China’s diplomatic efforts have steadily eroded Taiwan’s foothold in the region. Yet the anticipated wave of investment never arrived, as trade data makes clear.
At night, El Salvador’s National Library glows like a spaceship – a gift from Beijing.
Jose Cabezas / Reuters
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Few symbols of China’s growing influence in Central America are as striking as El Salvador’s new national library. By night, it glows like a spaceship that has touched down in the heart of San Salvador. By day, the glass-and-steel structure, which opened in late 2023, draws crowds of tourists. The library is just one of Beijing’s recent gifts – China also funded a newly unveiled tourism project, with a football stadium soon to follow. The investments serve as El Salvador’s reward for cutting ties with Taiwan and recognizing China in 2018.
For decades, Taiwan managed to maintain its bloc of allies in Central America through checkbook diplomacy, even as Beijing sought to isolate the island, which it considers a breakaway province. But when El Salvador’s government, according to Taiwan, demanded «astronomical sums» to finance a port project in the Gulf of Fonseca and help fund the country’s upcoming elections in 2018, Taipei balked. Not long after, El Salvador severed diplomatic relations.
China’s economic ascent in Latin America has been nothing short of remarkable. Trade between the two surged from just $12 billion in 2000 to $450 billion in 2023 – a 37-fold increase. Experts predict it could climb to $700 billion by 2035. Today, China is the region’s second-largest trading partner, trailing only the United States.
Central America shifts toward Beijing
When Costa Rican President Óscar Arias cut ties with Taiwan in 2007, he called it an act of «elementary realism,» given China’s growing economic weight. His country became the first in Central America to switch recognition to Beijing, hoping to deepen trade ties and attract investment from the world’s second-largest economy.
Taiwan’s influence in the region began to erode more rapidly after the 2016 election of Tsai Ing-wen, a China-skeptic president with pro-American leanings. Sensing an opportunity, Beijing intensified efforts to flip Taipei’s allies. In 2017, Panama made the switch, lured in part by China’s heavy investment in infrastructure around the Panama Canal. A year later, El Salvador followed suit, with Taiwan accusing China of resorting to financial coercion.
Nicaragua, under longtime strongman Daniel Ortega, abandoned Taipei in 2021, despite years of loans and development aid from Taiwan. In the end, Beijing simply had deeper pockets. Talks for a rival canal project to challenge Panama’s waterway began as early as 2013.
Honduras became the latest defector in 2023, after Taiwan refused to double its annual $50 million in financial aid or renegotiate debt. «We need investment, cooperation and pragmatism – not ideology,» Foreign Minister Eduardo Reina said at the time, explaining the decision to align with Beijing.
Xi Jinping welcomes Honduran President Xiomara Castro to Beijing in June 2023.
Getty
This leaves Guatemala and Belize as Taiwan’s last remaining allies in Central America.
Broken promises
The five countries that switched allegiance to Beijing had hoped the partnership would bring much-needed investment to their crumbling infrastructure. But even after signing onto China’s Belt and Road Initiative – Beijing’s vast global infrastructure push – Chinese investment remained scarce, accounting for just 0.3% of all foreign investment in Central America.
Between 2000 and 2022, Chinese entities poured around $185 billion into Latin America. Yet Central America saw just $1.5 billion of that, spread across 17 projects – out of 600 that China has financed in the region. By comparison, a single deep-sea port in Chancay, Peru, has received $3.6 billion in Chinese investment.
Instead of the expected influx of capital, closer ties with China have resulted in widening trade deficits. El Salvador now imports 33 times as much from China as it exports. In Panama, the imbalance stands at three to one. In Honduras, where the trade deficit is set to surpass $2 billion in 2024, many now speak of dashed hopes.
Nicaragua, which signed a free-trade agreement with China a year ago, faces a $1 billion deficit in 2024. Costa Rica, which has had a trade deal with China for 13 years, imports 8.5 times more than it exports, with a deficit of around $3 billion in 2023.
Yet even Guatemala, which still recognizes Taiwan, runs an even steeper trade imbalance with China. Its $4 billion deficit translates to a 50:1 ratio of imports to exports. With trade ties to Beijing far outweighing those with Taipei, the question remains: how much longer will Guatemala hold the line?
Panama pulls out of China’s Belt and Road Initiative
China suffered a diplomatic setback in Panama earlier this month when President José Raúl Mulino announced the country’s withdrawal from Beijing’s Belt and Road Initiative. The move was seen as an attempt to placate Donald Trump, who has called for the Panama Canal to be returned to U.S. control.
Trump has claimed – without evidence – that China effectively controls the canal and has even suggested he would use military force to take it back if necessary. Panama dismisses such allegations as absurd but has pledged to review China’s activities in its canal ports.
In reality, China’s attention is focused elsewhere. Rather than Panama, Beijing is prioritizing resource-rich South American nations that supply key commodities. China’s interests range from lithium in Chile and Argentina to soy, iron ore and beef in Brazil, and crude oil in Venezuela. Between 2005 and 2020, 58% of China’s direct investment in Latin America flowed into Brazil, followed by Peru (18%), Chile (11%) and Argentina (4%).
Moreover, Beijing’s appetite for costly infrastructure projects appears to be waning. Instead, China is pivoting toward strategic sectors such as cloud computing, 5G technology, renewable energy, artificial intelligence and electric mobility. Countries with a role in these industries – such as Chile with its lithium reserves or Mexico and Brazil as major automotive hubs – are now at the top of Beijing’s investment agenda.
Strong ties to the U.S. continue
Central America holds little appeal for China as a manufacturing hub or source of raw materials. Instead, the region serves primarily as a consumer market for Chinese goods – mostly low-cost products catering to populations with limited purchasing power. This dynamic has only deepened trade deficits.
The lack of Chinese investment is partly Central America’s own doing, argues Enrique Dussel Peters, an economist at the National Autonomous University of Mexico. Beijing offers an expansive portfolio, from cultural exchange programs to nuclear power plants, However, there are few politicians, entrepreneurs or institutions in Central America that are seriously engaged with China and know what China wants and what it has to offer Central America. «That’s why, beyond trade, not much has happened,» he says.
Dussel Peters predicts escalating tensions between Washington and Beijing under a Donald Trump administration. High tariffs on China could push Central American economies even further into Beijing’s orbit – especially since Washington seems more preoccupied with stemming migration from the region than countering Chinese influence. Former U.S. Ambassador to Panama John D. Feeley shares this view, telling The Wall Street Journal that Washington has long seen Latin America more as a problem than an opportunity.
Yet despite China’s growing presence in Central America, the region remains firmly tethered to the United States, both culturally and geographically.
Dussel Peters points to El Salvador’s national library as a telling example: although built with Chinese money, its shelves are filled with books on American culture, from Marvel superheroes to Star Wars novels.
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Publish date : 2025-02-19 21:35:00
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