CHINA’S ENGAGEMENTS WITH CENTRAL AMERICA AND ITS IMPLICATIONS FOR TAIWAN

• In recent decades, China has emerged as an increasingly important economic power in Central America with extensive trade and investment relations. The Central American region comprises of seven countries — Belize, Guatemala, El Salvador, Panama, Nicaragua, Costa Rica and Honduras. Traditionally, the predominant Asian power in the region was not the People’s Republic of China (PRC) but Taiwan, officially the Republic of China (ROC). However, today the scenario is rapidly changing, with many of the Central American nations switching sides and diplomatically recognising Beijing and not Taipei.
  
  
• This chain of events was set off by Costa Rica in 2007, when it switched diplomatic recognition to Beijing, followed by Panama and El Salvador in 2017. Nicaragua restored diplomatic relations with China in 2021, following its break from the nation in 1990 when it recognised Taiwan. The latest to join Beijing’s One China policy is Honduras, which switched recognition in March 2023 after supporting Taipei for 74 years. This development comes following China’s consistent and methodical push for a bigger foothold in the Central American region, utilising extensive dollar diplomacy and financial incentives.

PRC’s Motivations in Central America 

• China’s wish to expand its global influence and stature is no more a secret. China has also been quite upfront with regard to its One China policy, that there is only one sovereign state under the name China, with the People’s Republic of China (PRC) serving as the sole legitimate government of that China, with Taiwan being an inalienable part of China. Considering that Central America has traditionally fallen under Taiwan’s sphere of influence, currying favour in the region is of importance to the PRC in its agenda of creating ‘One China’. 
• On the other hand, the US too has historically maintained significant economic, political, and security ties with the region due to its geographic proximity and shared interests. Both the US and the Central American region have shared relations in terms of trade and investment. The US is a major trading partner for countries in the region and Central America provides a market for US exports. Moreover, Central America has been plagued with challenges related to drug-trafficking, gang violence and organised crime. The US has interest in helping address these issues as the US could potentially have spillover effects in terms of drug and crime penetration. The movement of people between Central America and the US also forms a significant area of common interest. People from the Central American region have traditionally moved to the US seeking economic opportunities while the US seeks to manage the immigration flows. Authorities in the Central American countries and the US work together on immigration policies as well to address the root causes of migration. Considering the multiple areas of interest and cooperation shared by the US and the Central American region, China’s vision to have steadfast control in the region requires much effort.
  
  
• The Chinese are also driven by economic motivations including resource extraction in terms of minerals, timber, fishing, agricultural products and energy resources among others as well as access to the Central American markets. Central America also forms the gateway between North and South America, making it a crucial transit point for goods and transportation, while its coastlines along both the Pacific Ocean and the Caribbean Sea provides it with access to global shipping lanes. Its geopolitical importance is also embodied in the Panama Canal, a critical passage for global maritime trade, connecting the Atlantic and Pacific Oceans.  
  
  
• The Chinese government clearly sees an opportunity to expand its presence in Central America for both commercial and geopolitical reasons. Meanwhile, Central American countries’ pressing need to recover from the COVID-19 pandemic, as well as some governments’ growing desire for a “more accommodating” alternate partner to the United States, is constituting a favourable environment for Beijing to exercise its influence. Besides, in contrast to the conditions attached to the help rendered by the World Bank, IMF, the US and other western nations which require an upkeep of democracy and good governance in the recipient nations, Chinese assistance boasts of ‘no strings attached’, with the country vowing to not intervene in the domestic affairs of its development partners. 

Central America’s Engagements with the PRC

• In recent decades, Central American nations have increased their relations and engagements vis-a-vis China. This has manifested in terms of trade relations, investment partnerships, and financial assistance. Costa Rica’s decision to engage with the PRC in 2007 was followed by an extensive array of financial commitments and projects initiated by the latter, including China’s purchase of $300 million in Costa Rican bonds; the construction of a new $100 million stadium; proposals to improve Highway 32 from the Capital to the Pacific coast; and a new $1.5 billion oil refinery. In 2018, Costa Rica joined the Belt and Road Initiative (BRI) and has since been receiving aid and investment in various sectors. For instance, $810 million has been invested in Costa Rica’s transport, entertainment and technology sectors by the PRC. China has become Costa Rica's second most important exporter with the value of exports to China reaching $342 million in June 2023, marking a 14.2 percent increase as compared to the value in 2022. Digital products are the main imports from China, including cell phones, computers and TV screens as of June 2023 while exports to China mainly comprises medical instruments, frozen bovine meat, and electrical parts. 
  
  
• Following Costa Rica’s path, another Central American nation was seen severing ties with Taiwan. Panama, in 2017, severed ties with Taiwan and has since initiated increased economic ties with the PRC, including officially joining the BRI. Since then, the country has signed over 20 agreements with China which includes a $5.5 billion, 450km high-speed rail project, connecting Panama City to Chiriqui province; the construction of a port for cruise ships, a bridge, and a convention centre around the Panama Canal, to name a few. China-based group, Shanghai Gorgeous is investing $900 million to build a second 441 MW natural gas fired electricity generation facility at the Atlantic exit of the Panama Canal. Huawei, a Chinese business, has placed its intrusive "Safe City Technology" in Panama, which includes facial recognition cameras designed to deter crime, and has made the Colón Free Trade Zone a regional hub for the distribution of its electronic systems. Through numerous infrastructure projects, China is also enhancing its strategic influence over the Panama Canal, and a Chinese-backed consortium now controls ports on both ends of the canal. 
  
  
• El Salvador also signed several agreements with new diplomatic partner China wherein Beijing committed to provide El Salvador with a host of funding for projects including $500 million for development projects, $200 million for President Bukele's "Surf City" projects and funds for water treatment facilities. Late in 2018, the PRC launched a number of initiatives in El Salvador that created six special economic zones (SEZs) that encircled La Union, the country's commercial hub. These trade zones occupy 14 percent of the country's total area but excludes trade with or investments from the United States or Europe. China and El Salvador have also commenced active talks with regards to the establishment of bilateral free trade agreements. 
  
  
• Nicaragua severed diplomatic ties with Taiwan in December 2021 and acknowledged the PRC as the legitimate government of China. Nicaragua and the PRC are negotiating a Free Trade Agreement for which they reached an Early Harvest Agreement in 2022. Considered a preliminary step for the FTA, it is expected to enter into force in January 2024. Being implemented in two stages, the first phase will see PRC purchasing Nicaraguan goods that covered 90 percent of the total exports Taiwan previously sent to Nicaragua. Both nations have also agreed to begin talks on a more comprehensive trade deal in phase II, with a focus on opening Nicaragua's economy to PRC-based infrastructure businesses. Nicaraguan Finance Minister Iván Acosta articulated during a meeting that ‘the FTA could increase by at least 2 additional points the growth of the country's Gross Domestic Product, projected at between 3.4 percent and 3.5 percent in the period from 2023 to 2026’. China has also engaged in soft power projections in the region, for instance, the Chinese embassy has been regularly organising several activities in Nicaragua, including concerts and Chinese film festivals calling them bridges that unite the two nations' cultures.
  
  
• The latest Central American nation to switch diplomatic recognition to the PRC is Honduras, which was made official in March 2023. The government articulated how Honduras’ decision stemmed from the desire for new investment and less debt. According to the Central Bank of Honduras, Honduras' exports to China totalled $24.7 million in 2020 and in 2022, with bilateral trade reaching almost $1.589 billion. In March 2023, Honduras announced that it was negotiating with China to build a hydroelectric dam, Patuca II. Honduras has also approached Chinese investors to help fund construction of a proposed US$20 billion rail line connecting the country’s Atlantic and Pacific coasts. 
  
  
• With regard to the other nations within the broader Central American region, the PRC has been especially active with its aid programme and vaccine diplomacy. China has donated its own vaccines, Sinopharm and Sinovac, to diplomatic allies in Central America with at least 1.5 million Sinovac doses going to El Salvador alone. China also agreed on deals to deliver its vaccines at prices cheaper than US vaccines. Beijing announced that it would provide $1 billion in financing to Latin American and Caribbean countries to help them purchase Chinese vaccines. 

Implications of PRC’s Engagements in the Central American Region

• The shifting of diplomatic recognition towards the PRC by these Central American nations has posed a serious challenge for Taiwan. The number of countries that recognise Taiwan has now dwindled to merely 13. While Taiwan offers much to keep its allies, it is clear that China can offer far more in terms of trade, tourism and economic opportunities. This weakens Taiwan’s position in diplomatic battles, brings down trade and investment in these regions as well as dampens its global recognition. PRC has more goals in mind beyond merely isolating Taiwan by persuading its partners in diplomacy to change sides. Its actions are components of a larger geopolitical scheme. For instance, by persuading Panama to change its stance in 2017 and sever ties with Taiwan, the Communist Party of China won a diplomatic conflict and established a privileged relationship with the leadership of a country that controls one of the busiest maritime commerce routes in the world. 
  
  
• China’s active involvement strategy also has repercussions within the states concerned, where the geopolitical game is adding to local rivalries. For instance, the recent elections in Honduras and Nicaragua took on an international dimension with the primary presidential candidates campaigning based on whether to maintain diplomatic relations with Taiwan or not. Experts are also expecting the corruption and weak judicial systems within the participating nations to worsen with the threat of debt trap looming as well. The dollar diplomacy being utilised by the PRC is also leading to tendencies of economic dependency among the small nations that are part of China’s aid and investment strategy. Experts and onlookers are also concerned with the economic influence that is being exerted by China in these regions which could be easily translated to political sway and military presence in the region. Increasing Chinese presence in the region could also essentially mean a shift in the regional power balance, especially with the ongoing rivalry between the United States and the People’s Republic of China. 

Conclusion 

• China is expanding its economic, military and ideological footprints worldwide. The leadership has put out PRC’s goal of becoming a benign development and economic partner to any country in need, something that was once again articulated in President Xi Jinping’s 2013 speech, the ‘China Dream’. Its presence is hugely felt in the Southeast Asian region, with Cambodia being one of its most staunch allies and the entire region slowly turning into PRC’s sphere of influence as opposed to the largely US support the region expressed during earlier times. A similar phenomenon is underway in the Central American region, which traditionally boasted of a close relationship with the US. However, what makes the region stand out from the case of the Southeast Asian region, is an added motive on the part of the PRC. This mainly has to do with the diplomatic battle it has going on with Taiwan. Hence, in its efforts to increase its foothold on the Central American region, it has to counter both US influence as well as the traditional support the region lends to Taiwan. So far, it has become successful in establishing extensive ties with five of the seven Central American countries, leaving Taiwan with only two diplomatic partners in the region. 
  
  
• Moreover, China’s presence in the region is also not weighed down by centuries of friction caused by illegal migration or spillover of issues related to crimes and drugs, challenges that the US has always faced in its relations with Central America. With a larger stake in the case of Central America in terms of winning the diplomatic battle and a relationship not marred by issues, China’s progress in the region is going remarkably well. Challenges were and still are numerous with several of the China-backed projects in the region getting stalled or getting cancelled. However, in terms of the successes witnessed by the PRC, these challenges pale in comparison. China’s future endeavours in the region hence requires close monitoring and appropriate policy responses by all involved parties, including the US, Taiwan as well as other nations. A shift in the balance of power in the Central American region can have long-reaching and deep-rooted implications.