Coercion and Enticing offers from China to Latin American countries to dwarf Taiwan’s diplomatic existence

The Republic of China (Taiwan) has 14 tiny diplomatic allies, eight of them are in Latin America and the Caribbean. This is a territory that has emerged as a key battleground in the increasing geopolitical conflict between China and the United States. The issue of Taiwan’s diplomatic existence as a state has become crucial to the China-US relationship, and Latin America will play an important role in this context.

China has steadily advanced in the area in recent decades, becoming the leading commercial partner for the majority of Latin American countries. Simultaneously, China’s investments and financial cooperation have expanded dramatically, albeit this trend has lately reversed. According to a Boston University research, the China Development Bank and China Eximbank would provide no new loans to the area in 2021 for the second year in a row. While this is noteworthy, it is still too early to make conclusions given the extraordinary international scenario that has emerged in the aftermath of COVID-19.

At the start of the epidemic, Chinese state-owned firms including State Grid Corporation and Three Gorges purchased enterprises and projects in the electrical industry in Brazil (a BRICS member), Chile, and Peru. Both of the latter nations, which are located on the Pacific Ocean’s east coast, have signed free trade agreements with China and are participants in Xi Jinping’s Belt and Road Initiative (BRI). In terms of accession, this ambitious Chinese programme has been fairly effective in Latin America: with Argentina’s confirmation, there are now 20 nations in the area that have joined the BRI.

The Taiwan issue has been at the heart of Beijing’s ambitions in Latin America, as China aims to expand the island’s diplomatic influence on a global scale while also annoying the US in its traditional backyard. China’s policy has paid off, owing to its unparalleled economic and financial attraction to Latin American nations.

To illustrate one of the most illustrative examples, consider what happened in Costa Rica. After Costa Rica severed ties with Taiwan in 2006, the People’s Republic of China provided a new national football stadium. Only a year later, Costa Rica negotiated a free trade deal with Beijing, and major investment projects with Chinese funding were revealed.

Taiwan has lost four Central American friends in the last five years: Panama (2017), El Salvador (2018), the Dominican Republic (2018), and Nicaragua (2018). (2021). In all cases, the breaking of relations with Taiwan coincided with grandiose claims of Chinese investment and loans for these little countries, which Beijing has readily accommodated given the massive imbalances and acute financial requirements of these governments.

In Panama’s instance, the announcement in 2017 of a $4 billion high-speed rail project to be financed by Chinese banks stands out, though it is still under review. In El Salvador, the breach with Taiwan resulted in immediate promises from Beijing to fund different infrastructure projects totaling $500 million. Meanwhile, after the breach with Taiwan, China promised the Dominican Republic initial loans of $3 billion, expandable to $10 billion. Finally, under Daniel Ortega’s isolated and economically suffocated regime, China may now restart its long-stalled Nicaragua Canal project.

Other Central American countries are balancing between coercion and enticing offers from China. Honduras is maybe the most noteworthy example. Following the election of socialist Xiomara Castro as president in 2021, all signs were that Tegucigalpa will similarly cut ties with Taiwan. During the campaign, Castro herself hinted at this. For the time being, Honduras remains allied with Taipei, thanks to a concerted US push to keep Castro in power and the diplomatic status quo intact.

The issue is how long Honduras can hold out. And, more broadly, how much longer can other, even smaller, nations in the area – those in far more need of economic aid, such as Guatemala and Haiti – be able to withstand the pressure?

During the epidemic, this asymmetry in favour of Beijing became even more apparent through so-called “vaccine diplomacy.” A case in point was Paraguay, Taiwan’s sole South American ally, which had vaccination shortages at the height of the epidemic. While neighbouring nations got doses of Chinese vaccines via Sinopharm, Sinovac, and CanSino, Asunción was forced to rely on operations through Chile and other countries to get vaccines.

Beijing made it clear that things would have been different if Paraguay had severed ties with Taiwan. Former Paraguayan health minister Julio Mazzoleni remarked in his new book “Irruption: Logbook of a Voyage in Troubled Waters” (2022) that China utilised vaccinations as a “political, geopolitical, and diplomatic tool.”

In response to China’s attempts, the Taiwanese government, working in tandem with the US, has increased its efforts to prevent friends from defecting by deploying massive economic aid packages. However, it is apparent that this has not been enough to halt China’s relentless rise. Meanwhile, such attempts have come at a cost to Taiwan’s image and its principal benefactor, the United States. For example, former Guatemalan President Alfonso Portillo was sentenced to five years and ten months in jail in 2014 after admitting to collecting $2.5 million in bribes from Taiwan and laundering money through US institutions.

It is not in Taipei’s best interests that the region’s few surviving diplomatic allies have a low relative weight in the regional economy, high levels of corruption, institutional fragility, and significant political volatility.

From Beijing’s perspective, it is only a matter of time before Taiwan’s final eight regional allies — Belize, Guatemala, Haiti, Honduras, Paraguay, St. Kitts and Nevis, St. Lucia, and Saint Vincent and the Grenadines – cut connections with the island and recognise the People’s Republic. A priori, the only thing that might change this picture is a Chinese exit from the area (which is very doubtful) or a revived US interest in acting more aggressively to influence Taiwan’s friends (which there are no obvious indicators of).