China is losing ground in Latin America

Panama’s supreme court invalidated a contract in late January that had allowed Panama Ports Company, a subsidiary of Hong Kong-based firm CK Hutchison, to operate two ports on the Panama canal since 1997.

The decision, which ruled that the laws allowing the firm to operate the ports were “unconstitutional”, comes one year after the US president, Donald Trump, threatened to take control of the canal to limit Chinese influence over the waterway.

Beijing reacted to the ruling angrily, calling the judgment “absurd, shameful and pathetic”. It also said the Panamanian government will pay “a heavy political and economic price” for evicting the company from the ports. The ruling is the latest sign that China’s ambitions in the region are losing momentum.

Chinese influence in Latin America is a relatively recent phenomenon. Since 1823, when President James Monroe declared the western hemisphere closed to further European colonisation, the US has largely maintained strict control over the region’s affairs.

But that changed after the end of the cold war in 1991, with successive US administrations reducing their focus on Latin America. This allowed emerging superpowers such as China to assert their influence in the region.

China is now the top trading partner for South America and is becoming the largest for Latin America as a whole. It is also a major source of foreign direct investment and infrastructure lending for the region.

Chinese influence in what the US considers its own backyard has irked the Trump administration. Shortly after the operation to capture Venezuelan leader Nicolás Maduro in January, the US secretary of state, Marco Rubio, declared: “This is the western hemisphere. This is where we live – and we’re not going to allow the western hemisphere to be a base of operations for adversaries, competitors and rivals of the United States.”

The eviction of Panama Ports Company from the Panama canal will have been celebrated as a victory in Washington, which is looking to promote its own national interests in the region. But it is also possible that the incident could prompt countries throughout Latin America to address their reliance on China.

Over the past two decades, China has swamped countries in Latin America and the Caribbean with loans. However, unlike loans from the World Bank or International Monetary Fund that are contingent on structural and institutional reforms, Chinese loans come with few conditions attached. China generally requires governments to guarantee repayment through the future export of commodities such as oil.

At the same time, Chinese investments generally bring low environmental and labour standards. In a 2023 analysis of 14 Chinese mining, hydroelectric, fossil fuel, infrastructure and agriculture projects in Latin America, the UN Committee on Economic, Social and Cultural Rights identified patterns of serious rights abuses. These included abuses against the rights of Indigenous people, as well as the rights to health, a healthy environment, water, food and housing.

Chinese investments also tend to focus on areas that give Beijing control over a country’s critical infrastructure. For example, China controls a majority stake in the strategically important Chancay port in western Peru and Chinese firms now control approximately two-thirds of Chile’s energy distribution. Under these circumstances, reducing reliance on China is probably in the interests of many Latin American countries.

In February 2025, Panama became the first country in the region to withdraw from China’s global infrastructure and investment project, the Belt and Road Initiative. The announcement followed a visit by Rubio, drawing criticism from Chinese officials over what they saw as US attempts to “deliberately sow discord” between China and Panama.

At a press conference, the Panamanian president, José Raúl Mulino, said: “I do not know what was the intention of those who signed this agreement with China. What has it brought to Panama all these years? What are the great things that this Belt and Road Initiative has brought to the country?”

China’s choices

China itself already appears to be deprioritising Latin America as an investment destination, largely due to the region’s mediocre growth trajectory and frequent delays to loan repayments. It has scaled back on sovereign loans since 2020, while Chinese investment in large-scale Latin American infrastructure projects has reduced in recent years.

And it may be in China’s interests to accelerate this trend. The US capture of Maduro demonstrates the Trump administration’s willingness to induce dramatic changes in the Latin American political environment. These changes may undermine China’s ability to extract unpaid debts from governments in the region.

For example, analysts suggest there is a risk that the new Venezuelan government will attempt to challenge the legitimacy of the roughly US$10 billion (£7.3 billion) of debt it owes to China under a legal doctrine known as “odious debt”. This arises when a government argues that debt incurred by a previous regime did not benefit the nation and is therefore unenforceable.

The future ownership of the two ports previously operated by Panama Ports Company is unclear. The firm has announced it is launching international arbitration proceedings against Panama over the contract ruling, a process that is likely to last years. But it appears the high noon of Chinese economic domination in Latin America may well be over.

Amalendu Misra is a recipient of British Academy and Nuffield Foundation fellowships.