China's Beachhead at Panama Canal

Reporting from Balboa, Insight uncovers China's most recent political and economic maneuverings to obtain effective control of the Panama Canal as the U,S, leaves,

At the Panama Canal's only Pacific port a dozen huge construction cranes work massive new containerized-cargo facilities behind mounds of sand and concrete. Workmen clad in orange uniforms emblazoned with "Panama Ports Company" -- the innocuous English-language name in a near century-old bastion of U.S. maritime might -- operate the cranes and earthmovers alongside what once was the U.S. military's Southern Command headquarters known as SOUTHCOM. But the construction crews don't work for the Americans anymore. The Panama Ports Company is controlled by Communist China.

As U.S. forces pull out of Panama under the Carter-Torrijos treaties of 1977, Beijing's agents are moving in. And the Clinton administration is looking the other way, scrapping a 1995 plan to explore a continued U.S. military presence.

By all indications, China and its People's Liberation Army, or PLA, are building a beachhead to control the Panama Canal. Under the terms of a controversial lease, Panama gave Hong Kong-based Hutchison Whampoa Ltd. the right to build new port facilities in Balboa, the canal's only Pacific port, and a major Atlantic port in Cristobal, and to run them up to the next half-century. As Beijing increased its economic muscle in the country, Panama's politicians gave Hutchison Whampoa the right to control anchorages on both ends of the canal, to hire new pilots to guide ships through the waterway, to block all passage that interferes with the company's business, to take control of key public roads near the canal and to have right of first refusal for control of some former U.S. military bases.

"By most accounts, an unfair and corrupt contractual bidding process, which was protested by the U.S. ambassador to Panama, enabled the Chinese Hutchison Whampoa company to outmaneuver American and Japanese companies for the long-term lease on the canal ports," according to Al Santoli, an aide to Republican Rep. Dana Rohrabacher of California. Santoli has traveled the perimeter of the Pacific monitoring Chinese maritime encroachments from the Philippines to Panama.

U.S. Ambassador to Panama William Hughes nearly was declared persona non grata for protesting the Hutchison deal when it was exposed three years ago, a U.S. official tells Insight. President Clinton responded by appointing Robert Pastor, an architect of the 1977 canal giveaway and an advocate for left-wing revolutionary causes, to replace Hughes. Senate Foreign Relations Committee Chairman Jesse Helms of North Carolina, one of the few lawmakers watching the Panama powder keg, blocked the nomination.

The Chinese company has exclusive rights to the ports on both ends of the canal. Ironically, in 1996 Panama asked a Seattle-based company to withdraw its successful bid for Cristobal on the grounds that the U.S. firm would have a monopoly, in light of its existing business in Balboa. The following year, Panama awarded both Cristobal and Balboa to Hutchison Whampoa. Between the ports lies the shortest land route for containerized cargo to be sent between the Atlantic and the Pacific from and to ships too large to cross the canal.

Beijing is in Panama for the long haul. Hutchison Whampoa has the right to extend its leases until the year 2047 or to transfer them to a third party. Already a Chinese corporation called Great Wall Panama has secured a lease as long as 60 years for an export zone on the bank of the canal on the Atlantic side.

"I have a sense that the U.S. is edgy about Hutchison Whampoa," former Panamanian vice president Guillermo "Billy" Ford tells Insight. But Washington has done little to pressure the corrupt government of President Ernesto Perez Balladares to reopen the bidding. Last year, Balladares hired Clinton strategist James Carville as his personal consultant in a bid to keep power beyond his constitutional term, which expires this month. Balladares says he will step down, but he has packed the new Canal Commission with his pro-Beijing cronies.

Hutchison Whampoa is more than a Hong Kong shipping giant. Company chairman Li Ka-shing is an important cog in the economic machinery of the Chinese Communist Party and the PLA. Li is a board member of the Chinese government's main investment arm, the China International Trust and Investment Corp., or CITIC, run by official PLA arms marketeer and smuggler Wang Jun.

According to Santoli, Li "has invested more than a billion dollars in China and owns most of the dock space in Hong Kong." Additionally, "Li has served as a middle man for PLA business dealings with the West," financing some of the controversial Hughes Electronics Corp.-Loral Space & Communications deals found to have been conduits for weapons technology to Beijing. He also has been a powerful ally of the Mochtar Riady financial empire of Indonesia -- the Lippo Group family that according to sworn testimony paid off Clinton's friends and political allies on behalf of Chinese military intelligence.