Rising red tide

Panama | To the consternation of U.S. policymakers, China is gaining more and more influence over the Panama Canal

Issue: "Jerry Falwell," May 26, 2007

PANAMA-Diario Navarro watched the American tourists, perched at the waterline of the Panama Canal's Miraflores locks, wave at the approaching Chinese vessel Xuan Wu Hu. Several crewmen on the massive tanker peered down indifferently, not reciprocating.

The tourists dropped their hands. Navarro, 54, a Panamanian who runs a company that organizes canal tours, laughed-but without amusement. He sees his beloved canal falling under the control of Chinese companies and forced to jump at the Beijing government's command.

Enrique Cuevas, a banker in Panama City, who often sails by the port in his small catamaran, says canal traffic these days almost entirely consists of cruise liners and Chinese tankers. China, the canal's biggest customer, shipped 18 million tons through the canal to the East Coast of the United States in 2005 alone.

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Most of that travels aboard ships like the Xuan Wu Hu, which belongs to COSCO, the world's sixth-largest shipping firm-and one owned by the Chinese government. U.S. officials have accumulated a thick file on the company's history of illicit shipments, including delivering chemical and biological weapons to North Korea, Iran, and Syria, and a widely reported incident in 1996 in which federal agents detained one of COSCO's ships after it tried to smuggle 2,000 automatic weapons into the port in Oakland, Calif.

Other Chinese influence is evident in the selection of Hutchison Whampoa, another Chinese company, to run the canal's two ports of entry at Balboa and Cristobal. Four other companies, including an American firm, reportedly outbid Hutchison but were not awarded the contract, prompting cries of foul play. A California-based firm, Bechtel, says it originally won, but without explanation the bids were tabled until Hutchison's offer inexplicably rose to $20 million-10 times Bechtel's bid.

Neither the Senate Foreign Relations Committee, which initially questioned the proceedings, nor the Clinton administration, whose tight rapport with China brought the Democratic Party controversial Chinese fundraising contributions, made much of the dealings. Panama now allows Hutchison employees temporarily to assume control of ships to navigate them through the canal-a precedent not well liked by ship captains.

Miguel Antonio Bernal, a law professor and outspoken opponent of the canal's handling, argues that the canal director's family runs a construction company that would be enriched by future canal projects. Panama Canal Authority head Alberto Alemán Zubieta denies any wrongdoing, but Bernal says about the officials, the "only thing they know how to do [is] to steal money from the people."

The Authority says it has made progress-a claim critics find difficult to counter. It has grown canal profits steadily since the United States surrendered control in 2000. It allows the sale of extra hydroelectric power generated by canal dams. Twenty percent of the country's revenues come from the canal, which handles about 5 percent of all global trade. Fares can amount to as much as $250,000 a trip.

Traffic in the canal has increased more than 3 percent each year, mostly from the spike in Chinese ships. The canal used to take eight hours to traverse, but these days-during Chile's peak fruit season, for example-ships may float outside the ports for days. Last August, a backup cost frustrated shipping companies as much as $40,000 a day.

With Panamanian officials estimating that the canal will reach maximum capacity by 2012, Nicaragua has announced plans for an alternate canal route that makes use of its enormous Lake Nicaragua. China, it was reported, offered substantial funding for the $20 billion route after the government unveiled its proposal. But the Panamanians responded last October by approving a referendum to spend more than $5 billion to widen their canal.

Santiago Herrán, who spends many hours sitting before an intimidating console in the control room of the locks at Gatún Lake, says he is tired of hearing from Americans about the "China problem." "To be honest," he says, "it's the Americans' problem." He's glad that Panama is now calling the shots, and he asks, "Why should we not capitalize on that?"

One answer is that it may be naïve. Diario Navarro thinks the government is selling a pipe dream, especially in its rosy picture that expanding the canal-which is widely considered the price of China's loyalty-will save Panama. Many Panamanians say that the $5 billion price tag is too hefty for a country the size of West Virginia with just 3 million people, 40 percent of whom live in poverty.

Anticipating some naysayers, Panama president Martín Torrijos stumped hard for the proposal last fall, sending administration officials-and later even going himself-to coax votes out of the poorer barrios of Panama City. The poor largely greeted his efforts with hostility or ambivalence and ignored the referendum. While passing with 77 percent of the vote, its turnout (only 40 percent of eligible voters) was dismal.


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