China Suspends Panama Projects after Court Cancels Major Port Contracts

China has instructed its state-owned firms to pause negotiations on new projects in Panama following the Central American nation’s decision to nullify CK Hutchison Holdings Ltd.’s contract to operate two strategic ports along the Panama Canal. The directive comes amid Beijing’s growing response to Panama’s move, which it views as influenced by U.S. interests.

Sources familiar with the situation said the halt could affect potential investments valued in the billions, while Chinese shipping companies are being advised to explore alternative port routes if rerouting does not significantly increase costs. Additionally, Chinese customs authorities are reportedly intensifying inspections on Panamanian imports, including bananas and coffee, though no final instructions have been issued regarding ongoing projects. Both the State-owned Assets Supervision and Administration Commission and China’s General Administration of Customs did not respond to requests for comment, and CK Hutchison also declined to comment.

The development follows Panama’s top court ruling last week, which effectively supported efforts to limit Chinese influence over key infrastructure, drawing immediate condemnation from Beijing. China, the world’s second-largest user of the Panama Canal after the United States, warned that Panama would face a “heavy price” for aligning with what China called American hegemony.

This response mirrors Beijing’s reaction last year after CK Hutchison announced the sale of its global port assets, including its operations at Balboa and Cristóbal in Panama, to a consortium led by Terminal Investment Ltd. and BlackRock Inc. At the time, China criticized the sale as yielding to U.S. pressure and instructed state-owned firms to halt collaborations with companies linked to CK Hutchison’s founder Li Ka-shing.

The impact of China’s current measures on Panama remains uncertain. The United States continues to be Panama’s largest trade partner and investor, while Chinese state firms’ influence in the country is comparatively limited. Panama’s agricultural exports account for only a small portion of trade with China, and diverting shipping from the canal could result in higher costs and logistical delays.

Panama’s withdrawal from China’s Belt and Road Initiative last year has further restricted opportunities for Chinese-backed infrastructure projects. Existing projects in Panama include the $1.4 billion fourth bridge over the canal, a cruise terminal by China Harbour Engineering Co., and a metro line segment by China Railway Tunnel Group Co.

CK Hutchison, which has operated the two Panama terminals since 1997, is pursuing damages through international arbitration over the court ruling. The two facilities remain the key obstacle in the company’s ports sale, with discussions ongoing about splitting the assets into separate parcels or adjusting ownership structures. Analysts suggest the full transaction could bring CK Hutchison more than $19 billion in cash, though the Panama decision may reduce the final valuation.