line.
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Silk Road Briefing is written by Dezan Shira & Associates. The firm has 28 offices throughout Asia, and assists foreign investors into the region. For strategic advisory and business intelligence issues please contact the firm at silkroad@dezshira.com or visit www.dezshira.com
