A Chinese company has started construction on a US$165 million port in Panama for cruise ships, the first project announced since diplomatic ties were re-established between the two countries in June.

The consortium, including China Harbor Engineering Company Ltd (CHEC) and the Belgian company Jan de Nul, will build a terminal on Perico Island, on the Amador causeway, near the Pacific entrance to the Panama Canal.

The project is expected to turn the island into a tourist destination. Experts suggest that other Chinese tourist, hotel and restaurant companies will start operating in the region, following CHEC.

Since China and Panama re-established diplomatic ties, talks have been underway to ease the visa regime for Chinese tourists. The latest round of negotiations took place earlier this week.

The project on Perico Island is a major step in developing relations between China and Panama, according to Wang Zhiming, director of the Center for Globalization and Development of China at the Institute of International Business and Economics.

“Relations between China and Panama have a long a history and common roots. Political ties are very important for economic cooperation. Moreover, the Panama Canal determines Panama’s geopolitical and geo-economic status. It has been actively used by Chinese ships, and its role in bilateral relations is going to increase,” Wang said.

According to the analyst, there are a number of economic advantages both countries could gain from this cooperation, namely broader access to the transoceanic waterway for Chinese companies and, on the other hand, economic benefits for the Panamanian economy, including its possible involvement in the Beijing-led One Belt One Road initiative.

“Trade with China and its infrastructure projects will have a strong stimulating effect on the economy of Panama. This cooperation looks very promising,” Wang pointed out.

Chinese companies already tried expanding their presence in the region several years ago, during the modernization of the Panama Canal. At the time, they faced fierce resistance from the United States. Now, they are fighting back, and the project by CHEC has set a precedent. From now, Washington will not be able to ignore China’s global expansion, in particular the expansion of Chinese capital in Latin America.

Panama’s president Juan Carlos Varela underscored that the re-establishing of diplomatic ties gives his country the advantages of economic cooperation with Chinese companies.

“The diplomatic steps we made are bringing very precise benefits to the people of Panama with projects like this where Chinese companies are participating with efficient costs,” he said.

According to Alexander Kharlamenko, a research fellow with the Institute for Latin America at the Russian Academy of Sciences, Panama’s decision to attract Chinese money is logical and also indicates a major shift in the foreign policy of the Latin American nation.

“Apparently, there is no other source of investment. What is more important, Panama needs some geopolitical guarantees against Washington’s pressure. For a long time, the US prevented Panama from establishing diplomatic ties with the Soviet Union and China. But the current situation shows that China’s global role is increasing. On the other hand, it indicates certain changes in Latin America in the last 15 years,” Kharlamenko said.

The Free Trade Agreement (FTA)

On October 11, the EFE news agency reported, “Panama and China ratified the interest in advancing the installation of a negotiating table for a Free Trade Agreement (FTA), which will consolidate trade between the two countries,” said an official statement.

The Foreign Ministry also said that it is preparing the next visit of the Panamanian president, Juan Carlos Varela, to China, “in which it is hoped to finalize important agreements, many of them in commercial and infrastructure. ”

In his trip to China, which is expected to take place in November according to official information, Varela will be accompanied by” recognized Panamanian entrepreneurs who will be able to exchange with the private sector in China and boost the trade agenda between both countries,” the Foreign Ministry said.

Panama sold a total of US$50.9 million in copper, crustacean, wood and coffee waste to China in 2016, among others, while the Asian giant exported goods and services to the Central American country for US$1.183 billion dollars, according to official figures.

China is currently the second most important user of the Panama Canal, behind the US, and the first supplier of the Colon Free Zone, the largest in the hemisphere and located in the Panamanian Caribbean.

Corruption Scandal

Relations between the US and Panama have soured over a corruption scandal involving the Brazilian engineering company Odebrecht. According to the US Department of Justice, the company paid US$59 million in bribes to Panamanian authorities between 2009 and 2014, in exchange for advantageous contracts in the country.

Ricardo Martinelli, the former president of Panama, was arrested in Florida in June, but Washington has refused to extradite him. Martinelli is wanted at home on corruption and political espionage charges. Moreover, there have been allegations that Varela, who was vice president under Martinelli, was also involved in taking bribes from Oderbrecht.

In this situation, there is no surprise that Panama needs political support from China. The re-establishment of diplomatic ties and the following economic cooperation could be interpreted as Beijing’s rejection of Washington’s meddling in the domestic affairs of Latin American countries.