Beijing Reacts To Panama Setbacks
Matthew Fulco
Executive Summary:
Since 2025, Panama has pushed back against the People’s Republic of China’s (PRC) influence in its region by leaving the One Belt One Road (OBOR) initiative and cancelling Hong Kong firm CK Hutchinson’s port concessions on the Panama Canal. In the meantime, Panama has deepened ties with the United States.
Beijing has responded aggressively to Panama’s about-face by lashing out against the Panamanian Supreme Court’s ruling canceling the concession, diplomatically threatening Panama, and detaining Panamanian-flagged vessels in Chinese ports.
Panama’s shift away from the PRC is in part due to Beijing’s faltering commitment to invest in the nation through the OBOR and United States (U.S.) recommitment to the Western Hemisphere since 2025.
Both Beijing and Panama City have signaled willingness to deescalate the situation. For Beijing, it risks further alienating Latin American countries if the region deems the United States to be an economically beneficial partner in the future.
The People’s Republic of China’s (PRC) strategic position in Panama has eroded significantly over the past 15 months. The Central American country has withdrawn from the One Belt One Road (OBOR) initiative, annulled a Chinese firm’s Panama Canal port concessions, and is strengthening relations with the United States—including by receiving the U.S. Under Secretary of State for Economic Affairs this week (Liberty Times, February 8, 2025; HK01.com, February 3; U.S. Department of State, May 12). These are rare setbacks in a region where Beijing has become accustomed to operating with few constraints.
Loss in Court
The trigger for this rapid downturn in PRC–Panama relations was a ruling by Panama’s Supreme Court that stripped a subsidiary of Hong Kong-based CK Hutchinson, Panama Ports Company (PPC), of its right to operate Balboa and Cristobal ports at opposite ends of the Panama Canal. The court ruled on January 29 that the company’s 1997 concession and its 2021 extension for an additional 25 years were unconstitutional. In explaining its decision—which is not subject to appeal—the court said that the agreement “gave disproportionate advantages to the company and harmed state interests, including through tax exemptions and the lack of a public tender for the renewal” (The Tico Times, February 23).
The court’s ruling occurred amid intensifying U.S. pushback against the PRC presence in Latin America, though it was ultimately an independent judicial decision informed by audit irregularities discovered by Panama’s comptroller (New York Times, February 2). In a joint statement published by the U.S. State Department, the United States, Bolivia, Costa Rica, Ecuador, Guatemala, Honduras, and Paraguay hailed the court’s ruling as “reinforc[ing] investor confidence and protect[ing] honest businesses” (Department of State, January 31).
The decision resulted in the Panamanian government seizing control of the terminals before temporarily handing them off to APM Terminals (part of Danish shipping firm Maersk) and TIL Panama (part of Switzerland’s Mediterranean Shipping Company, also known as MSC) while new contracts are arranged. In response, CK Hutchinson has initiated international arbitration proceedings against the Panamanian government, seeking more than $2 billion in damages, while Beijing has made veiled threats to both Maersk and MSC (PRC Ministry of Transport, March 10; World Journal, May 9).
The PRC reacted swiftly to the Panamanian Supreme Court’s ruling, treating it as a political decision rather than an independent judicial one. In a scathing commentary, the Hong Kong and Macau Affairs office declared the ruling to be “legally absurd, logically flawed, and utterly ridiculous” (法无稽、于理乖张，堪称荒谬至极). It then warned that the PRC government “will never sit idly by in the face of hegemonic bullying” (对霸权霸凌行径绝不会坐视不理) and urged the Panamanian authorities “to recognize the situation and correct their course” (认清形势、迷途知返); otherwise, “they will inevitably pay a heavy political and economic price” (必将在政治上、经济上都付出沉重代价) (Hong Kong and Macau Affairs Office, February 3).
The menacing tone was not well received in Panama, whose president José Raúl Mulino condemned the threat in a post on the social media platform X. He said that Panama is a nation that upholds the rule of law “and respects the decisions of the judiciary, which is independent of the central government” (X/@JoseRaulMulino, February 4). [1]
To make good on its threat, the PRC began detaining Panamanian ships in Chinese ports. In March alone, the PRC detained an estimated 70 Panama-flagged vessels (Taisounds, April 28). This retaliation is calibrated to cause Panama economic pain that could worsen over time as persistent disruptions would make its flag less attractive to international shipowners. [2] PRC sources claim that more than 200 ships had applied to change their registration as of mid-April (Beijing Review, April 13).
Despite these ship detentions, the PRC Ministry of Foreign Affairs denied any wrongdoing, declaring that Chinese authorities were simply “conducting normal inspections of the vessels in accordance with laws and regulations” (依法依规对船舶进行正常检查). It also blamed the United States for the dispute, saying Washington was “politicizing and securitizing the port issue” (将港口问题泛政治化、泛安全化) and “hypocritically posturing and spreading rumors and smears everywhere” (惺惺作态、四处造谣抹黑) (Xinhua, April 29).
PRC Partnership Disappoints
U.S. re-engagement in Latin America is not the sole cause of Panama’s deteriorating relationship with the PRC. A series of disappointing infrastructure ventures over the last decade have made the pivot back toward the United States much easier for Mulino’s government to effect.
Panama exited the OBOR initiative in February 2025—the first Latin American country to do so—largely because it had seen no tangible benefits from the massive infrastructure development strategy. Roughly eight years after establishing diplomatic ties with Panama, the PRC accounted for just 1 percent of the country’s foreign investment (Think China,February 28, 2025).
The Panama Colón Container Port (PCCP) project, announced in 2013, was a major OBOR failure dogged by the inability of its Chinese investors to pay the Panama Maritime Authority. The port was never built and the Panamanian government ultimately expropriated it in late 2025 (Newsroom Panama, October 30, 2025).
Panama also excluded Chinese state-owned firms from participating in the construction of the $4 billion Panama City–David Railway (though they conducted the original feasibility study), given concerns about PRC influence on Panamanian infrastructure. Panama ultimately decided to work with the United Kingdom, the United States, and a local firm (Radio Free Asia, May 13, 2025).
Some PRC commentators have tacitly acknowledged that OBOR failed to realize its ambitions in Panama, though they stop short of any overt criticism of General Secretary Xi Jinping’s signature foreign policy initiative. Liu Ningrong (刘宁荣), associate vice president of the University of Hong Kong, said that Panama withdrew from OBOR under U.S. pressure, but also recommended that the PRC “increase the transparency of its OBOR projects, ensure debt sustainability, and promote fairer partnerships” (中国应提高一带一路项目的透明度，确保债务可持续性，并促进更公平的合作伙伴关系) (HKU Institute for China Business, February 24, 2025).
Conclusion
Having lost part of its foothold in Panama—at least for the time being—the PRC appears determined to make the Central American country pay a price for decisions that harm Chinese interests and align with U.S. foreign policy objectives. Beijing has nevertheless signaled a willingness to de-escalate, likely with an eye on preventing the emergence of an anti-PRC coalition in Latin America—a real possibility given a recent wave of electoral victories in the region by Trump-aligned conservative leaders.
Panama also appears open to a détente, given the pressure on its shipping industry. President Mulino recently said that he has “no interest in escalating matters with China over this issue” (Beyondnews852.com, May 8). The PRC believes the economic punishment it imposed on Panama has been successful, seeing “helplessness and a genuine understanding of the lessons learned” (无奈和对教训的真正领悟) behind Panama’s “change of heart” (良心发现) (Sohu, May 11). This sentiment may be premature, however, as continued ship detentions have led Panama’s foreign minister to criticize Chinese “economic coercion” (South China Morning Post, May 12). Even if the PRC soon eases its pressure on Panama, other countries in the region may engage more cautiously with Beijing, especially if the culturally and geographically closer United States can provide them with greater economic benefits.
This article originally appeared in China Brief Notes. Check it out here!
Matthew Fulco is a journalist and geopolitical analyst. He worked in Taipei from 2014–2022 and Shanghai from 2009–2014, and is now based in the United States. He formerly served as a Taiwan Contributor for the Economist Intelligence Unit and his writing has frequently appeared in The Japan Times and AmCham Taiwan’s Taiwan Business Topics magazine.
Notes
[1] In the original Spanish, Mulino said “respeta las decisiones del Órgano Judicial que es independiente al Gobierno Central.”
[2] Panama is the world’s largest ship registry and earns hundreds of millions of dollars annually from the business, its second largest after canal transit fees.