China has asked state-owned enterprises to temporarily suspend negotiations on new projects in Panama in the context of Beijing increasing retaliatory measures after this Central American nation canceled the contract to operate 2 important ports along the Panama Canal of CK Hutchison Holdings Group based in Hong Kong (China).
China's move with Panama could disrupt potential investments worth billions of USD, many anonymous sources said. China also asked shipping lines to consider redirecting goods to other ports if significant costs are not incurred.
Chinese customs authorities are tightening inspections of imported goods from Panama such as bananas and coffee. Projects underway may be affected, although there are no final instructions yet.
Last week, the Panamanian Supreme Court declared the contract invalid allowing CK Hutchison's subsidiary Panama Ports Company to operate 2 ports along the strategic canal, on the grounds that the contract was unconstitutional because it granted exclusive privileges and tax incentives to businesses.
China, the country that uses the Panama Canal the second most after the US, previously warned Panama would pay a heavy price.
This retaliatory measure is similar to the move China took last year after CK Hutchison announced in March plans to sell global port assets, including operations at Balboa and Cristóbal in Panama, to a consortium led by Terminal Investment of Italian billionaire Gianluigi Aponte and US investment company BlackRock.
It is still unclear whether China's current measures will cause great losses to Panama. The US still maintains significant economic influence as Panama's leading trading partner and investor, although China has gradually expanded its presence in Latin America over the years.
Panama's agricultural products account for only a small proportion of the country's total exports to China, while avoiding the use of the Panama Canal in most cases will increase transportation costs and time.
Meanwhile, CK Hutchison, the unit operating 2 Panamanian ports since 1997, is requesting compensation through international arbitration related to the Panamanian court's ruling.
Two port facilities in Panama are currently the main obstacle in the sale of port assets of this Hong Kong (China) corporation. Relevant parties are considering options to promote negotiations, including dividing assets according to different ownership structures.
If completed, the entire transaction could bring CK Hutchison more than 19 billion USD in cash, although analysts believe that the valuation and actual revenue may be lower after Panama's ruling.
On February 5, Panamanian President Jose Raul Mulino declared that the country would "never" continue to grant the operating rights of 2 ports that CK Hutchison has operated for 3 decades, to a single company anymore.
I don't think the situation will escalate. Panama is a sovereign state and will not let any country threaten it," Mr. Mulino said, emphasizing that the court's ruling is the final decision.
