China's growing influence in Latin America: Honduras shifts diplomatic recognition from Taipei to Beijing
As we previously analysed in our newsletter ‘The Latin America Update’ a few weeks ago, Honduras had announced its intention to shift its diplomatic recognition from Taiwan to mainland China. On March 25th, this measure officially went into effect, ending over seven decades of official relations between Tegucigalpa and Taipei. With the establishment of diplomatic relations with Beijing the following day, a new diplomatic era began for the Central American nation.
It was widely expected that Xiomara Castro's administration would take such a step, as relations with Taipei had been tense since her electoral campaign. In fact, the island's government had strongly supported her predecessor and political opponent, Juan Orlando Hernández. Moreover, Castro's left-wing party has historically called for a shift in recognition and she had made it one of her campaign promises- although it appeared that she had abandoned this plan during her first year in office.
China’s growing foothold in the region and US concerns
This recent event is yet another indicator of China's robust and ever-expanding influence in the region. In the course of the 21st century, China's economic significance in Latin America has experienced a phenomenal surge. Over the past two decades, it has become the second-largest trading partner of the region, while it holds the position of South America's primary trade partner. In addition, Chinese investment, loans, and financial instruments such as Swaps have been key to expanding Beijing’s influence in the region, as well as its image as a power that has much to offer.
While Chinese economic influence is certainly growing in Latin America, the region’s heterogeneity cannot be overlooked. The growing competition between the US and China has particularly important implications for South American countries. Brazil presents a clear example of how Southern countries have been affected by this dynamic. During the complex process towards its 5G auction, both powers competed for a foothold in this country’s lucrative- and geostrategically relevant- telecommunications market.
On the other hand, Central American countries remain heavily reliant on the United States, which still is its top trading partner. Meanwhile, the US regards the region as a vital area of strategic importance, which is evident in the significant concentration of US military bases in Central America. Additionally, the US has allocated significantly greater economic and human resources here than it does to South America.
In spite of this, Central America is not immune to China's growing influence . Of course, Beijing’s challenge is not as significant as it is in southern countries, but it has recently begun to pose a threat to Washington’s security interests. Honduras' recent diplomatic switch shows a trend that has been raising major concern in Washington throughout the last few years: Panama and the Dominican Republic in 2017, El Salvador in 2018 and Nicaragua in 2021 have all ditched Taiwan and established relations with China. Honduras is a particularly sensitive case among those, since the Soto Cano Air Base is located there, from where the US launches its war on drugs efforts in Central America as well as humanitarian aid missions for the region.
This trend is part of China's broader global geoeconomic project, as the region serves as a natural extension of its advanced economic projects in South America. However, understanding Chinese expansion only by analysing the economic dimension is misleading, since it misses another key aspect of this issue: geopolitics.
In a very popular recent book about Latin American foreign policy, researchers Esteban Actis and Nicolás Creus, argue that China's presence in the region is primarily motivated by its geopolitical strategy. They argue that since China’s periphery is ‘encircled’ by the US- Taiwan, Japan, South Korea, India- Beijing’s strategy is to counter that in the US periphery. Therefore, they contend that China is not seeking to maximise power in the region, but to maximise security, by forcing Washington to focus on its ‘backyard’, in detriment of the Indo-Pacific region.
Implications for Honduras
What led Honduras to make this decision? Although we have mentioned Castro’s ideological and political preferences towards China, the question here is placed on what Beijing has to offer Tegucigalpa, and what this small country expects from the relationship.
According to Foreign Minister Enrique Reina, Honduras was ‘up to its neck in debt’, and this was one of the main reasons for the switch in diplomatic recognition. The minister also stated that Honduras had huge financial needs, and Taiwan was not able to meet them. It is notable how China emerges as the most viable option in this situation, while the US does not even come up in the conversation.
One of the key areas where Chinese-Honduran cooperation is expected to boost is infrastructure, especially in energy. It is expected that Beijing will invest in the construction of a new hydroelectric dam- Patuca II-, and has already invested $298 million in another that was inaugurated in 2021. These are crucial investments that are able to significantly improve energy access in rural parts of the country.
Additionally, Honduras is likely to increase its commodity exports- coffee, bananas and seafood- to the massive Chinese market. It is also likely to join the Belt and Road Initiative, accessing considerable benefits that may help the country with the serious development issues it faces.
Nonetheless, there are some risks that Honduran officials should be aware of when it comes to dealing with China. Firstly, numerous critics of China claim that dependence on Chinese loans may lead unstable countries- like most Central American states- to ‘debt traps’. In addition to this, there are growing concerns about Chinese companies’ lower labour and environmental standards, which signifies a great risk for the environment, the working class and native communities.
Conclusions
The Honduran situation is indicative of a larger trend that has emerged in the 21st century - China's increasing global power and influence in the US 'backyard'. This is a significant departure from previous US strategic rivals, whose ability to influence Latin America was relatively insignificant compared to that of Beijing.
This has far-reaching consequences for the international order, which is now marked by competition between major powers. China has emerged as a critical partner for Latin American countries, a feat that the Soviet Union could only achieve in a few small nations like Cuba and Nicaragua. This makes our current global order substantially different to that of the Cold War, especially to Latin America.
The US does not seem to have had an efficient response to counter Chinese influence. In the diplomatic dimension, president Trump signed the Taipei Act to prevent Taiwan’s allies from switching recognition to Beijing. Nonetheless, it has not been effective to prevent it and since it was signed, Nicaragua and Honduras ditched Taipei.
Given this situation, Taiwan’s diplomatic future remains highly uncertain. With 13 diplomatic allies left in the world, its most important ones are in Latin America: Belize, Guatemala and Paraguay. Will they follow Honduras’ lead and abandon recognition to Taipei? The upcoming elections in Paraguay will be crucial in this regard, with the Taiwan issue becoming an important topic of discussion between candidates. While the incumbent Colorado Party strongly supports the diplomatic alliance with Taiwan- president Mario Abdo Benitez recently travelled to the island- opposition candidate Efraín Allegre has called to ‘rethink’ ties with Taipei.
To conclude, it remains to be seen whether Honduras will substantially benefit from its relationship with China. In fact, the economic record of Central American countries which had shifted recognition is mixed. Recognising China does not guarantee itself long term benefits out of the bilateral relation. Nevertheless, recognizing the second largest economy in the world could be a rational choice for a small and impoverished country, seeking to strengthen economic ties and gain access to financing and investment.