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

This article was originally published by Global Taiwan Institute in its weekly newsletter, The Global Taiwan Brief, Vol. 4, Issue 14. Used with permission. To get the Global Taiwan Brief in your inbox every week, subscribe at globaltaiwan.org/subscribe. 

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Margaret Myers is director of the Asia and Latin America program in Washington, DC. Isabel Bernhard is an intern with the Asia and Latin America program and a student at Harvard University.

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 the People’s Republic of China (PRC), marking an end to a decade-long unofficial diplomatic truce between China and Taiwan in LAC and other regions. As Taiwan grapples with its shifting diplomatic outlook, Taiwanese president Tsai Ing-wen has embarked on a trip to the United States and several Caribbean nations to reaffirm Taiwan’s commitment to remaining allies.

Beijing’s most recent diplomatic gains in the region are at least in part the result of enhanced diplomatic activity in the region, and among Taiwan’s remaining allies. The May 2016 election of President Tsai Ing-wen and concerns in China about her perceived pro-independence agenda has reignited diplomatic competition between China and Taiwan in the LAC region. Chinese officials have been increasingly active in promoting diplomatic ties with the mainland.

China’s most recent diplomatic overtures in LAC also correspond with the global expansion of its Belt and Road Initiative (BRI, originally “One Belt, One Road”), which promises infrastructure and other forms of connectivity. Xi’s signature foreign policy platform was officially extended to the LAC region during the January CELAC Ministerial Forum in January 2018 after much lobbying by Latin American ambassadors and other officials.

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 lsign a bilateral Belt and Road Cooperation Agreement with China. The Dominican Republic since signed a similar agreement with China after establishing relations with Beijing and El Salvador reportedly inked several Belt and Road-related MOUs in after its decision to break ties with Taipei. To date, sixteen other LAC nations have also signed bilateral BRI agreements with China.

China has delivered on at least some of its BRI-related messaging. China-backed infrastructure deals are in the works throughout the region, including in the three LAC 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 China-backed railway with Panamanian officials, which would run from Panama City to the border of Costa Rica. The railway, which has already progressed past an initial feasibility study, 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 Beijing, 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, such as Guatemala, appear content with their current diplomatic arrangements. Guatemala’s president reiterated his support for Taiwan in April, during a visit to Taipei. Others 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.

Whatever Taiwan’s remaining allies decide to act, they should monitor outcomes in those countries that have decided to break their diplomatic ties with Taiwan in recent years, noting thatthe 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 confirmed infrastructure projects, but Chinese companies were active in Panama many years before the country chose to cut ties with Taiwan. The Central American country has been of strategic interest to Chinese investors for more than a decade. Though a Taiwan ally at the time, Panama featured in the Chinese Ministry of Commerce 2010 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 environmental implications of the project when developing pre-construction impact studies. In comparison to elsewhere in LAC, deal-making in Costa Rica has seemingly been limited by the country’s extensive environmental regulations.

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 reconfigurations.

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 neighboring Panama and Costa Rica. The ways in which other nations derive advantages 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 differences between successfully creating and cultivating alliances.

The main point: China’s economic outreach in LAC has eroded Taiwan’s diplomatic presence in the region, but mixed investment results and divided public reception will complicate China’s attempts to cultivate its new relations.