From Dams to Data: China’s Shifting Interests in Central America


China continues to face economic headwinds, marked by reports this week of a protracted property slump. To address its mounting economic and financial challenges, Beijing is implementing a new industrial policy to boost growth-promoting industries and ensure widespread exports of electronic vehicles (EVs), solar equipment, batteries and other high-tech equipment and services. The effects of China’s attempted economic recalibration have already reverberated across the Latin American and Caribbean region, as many countries see new interest from Chinese companies in emerging industries. Countries like Brazil, Chile and Mexico are well-positioned to receive high-tech investment and trade and have so far been top destinations for Chinese companies. However, Central America’s role in this new equation is increasingly uncertain.

Computers being assembled at Lenovo, the Chinese computer maker, in Nuevo León, Mexico, Jan. 18, 2023. (Luis Antonio Rojas/The New York Times)

Computers being assembled at Lenovo, the Chinese computer maker, in Nuevo León, Mexico, Jan. 18, 2023. (Luis Antonio Rojas/The New York Times)

The region has been a focus of targeted Chinese engagement for many decades, particularly related to China’s decades-long diplomatic competition with Taiwan. In recent weeks, talk of new Chinese engagement with Nicaragua has surfaced. But most Central American nations are ill-prepared to attract and carry out the sorts of investments that Chinese companies are now promoting across the region. Central America’s relative importance to a changing China should be of particular interest to Guatemala and Belize, Taiwan’s remaining allies in Central America, as both weigh the benefits and risks of future diplomatic alignment with Beijing.

Trends in China-Central America relations impact U.S. policy, as Washington works to address the root causes of migration.

Trends in China-Central America relations impact U.S. policy, as Washington works to address the root causes of migration. In Central America and elsewhere, China’s newest economic priorities will mean more engagement with certain countries and sectors, but also a relative withdrawal from others. Central American countries expecting infusions of Chinese capital for large-scale infrastructure may very well be caught off-guard by China’s shifting priorities. In other cases, China’s engagement with Central American nations will be driven by mutual strategic interests, regardless of Beijing’s economic calculus. These collaborations will also have implications for the U.S. policy, including efforts to boost stability and strengthen democratic governance in much of the region.

Central America in Context

From a political perspective, Central America has been of significant interest to China for decades, given  that some of Taiwan’s main allies are (or were) in the region. To diminish Taiwan’s presence, China has adopted a carrots and sticks approach to engagement with Taipei’s allies, while making big promises to its newly acquired diplomatic partners. After Nicaragua and Honduras flipped recognition from Taipei to Beijing, in 2021 and 2023, respectively, China announced new trade agreements with both countries. In May 2024, China rejected shipments of goods from Guatemala, a Taiwan ally, in a move that the Guatemalan government saw as related to its enduring relations with Taipei.

Historically, Central America has received some sizeable Chinese infrastructure projects. These included finance and construction of the Patuca III dam in Honduras, Chinese entrepreneur Wang Jing’s 2013 Nicaragua Canal aspirations, and a number of infrastructure projects that materialized as Panama severed ties with Taiwan, including the development of a recently inaugurated cruise ship terminal on the country’s Pacific Coast.

Amid its evolving industrial policy, China’s economic engagement with the entire Latin American region is changing in notable ways.

Amid its evolving industrial policy, however, China’s economic engagement with the entire Latin American region is changing in notable ways, as Beijing dedicates less overall capital to the sort of large-scale projects once emblematic of the Belt and Road Initiative (BRI), while simultaneously focusing overseas engagement on a set of innovation-related sectors that Beijing views as critical to China’s own economic growth.

For Latin American, this has translated into a recent decline in Chinese foreign direct investment in the region. The region is seeing less overall focus on large-scale, policy-bank financed infrastructure development, but an increase of smaller deals in those industries that China has called “new infrastructure”: electric vehicles, high-end manufacturing, information and communications technology (ICT), renewable energy and urban infrastructure. Indeed, Chinese investment is increasingly concentrated in innovation-related new infrastructure industries, with 60 percent of China’s total 2022 foreign direct investment in the region destined for these sectors (see Figure 1).

Figure 1: China FDI in new infrastructure industries, 2003-22 (Margaret Myers, Ángel Melguizo and Yifang Wang, “New Infrastructure”: Emerging Trends in Chinese Foreign Direct Investment in Latin America and the Caribbean,” Inter-American Dialogue, 2024)

Figure 1: China FDI in new infrastructure industries, 2003-22 (Margaret Myers, Ángel Melguizo and Yifang Wang, “New Infrastructure”: Emerging Trends in Chinese Foreign Direct Investment in Latin America and the Caribbean,” Inter-American Dialogue, 2024)

As a result of this recalibration, China is also focusing its attention on those Latin American countries where innovation-related projects are most feasible, or where the resources that support these industries are readily available. Chile, which has substantial lithium reserves and is seen by Chinese and other foreign investors as a relatively stable investment environment, became the top investment destination for Chinese companies in Latin America over the past five years (see Figure 2). China’s electric vehicle activity has largely focused on those countries — Mexico and Brazil, for instance — with a demonstrated track record in high-end manufacturing capacity. China’s ICT and renewable energy investment is more prolific, but higher-end investments are generally focused on those places with higher demand for data, e-commerce, connectivity and other digital services.

Figure 2: Top 10 LAC Recipients of China FDI by Time Period (Margaret Myers, Ángel Melguizo, and Yifang Wang, “New Infrastructure”: Emerging Trends in Chinese Foreign Direct Investment in Latin America and the Caribbean,” Inter-American Dialogue, 2024.)

Figure 2: Top 10 LAC Recipients of China FDI by Time Period (Margaret Myers, Ángel Melguizo, and Yifang Wang, “New Infrastructure”: Emerging Trends in Chinese Foreign Direct Investment in Latin America and the Caribbean,” Inter-American Dialogue, 2024.)

These developments will likely result in some important shifts in China’s approach to Central America, driving high-priority investment to only parts of the region. Indeed, Central America’s more technologically advanced countries have seen continuous engagement from high-tech and other Chinese companies in recent years, though still at a smaller scale than elsewhere in Latin America. China’s Jiangxi Copper has plans to buy copper inventory (important for China’s consumer electronics production) from Panama’s beleaguered First Quantum mine. In other countries, where conditions are less attractive to China’s investors, new project announcements would appear to be slowing.

Moving from Infrastructure to Innovation

In general, Central America is not a top destination for Chinese investment (see Figure 2), even taking former large-scale hydropower and other projects into account. Costa Rica featured among the top 10 destinations for Chinese investment from 2003-2007, but this was largely the result of a few project announcements that followed the country’s decision to cut ties with Taiwan in 2007.

With some notable exceptions, Central American countries have also featured only minimally in the sorts of green energy, digital and manufacturing projects that China has pursued with greater interest in Latin America of late. For example, since 2014, as other countries attract fintech, data centers and related energy investment, El Salvador, Guatemala, Honduras and Nicaragua, have mostly just featured as markets for low-cost Chinese cell phones and related equipment. Chinese companies are among the few that can sell devices at a price point that is acceptable to Central American customers.

Central American countries have also featured only minimally in the sorts of green energy, digital and manufacturing projects that China has pursued with greater interest in Latin America.

Future investment in the region will depend on China’s interests, certainly, but also the extent to which Central American nations can and want to support the sorts of projects China’s newest BRI iteration has prioritized. For China, some Central American nations are not seen as easy or desirable investment environments. In many cases, Chinese companies have come to expect certain investment-related challenges in the region, having already encountered cost overruns, local resistance and other high-profile problems when building infrastructure there. The dramatic failure of the Nicaragua Canal — derailed by financial woes and the Nicaraguan government’s efforts to fully control a proposed canal relocation fund — was an embarrassment to Wang Jing, and by association, to China.

Other countries in the region, such Costa Rica, which is relatively well positioned in high-end, high-skilled manufacturing, have been a destination for China’s “new infrastructure” investors over the years. But in the case of Costa Rica, recent U.S. and EU overtures have so far precluded more extensive Chinese involvement in ICT. In March 2023, the U.S. announced plans to provide $25 million to bolster Costa Rica’s digital infrastructure.

China’s newest allies in Central America would already seem to be struggling to attract sizeable investment from China — even when citing economic gains as the primary motivation for their decisions to align themselves diplomatically with Beijing. Honduras cut ties with Taiwan to pursue new, large-scale energy projects, looking for several years for Chinese help to expand the Patuca dam complex. As Honduran Chancellor Eduardo Enrique Reina noted during a trip to China in February 2023, slightly more than a month before Honduras severed ties with Taiwan, “What we are looking for, in this vision of generating more energy capacity for the country, is for [China] to finance Patuca II.”

Little has materialized since Honduras severed its ties to Taiwan, however. Indeed, amid few prospects for concrete investment or finance in the short- and medium-terms, President Xiomara Castro has struggled to justify the decision to align with China — so much so that the current government and Honduran media reportedly cast a proposed U.S. and EU-backed “dry canal” project in Honduras as a Chinese initiative. At the moment, large-scale, risk-prone projects are facing more scrutiny in Beijing than they have in the past.

In El Salvador, which cut ties with Taiwan in 2018, China’s activity remains relatively limited at present, and reminiscent of the type of engagement that was evident at the height of the China-Taiwan “checkbook diplomacy” of previous decades, which involved financing stadiums through grants or no-interest loans and providing other infrastructure gifts such as a national library inaugurated in 2023 in San Salvador.

The exception to China’s limited engagement in much of Central America is those projects that are advancing based on mutual strategic interest, regardless of local capacity to carry out new deals or their value to China’s domestic economy. Much of China’s current activity in Nicaragua would appear to fall in this category. This includes in the mining industry, where three Chinese companies were awarded a total of 222 hectares in the Pacific and Caribbean parts of the country. China has pursued gold mining deals across the region as part of an effort to reduce dependence on the U.S. dollar. There are also plans for Chinese company CAMCE to develop a new airport in Nicaragua, on top of a former Soviet airstrip. CAMCE, which was alleged in a 2018 indictment to have paid over $100 million in bribes to various Venezuelan intermediaries for a rice project there, also won a contract to build the country’s National Emergency Response System, presumably to monitor natural disasters while also feeding Chinese artificial intelligence.

The effects of Chinese engagement with Central America, or lack thereof, as the case may be, will vary depending on the country and types of projects in question. Some of the region’s leaders will continue to look overwhelmingly and unsuccessfully to China to boost their sluggish economies, with unfortunate implications for long-term economic planning and prospects. In other cases, such as in Nicaragua, investment is apparently materializing in various forms, but the extent to which it will benefit local populations remains to be seen.


PHOTO: Computers being assembled at Lenovo, the Chinese computer maker, in Nuevo León, Mexico, Jan. 18, 2023. (Luis Antonio Rojas/The New York Times)

The views expressed in this publication are those of the author(s).

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