Trade and Aid: Taiwan, China & Central America

Central america

This week I take a look at the inroads China and its rebelious province/regional rival Taiwan are making in the traditionally US dominated region of Central America.

Nicaragua

Chinese entrepreneur Wang Jing announced that he would achieve one of the world’s greatest engineering feats by 2019. Building a canal across Nicaragua to link the Pacific and Atlantic has been the dream of engineers and politicians for hundreds of years, but Wang is determined to make it a reality. Of course there is already a Panama Canal doing the same job further south, and while it is seriously overcrowded, it is also currently enjoying a major refit and expansion.

The feasibility of the project has come under serious scrutiny, in order to raise that kind of funding, estimated at USD 40 billion, to dig a canal of this magnitude –  Wang Jing will have to obtain funding from a major bank. Assuming he uses a Chinese bank, most likely the China Development Bank who are highly active in the region; such a loan would have to get political approval from Beijing. While the Chinese government would be keen to see a “Chinese canal” in Nicaragua, giving it great power in the Americas and beyond as it would control one of the world’s most important shipping choke points. However they might be unwilling to provoke the world’s superpower. The Panama Canal, although no longer under direct control of the US, remains very much under its influence and any move to provide competition to such a strategic route will set off alarm bells in Washington

Costa Rica

Unlike its Central American neighbours the eco-friendly nation spurned Taipei to switch allegiance to Beijing. In turn China has invested heavily in Costa Rica, developing an oil refinery as well as putting money into roads and public transport. Unsurprisingly the China Development Bank has taken the lead in financing these projects, underlining its reputation has the key financial institution in the region. Costa Rica is also attempting to develop its pork and dairy industries so they can export to the hungry Chinese market.

Honduras

Honduras continues to recognise Taiwan, but there have been rumours it may switch allegiance to the mainland. The country has made efforts to develop stronger ties with other emerging economies, opening trade offices in Beijing, Delhi and Singapore. Taiwanese companies have been active in the textile sector, building industrial plants in the country with a view to exporting to the US and Europe.

El Salvador

The country is a strong supporter of Taiwan in international political forums, and thanks largely to a sizeable community of Palestinian refugees, supports that country in international arenas, officially recognising it in 2010. Taiwan has also developed trade relations with the country primarily selling consumer products to the country.

Belize

This tiny Caribbean nation, best known for its tax haven status, has a sizeable ethnic Chinese community; it continues to recognise Taiwan, although it briefly switched support to Beijing in the 1980s. The tiny Caribbean island has not seen much Chinese investment, but its offshore tax status may soon attract newly minted Chinese millionaires who have made money in the region and want to keep it quiet. At the moment the favoured spot for this kind of activity is the British Virgin Islands, but that could change in time.

Panama

Panama has been threatened by the possibility of a rival canal in Nicaragua backed by Chinese funds and expertise and the country has attempted to diversify away from dependency on canal fees, moving into offshore finance and tourism. Chinese vessels are a major user of the canal, so Beijing has taken a strong interest in the country, although the Panamanian government continues to formally recognise Taipei.



Categories: China - Latin America, China Goes Global, Country Investment Analysis, Frontier Market Strategy, Frontier Markets, Kula Ring Trade Blog

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