How Troubling Is the Panama Ports Deal for China?

On March 4, a high-profile transaction between Hong Kong’s richest man, Li Ka-shing, and the U.S. investment giant BlackRock Inc.-led consortium, drew sharp criticism from two former Hong Kong Chief Executives and China’s Ministry of Commerce.
The deal involves selling 43 global ports, including two strategic ports located at either end of the Panama Canal: Cristóbal on the Atlantic side and Balboa on the Pacific side.

Just hours after the agreement was announced, Donald Trump praised it in a speech to Congress. American media outlets such as CNN and The Wall Street Journal highlighted the Panama Canal’s strategic importance to China, while Bloomberg cited anonymous sources claiming that Beijing could do little more than fume over the transaction. U.S. House Speaker Mike Johnson emphasized that the deal would generate billions in transit fees, boosting the American economy.

However, much of this narrative appears exaggerated. Prof. Warwick Powell, the policy advisor to former Australian PM Kevin Rudd, suggesting on Chinese media Guancha that two key factors have significantly reduced the strategic value of the Panama Canal, the United States may simply be taking over assets that are no longer as valuable as they once were.

Warwick Powell, Professor at Queensland University of Technology

The first major issue is the canal’s declining capacity due to climate change. The 82-kilometer-long Panama Canal relies heavily on water from Lake Gatun and the smaller Alajuela Lake. In recent years, rising global temperatures and the El Niño phenomenon have led to severe droughts in Panama. The 2023-2024 dry season saw Alajuela Lake nearly dry up, exposing its cracked lakebed, while water levels in Lake Gatun fell dangerously low, increasing the risk of ships running aground.

These lakes are not only essential to the canal’s operations but also serve as the primary water source for half of Panama’s population. Faced with dwindling reserves, the Panama Canal Authority was forced to implement drastic restrictions in late 2023, limiting daily transits to just 24 ships. The resulting backlog meant vessels were waiting in line for over three weeks. Japan’s ENEOS Group reportedly paid a record $4 million to move up in the queue, yet still had to wait an entire week. In response, many shipping companies began avoiding the canal altogether, choosing instead to navigate around South America. Royal Caribbean International cancelled its 2024 crossings, while large container ships resorted to rail transport for part of their cargo transfers. Although normal transit levels were restored in August 2024, the Panama Canal Authority has warned that water supply challenges remain a persistent threat.

The dried bed of Alhajuela Lake during a drought, in the Colon province, north of Panama City, in April 2023. Photo: Bloomberg

Beyond the water shortage, the rise of ultra-large container vessels (ULCVs) has further diminished the Panama Canal’s significance. These massive ships, commonly stretching 400 meters in length and 60 meters in width, can carry 24,000 twenty-foot equivalent units (TEU). Thanks to economies of scale, ULCVs offer lower per-container transport costs than smaller vessels that can pass through the Panama Canal. They are also more fuel-efficient, making them the preferred choice for long-haul trade routes between Asia and Latin America.

However, the Panama Canal, first built in 1904, remains too narrow for these modern giants. Even after a 2016 expansion, the canal’s locks can only accommodate ships up to 49 meters wide, rendering it unusable for ULCVs. This fundamental limitation severely curtails the canal’s ability to serve as a vital shipping corridor.

Even if the canal were to be widened, it would still pose considerable risks for large vessels. The 2021 Ever Given incident in the Suez Canal highlighted the dangers, with the grounding of a single ship blocking global trade for six days and resulting in a $540 million fine. The Institute of Marine Engineering has also noted that many large container ships prefer the Cape of Good Hope route over the Suez Canal, as the additional fuel cost of sailing the extra distance is often more economical than paying transit fees ranging from $300,000 to $500,000.

International Space Station image of Ever Given blocking the canal on 27 March 2021

Further diminishing the Panama Canal’s importance, China has been actively investing in alternative trade routes that reduce dependence on this historic passageway.

One is the Chancay Port in Peru. Unlike the artificially constructed Panama Canal, Chancay is a natural deep-water port specifically designed to accommodate ULCVs. In contrast to the congested canal, Chancay Port is expected to reduce shipping times between Peru and China by 12 days and lower logistics costs by over 20%. According to Powell, if current trends continue, Chancay Port could surpass traditional Atlantic routes and the Panama Canal as the primary gateway for South American exports to China.

Aerial view of Chancay Port in Peru. /China COSCO Shipping

Another project is the construction of the Central Bi-Oceanic Railway Corridor. This 3,000-kilometer railway will traverse Brazil, Bolivia, and Peru, linking South America’s key agricultural and mining regions. With an annual cargo capacity exceeding 10 million tons, the railway is projected to shorten shipping times between Brazil and China by 10 to 14 days. It will also provide landlocked economies like Bolivia and Paraguay with direct access to the Pacific, reducing their reliance on the Paraná-Paraguay waterway and Atlantic ports. Powell believes that these developments will fundamentally alter global trade routes, gradually diminishing China’s reliance on the Panama Canal.

While Li Ka-shing’s sale of port assets may not be as damaging to China as some U.S. media outlets have suggested, why the Chinese officials still angered?

Hong Kong’s Ta Kung Pao newspaper pointed out, BlackRock CEO Larry Fink has a close personal relationship with Donald Trump. During the acquisition negotiations, he even visited the White House to brief Trump on the deal, helping him boast that he had not “given Panama to China.” Clearly, neither Trump nor the U.S. regarded this transaction as a mere business deal; instead, they saw it as a tool for advancing global hegemony. Li Ka-Shing should carefully recognize on the true nature of this deal—and consider which side of history he wants to stand on.

Editor: Charriot Zhai