Weighing the Effects of Taiwan-China Competition in Latin America and the Caribbean

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A version of this article was published in the Global Taiwan Institute's Global Taiwan Brief in July 2019.

Since 2017, three countries in Latin America and the Caribbean (LAC)—the Dominican Republic, Panama, and El Salvador—have shifted diplomatic recognition from Taiwan to China, marking an end to a decade-long unofficial diplomatic truce between China and Taiwan in LAC and other regions. 

Beijing’s most recent gains in the region are at least in part the result of enhanced diplomatic activity, whether across the LAC region or target in Taiwan’s remaining allies. The May 2016 election of President Tsai Ing-wen and concerns in China about her perceived pro-independence agenda have reignited diplomatic competition between China and Taiwan in the LAC region. Ever since, Chinese officials have been increasingly active in those countries that continue to support Taiwan, over half of which are in Central American and the Caribbean. Taiwan also sought to affirm its commitment to remaining allies with a recent trip to the United States and several Caribbean nations. 

China’s diplomatic overtures in LAC also presumably correspond with the global expansion of its Belt and Road Initiative (BRI), which promises infrastructure and other forms of connectivity. Though not well understood in Latin America, and subject to varying definitions even in China, the BRI and the investment opportunities it purports have been attractive to China’s and Taiwan’s diplomatic allies alike. The decisions by Dominican, Panamanian, and Salvadoran governments to establish diplomatic ties with China were based in large part on the prospect of large-scale infrastructure and other investment in their countries. As former president of Panama Juan Carlos Varela indicated in a speech in Hong Kong in 2019, the BRI is “all about connectivity and Panama is one of the most connected countries in the region.” He added that his country saw a “big opportunity” in the BRI. Panama, which broke ties with Taiwan in 2017, was the first country in the region to sign a bilateral Belt and Road Cooperation Agreement with China. The Dominican Republic signed a similar agreement with China after establishing relations with Beijing and El Salvador reportedly inked several Belt and Road-related MOUs after its decision to break ties with Taipei. To date, sixteen other LAC nations have also signed bilateral BRI agreements with China.

China has so far delivered on at least some of its BRI-related messaging in LAC. China-backed infrastructure deals are in the works throughout the region, including in the three countries that recently established ties with Beijing. China bid on and won a number of construction contracts in Panama over the past year and a half, and has also discussed a possible railway with Panamanian officials, which would run from Panama City to the border of Costa Rica. The railway, for which an initial feasibility study was recently completed, was among the first ventures in the region to be officially affiliated with the BRI.

China reportedly offered the Dominican Republic a package worth $3 billion in exchange for diplomatic recognition, over half of which was destined for infrastructure projects. The Dominican Republic is also in the process of securing a $600 million loan from China’s Export-Import Bank to upgrade its power distribution systems, and President Medina has flagged additional projects for possible Chinese support, including the modernization of the Port of Arroyo Barril. El Salvador’s former ruling Farabundo Martí National Liberation Front (FMLN) tentatively negotiated at least two major projects with China—renovation of the La Union port and a possible special economic zone, which would account for about 14 percent of Salvadoran territory and much of the country’s coastline—before siding diplomatically with Beijing.

As the Dominican Republic, El Salvador, and Panama navigate their new ties with China, Taiwan’s remaining allies in the LAC region—Haiti, Guatemala, Honduras, Nicaragua, Saint Kitts and Nevis, Saint Lucia, and Saint Vincent and the Grenadines—are no doubt weighing their options. Some may fear that cutting ties with Taiwan would lead to retaliation from the US. The US government has indicated a strong preference that Guatemala and Honduras remain steadfast in their diplomatic support for Taiwan. In May, three US senators reintroduced the draft Taiwan Allies International Protection and Enhancement Initiative Act to engage with governments in the world that support Taiwan’s diplomatic recognition. US leverage over decision-making in the Northern Triangle region of Central America (comprising El Salvador, Guatemala, and Honduras) has arguably decreased, however, since the Trump administration threatened to cut funding to those countries in April 2019. Guatemala’s president reiterated his support for Taiwan in April, during a visit to Taipei, but tensions with the US over immigration could push the government there closer to Beijing. 

However Taiwan’s remaining allies decide to act, they should monitor outcomes in those countries that have decided to break diplomatic ties to Taiwan in recent years, noting the extensive variation in outcomes on a country-by-country basis. Panama has seen a boom in Chinese activity, with Chinese entities involved in at least nine infrastructure projects. However, unlike in other Central American countries, Chinese companies were quite active in Panama many years before the the government there chose to cut ties with Taiwan. Panama has been of interest to Chinese investors for more than a decade. As far back as 2010, the country featured prominently in the Chinese Ministry of Commerce going-out guide for companies seeking to invest in Latin America. 

By comparison, Chinese engagement with Costa Rica is exceedingly limited, even though Costa Rica established ties with China over a decade ago. At that time, China promised a stadium, a refinery, and the expansion of a critical roadway, but only the stadium and an initial road authorization have materialized—the latter after about a decade of debate in Costa Rica. The Recope refinery project is now in litigation at the International Chamber of Commerce amidst accusations that the Chinese partner firm in the joint venture attempted to downplay the environmental implications of the project when conducting initial impact assessments. In comparison to elsewhere in LAC, deal-making in Costa Rica has seemingly been limited by the country’s strong regulatory environment.

Public perception of Chinese investment also varies considerably in these countries. Whereas everyday Panamanians are largely optimistic about continued prospects for cooperation with China, the debate about Chinese engagement in El Salvador is largely confined to the political class. Costa Ricans have expressed mixed feelings about economic partnership with China, and especially about the stadium they were gifted. It was a generous gesture on the one hand, but limited public funding for stadium upkeep has been problematic, and inconsistencies between the stadium’s electrical infrastructure and Costa Rica’s electricity grid resulted in some costly re-configurations. 

Across the board, LAC countries can certainly benefit from enhanced economic ties with China, but the extent and quality of these benefits may vary, as underscored by outcomes in Panama and Costa Rica. The ways in which other nations benefit from their new relations with China will depend on the types of deals they strike, on the state of their regulatory environments, and their capacity to ensure compliance with existing regulations and standards. China may have dealt a considerable blow to Taiwanese diplomacy in the region over the past year and half, but it is still navigating the difference between creating and cultivating lasting alliances.