The tussle over two ports on the Panama Canal shows Beijing’s willingness to assert its power as the U.S. attempts to roll back Chinese presence in the Western Hemisphere.
A huge deal touted by President Donald Trump as a victory in his campaign to “take back” the Panama Canal from China could be on the rocks amid pushback from Beijing.
The $23 billion sale involving two ports run by CK Hutchison, a private company based in the Chinese territory of Hong Kong, to a consortium led by U.S. investment firm BlackRock had originally been scheduled to be signed last week.
But an agreement between the two has been delayed under pressure from China, whose market regulator launched a review of the deal as state-run newspapers attacked it as undermining China’s national interests.
NBC News takes a look at the sale and what it may mean politically and economically for the United States and China, the world’s two biggest economies.
Why is it important?
During Trump’s inaugural speech in January, he claimed without providing evidence that China controlled the 50-mile canal, and vowed that the U.S. will take back the waterway, which he said was “vital” to national security. The Panamanian government has administered the U.S.-built canal since the U.S. relinquished it to the Central American country in 1999.
Trump did not rule out military action and has directed the Defense Department to draw up plans to send more troops to Panama to “reclaim” the canal, through which 40% of U.S. trade passes.
Panama denies Trump’s accusations about the neutrality of the canal, which is enshrined in its constitution. But in an attempt to relieve the pressure from Washington, in January the country launched an audit of CK Hutchison’s Panama Ports Company (PPC), which since 1997 has operated two ports along the canal, Balboa on the Pacific side and Cristóbal on the Atlantic side.
On Monday, Panama’s comptroller general said the audit had found that the contract was overly favorable to Hutchison PPC, costing Panama $1.3 billion in revenue, and that authorities would file a lawsuit against officials involved in its renewal in 2021.
The findings come as CK Hutchison is negotiating the sale to BlackRock, which includes a 90% interest in the two Panama Canal ports and an 80% controlling interest in 43 other ports outside Hong Kong and China. When the deal was announced on March 4, the companies said that definitive documentation for the Panama Canal operations would be signed by April 2.
Trump quickly declared victory. “To further enhance our national security, my administration will be reclaiming the Panama Canal, and we’ve already started doing it,” he said in an address to Congress last month, citing the proposed deal.
China’s ‘long-arm’ jurisdiction
The sale of the two Chinese-run ports is about more than just Panama, said Christopher Hernandez-Roy, senior fellow and deputy director of the Americas Program at the Center for Strategic and International Studies, a Washington-based think tank.
“It represents a major victory for the Trump administration’s efforts to roll back China in the Western Hemisphere,” he said, adding that is something China “would not want to happen.”
Though CK Hutchison, owned by billionaire Li Ka-shing, is a private company based in Hong Kong, a semiautonomous territory, Beijing quickly signaled its displeasure with the deal.
China “firmly opposes using economic coercion and bullying to harm other countries’ legitimate rights and interests,” Chinese Foreign Ministry spokesperson Guo Jiakun said last week.
Chinese government offices in Hong Kong have reposted articles from pro-Beijing newspapers criticizing the sale as undermining China’s national interest. Beijing’s market regulator has also said the sale is subject to an antitrust review “to protect fair market competition and safeguard public interests.”
The original signing date of April 2 came and went last week.
While neither BlackRock nor CK Hutchison have publicly commented on the delay, analysts say that in light of the cumulative 54% tariff imposed by the U.S. on China, the ports could potentially be used as a bargaining chip for China to extract concessions from the U.S.
“What seems more important is China’s effort to gain leverage in negotiations with Trump,” said Angela Zhang, a professor of law at the University of Southern California and author of “Chinese Antitrust Exceptionalism.”
While the deal does not involve Hutchison’s ports in Hong Kong and the Chinese mainland, CK Hutchison is publicly listed in Hong Kong, which, Zhang said, could mean China “may have jurisdiction,” even if the transaction “itself occurred offshore.”
The review by Beijing’s market regulator is an example of China asserting its “long-arm jurisdiction over offshore transactions,” she added.
BlackRock declined an NBC News request for comment. CK Hutchison did not respond to a request for comment.
For Panama, the deal’s failure “would be seen as snatching defeat from the jaws of victory,” Hernandez-Roy said.
“There would be tremendous pressure on Panama to cancel the concessions,” he said, referring to the port operation rights that Hutchison PPC won in 1997.
Nevertheless, some analysts say that CK Hutchison, which is not financially dependent on the Chinese government, is expected to press ahead with the deal.
Li, CK Hutchison’s 96-year-old owner, has been known to draw Beijing’s ire.
“Beijing is a bit skeptical about Li’s family. But the family still remains to be one of the most influential, if not the most influential conglomerates in Hong Kong,” said Wilson Chan, co-founder and director of policy research at Hong Kong’s Pagoda Institute.
“I think what they are actually doing is to diversify the risk, as Trump is getting more and more high profile about the ports in Panama,” he said. “And during turmoil in the global economy, cash is king.”
