Caribbean & Central America - February 2011 (ISSN 1741-4458)

Recent Chinese involvement in Latin America has centred on commodity procurement to fuel its rapid domestic development. However, Central American countries are neither commodity rich nor in a position to relinquish established ties with the US, their primary export market. What is more, many of the Latin American commodities China imports are subsequently re-exported back to the region's markets as low-priced manufactured goods that inevitably compete with Central American manufactures, thus challenging the region's large scale manufacturing enterprises.  This is not to say that Chinese trade and investment doesn't also benefit Central America and Chinese presence has translated into a reassessment (or at the least a questioning) of traditional political ties with Taiwan.

Following Nicaragua's recognition of Taiwan in 1990 all states in the isthmus were aligned with Tapei. However, in 2007 Costa Rica decided to break relations with Taiwan in favour of closer ties to Beijing. President Oscar Arias's decision was an unquestionable breakthrough for Chinese diplomats in the region, allowing Chinese trade with Costa Rica to increase 30-fold between 2001 and 2008 to US$2.9bn, thanks largely to investments in the high-tech manufacturing sector (see sidebar). Along with a bilateral free trade agreement (signed in April 2010), China has also made generous financial gestures to Costa Rica including the purchase of US$300m government bonds and assistance in the construction of a new 35,000-seat stadium in the capital, San José.

Although Belize, Honduras, Guatemala, El Salvador, Nicaragua and Panama have all stated that they do not intend to renounce their ties to Taiwan, this can no longer be simply equated with a rejection of China. For instance, last September, President Porfirio Lobo of Honduras agreed a US$1.2m contract with the Chinese Sinohydro Corporation to build several hydroelectric dams and Panama's Ricardo Martinelli stated that his country had “chose[n] to have diplomatic relations with Taiwan but commercial relations with both". Guatemalan exports to China reached US$30m in 2009 from US$3m in 2000; Nicaraguan imports of Chinese goods in 2009 totalled US$260m. Figures from the Central American Secretariat for Economic Integration show that the combined value of Nicaraguan, Guatemalan, Costa Rican, Salvadoran and Honduran exports to China reached US$848.3m in 2009 from US$35m in 2002.

• Betting on technology

The UN's Economic Commission for Latin America and the Caribbean (Eclac) claims that over 90% of the products exported from Costa Rica to China between 2006 and 2008 were integrated micro-electronic circuits. Although only 8.8% of Costa Rican exports went to China in 2009, as opposed to 35.8% to the United States, the country's ability to court both superpowers has been a major attraction for other Central American states to pursue a closer relationship with China, particularly in light of the improving relations between China and Taiwan.