Schwarzman Scholars worked together to create an academic journal, reflecting their ability to think critically about the Middle Kingdom and the implications of its rise. These collections of thoughts come together to form “Xinmin Pinglun,” our Journal dedicated to the publication of the informative and analytical essays of our scholars. As the application deadline for the class of 2019 is approaching and the arrival of the incoming class is on its way, we are sharing pieces from the second issue of Ximin Pinglun to give insight into the critical thinking and scholarship taking place at Schwarzman College. Here, Carlos Adolfo Gonzalez Sierra, (Class of 2017) examines the effects that China’s growing economic presence has on Central America and the Caribbean.
In January 2015, Beijing hosted the first ministerial meeting of the Forum of China and the Community of Latin American and Caribbean States (CELAC). Speaking to a room full of Latin American heads of state and foreign ministers, Chinese President Xi Jinping pledged a $250 billion investment in Latin America over the next ten years. The investment pledge was the latest development in the burgeoning economic relations between the People’s Republic of China (PRC) and nations in Latin America and the Caribbean.
Though an open pledge, several countries in Latin America and the Caribbean will not fully enjoy the benefits of China’s growing economic presence in the region due to a lingering diplomatic dispute. All but 20 nation states diplomatically recognize the PRC as the only legitimate government. Of the 20 states that diplomatically recognize Taiwan, 10 are in Central America and the Caribbean. Mainland China openly restricts trade, investment, and financing to countries that have diplomatic relations with Taiwan. With the global influence of mainland China rising and Taiwan’s declining, it seems irrational that these nations continue to align with Taiwan when the rest of the region has embraced the PRC.
Both historical and present factors explain how Central America and the Caribbean have remained a Taiwanese diplomatic bastion. Ideology was the primordial factor guiding the foreign policy of most nations in Latin America at the time, but it took special significance in Central America and the Caribbean due to their history of U.S. intervention. As allies of the United States, the right-wing leaders that governed the region at the time embraced Taiwan and distanced themselves from the Communist Mainland. The importance of ideology has dwindled significantly and economic considerations have increasingly replaced political ones since the end of the Cold War. In light of mainland China’s greater economic importance to the region, a combination of corruption and improving cross-Strait relations explain the diplomatic status quo of the region. However, the return to power of the Democratic Progressive Party (DPP) in Taiwan has soured cross-Strait relations once again, undermining Taiwan’s stronghold in Central America and the Caribbean.
Historical overview of Sino-Latin American relations
For the first two decades after its founding, the People’s Republic of China could only count Cuba amongst its diplomatic allies in Latin America and the Caribbean. The end of the Cultural Revolution combined with Beijing-Washington rapprochement ushered in new opportunities for Mainland China in the region. In 1970, the PRC replaced Taiwan on the United Nations Security Council and Chile became the second country to establish diplomatic relations with Mainland China. During the 1970s, ten countries in Latin America followed Chile in diplomatically recognizing the PRC.
In a major blow to Taiwan’s claims to international legitimacy, the United States established official diplomatic relations with the PRC in 1979. The PRC continued to gain diplomatic ground on Taiwan during the 1980s, a decade in which four additional countries in Latin America recognized it as the legitimate government of all China. Taiwan responded in the 1980s by offering countries technical aid and loans in exchange for diplomatic recognition. The tactic helped Taiwan establish diplomatic relations with six Caribbean nations and Belize. The PRC responded with its own diplomatic offensive in the late 1990s, outbidding Taiwan to establish diplomatic relations with five nations, most notably Costa Rica, its only diplomatic ally in Central America to date until Panama made the switch this year.
The weight of ideology during the Cold War
From the end of World War II until the fall of the Soviet Union in 1991, Central America and the Caribbean became one of the battlegrounds of the Cold War. Americans feared and loathed communism as a direct threat to democracy and capitalism. Washington sought to contain the spread of communism, particularly in Latin America and the Caribbean, the region it long considered its “backyard.” Wishing to distance themselves from communism during this polarized time, the right wing leaders that governed nations in Central America and the Caribbean embraced democratic Taiwan and rejected Communist China. Prior to the success of the Cuban Revolution, the United States sought to drive communism from the region by backing dictators who would ruthlessly persecute communists within their borders. The popular success of the Cuban Revolution prompted the Kennedy Administration to change its containment strategy and launch the Alliance for Progress in 1961, an intergovernmental effort to mitigate the appeal of communism by reducing poverty and raising the standard of living in the region. After decades of supporting dictatorships, the United States committed to the development and democratization of the region.
A study of the Dominican Republic demonstrates how the threat of U.S. intervention benefited Taiwan diplomatically. For 30 years, the United States supported the Trujillo dictatorship in the Dominican Republic. Following the success of the Cuban Revolution, American support for Trujillo dwindled. The Kennedy administration hoped to transform the Dominican Republic into the “pearl of the Caribbean,” a “showcase” of the Alliance for Progress right next to Castro’s Cuba. Following Trujillo’s assassination, the United States ensured free elections in 1962, which Juan Bosch, the leader of the leftist Dominican Revolutionary Party (PRD), overwhelmingly won. Originally an ally, the United States’ commitment to Bosch declined after he refused to suppress communist groups. After he lost support from the United States, conservative factions overthrew Bosch in 1963. Then President Lyndon Johnson authorized the deployment of American military forces to Santo Domingo in 1965 when the pro-Bosch Constitutionalists seemed poised to re-institute Bosch. The intervention of the U.S. military proved decisive.
Washington sought to contain the spread of communism, particularly in Latin America and the Caribbean, a region it long considered its “backyard.”
The Constitutionalists surrendered soon after. The establishment of an anti-communist government became the priority for the Johnson Administration after the success of the Dominican intervention. With the support of the United States, Joaquin Balaguer, the last of Trujillo’s puppet presidents, easily defeated Bosch in the 1966 elections. Balaguer used the army and national police as personal instruments of repression against communist groups and political rivals to stay in power until 1996. The United States also intervened in Guatemala (1962-1980s), Panama (1969-1991), Costa Rica (1970-1971), Nicaragua (1978-1990), Grenada (1979-1984), El Salvador (1980-1994) and Haiti (1986-1994). After every intervention, the United States left behind less democratic, but strongly anti-communist regimes. Fearful of another U.S. military intervention, these regimes domestically persecuted communists and distanced themselves from Mainland China.
Economic gains from derecognizing Taiwan
The lack of official diplomatic relations has undermined the development of commercial relations between mainland China and nations in Central America and the Caribbean. Though steadily growing, trade between mainland China and Central America is significantly less than with other countries in Latin America. In 2014, exports from Central America to Mainland China represented only 6% of the total trade between China and the region. This is due to many factors, including high import tariffs China imposed on Central America due to a lack of official diplomatic relations. This suggests that commercial relations between Mainland China and Central America and the Caribbean would significantly improve with the establishment of diplomatic relations. Additionally, the fact that, even without diplomatic relations, trade with Mainland China is significantly larger than trade with Taiwan suggests that presently the economic benefits of establishing diplomatic relations will outweigh any costs.
Costa Rica, as the sole diplomatic ally in Central America of Mainland China until this year, demonstrates the potential increase in exports that could result from derecognizing Taiwan. In 2007, former President Oscar Arias severed diplomatic relations with Taiwan and formally recognized Mainland China. Arias described his decision as “an act of foreign policy realism which promotes our links to Asia.” Switching diplomatic allegiances has greatly benefited Costa Rica. In 2006, Costa Rica exported $175 million worth of goods to mainland China, contrasted with $30 million to Taiwan. Since establishing diplomatic relations with the PRC, Costa Rica signed the China-Costa Rica Free Trade Agreement, which reduced tariffs on 90% of products and established preferential prices for Costa Rican agricultural goods in Chinese markets. The free trade agreement helps to explain why Costa Rican exports constituted a majority (54%) of Central American total exports to Mainland China in 2013. The value of Costa Rican exports to Mainland China increased to $372 million in 2013.
Although trade has been the main driver of Sino-Latin American economic relations, investment and finance from Mainland China will play a more prominent role moving forward. During his visit to Costa Rica in 2013, President Xi Jinping pledged nearly $500 million in financing for transportation and infrastructure projects. Additionally, the CELAC-China Forum announced a Special Loan for Infrastructure in its Cooperation Plan for 2015-2019. Only diplomatic allies have access to these loans. By establishing diplomatic relations with mainland China, nations in Central America and the Caribbean would gain access to funds to develop their infrastructure. Another benefit of establishing relations with China is access to foreign direct investment (FDI) also currently reserved for Beijing’s diplomatic partners. Since the 2013 launch of the Belt and Road Initiative, President Xi Jinping pledged to invest $250 billion in Latin America and the Caribbean over the next decade. The region’s strategic location near the United States and free trade agreements with both the United States and the European Union could make Central America a hub for the manufacturing of Chinese exports to these markets. Despite these advantages, the flow of Chinese FDI to Taiwan’s allies in Central America and the Caribbean is low in comparison to other countries in the region. From 2009 to 2012, Central America received a total amount of $128 million in Chinese investments. Companies in allied countries benefit from government assistance in brokering investment deals, as well as greater backing from Chinese financial institutions.
The potential role of corruption
The impact of corruption is one factor often overlooked when attempting to explain why nations choose to align diplomatically with Taiwan. Transparency International’s Corruption Perception Index (CPI) ranks countries based on how corrupt a country’s public sector is perceived to be on a scale from 0 (highly corrupt) to 100 (very clean). A score of less than 50 indicates a “serious corruption problem.” The average CPI for Taiwan’s allies in the region is 30, more than ten points lower than the CPI for allies of Mainland China (40), excluding Canada and the United States. According to CPI scores, Taiwan’s allies are among the most corrupt countries in the Americas.
Fully aware that it can no longer offer more lucrative economic packages than the Mainland, Taiwan’s diplomatic strategy has been to gain the loyalty and support of influential politicians in its allied countries by any means necessary, including bribes. The case of El Salvador is the clearest example to date of how corruption is influencing foreign policy in Central America. In 2014, ex-president Francisco Flores (1999-2004), from the Arena party, was indicted for laundering $15 million in Taiwanese aid. The government of Costa Rica later revealed that Flores had cleared four cheques worth $10 million in his name from the Taiwanese authorities. Surprisingly, Arena officials claim that El Salvador is not the only country to receive this type of money from Taiwan.
It is highly unlikely that existing governments would abandon Taiwan as long as those in power continue to personally benefit from the relationship. A change in policy is more likely under a new government. This has been the case in El Salvador, Paraguay, Panama, and Honduras, where newly elected opposition governments expressed interest in establishing diplomatic relations with Mainland China. Despite the intentions of their leaders, these nations paradoxically maintain diplomatic relations with Taiwan.
An analysis of cross-strait relations reveals why several Central American nations have not been able to establish diplomatic relations with Mainland China, despite the willingness to do so from its leaders. Cross-strait relations made unprecedented progress during the administration of Taiwanese leader Ma Ying-jeou of the Kuomintang (KMT). In 2008, the year Ma assumed the presidency, Beijing and Taipei reached an agreement to stop courting each other’s diplomatic allies. Since then, Taipei and Beijing signed 23 agreements, including an Economic Cooperation Framework Agreement, and in 2015 Taiwanese President Ma and Chinese President Xi met for the first meeting of Chinese and Taiwanese leaders since 1945. As cross-strait relations were improving, presidents from at least four Central American countries expressed an interest in switching diplomatic allegiances. A cable released by Wikileaks, for example, revealed that former President Ricardo Martinelli intended to recognize Mainland China because “he thought that Panama’s business community would benefit as a result.” Martinelli’s high hopes were dashed when Chinese Foreign Minister Yang Jiechi told his Foreign Minister Juan Carlos Varela that Beijing would not accept his offer to avoid spoiling its improving relationship with Taiwan.
Reunification with Taiwan is a matter of national identity and international prestige, making it a higher policy priority for Beijing than establishing diplomatic relations with small nations in Central America and the Caribbean. Beijing’s strategy for reunification could change now that the Democratic Progressive Party (DDP) has returned to power. Cross-strait relations were badly strained under Chen Shui-bian (2000-2008), Ma’s predecessor from the DPP. The Chen administration did not recognize the 1992 Consensus recognizing the existence of only one China, which compelled Beijing to launch a diplomatic offensive to undermine Taiwan’s claims to sovereignty. The DPP was overwhelmingly voted back to power in 2016. Tsai Ing-wen won the presidency with 56% of the popular vote. During the campaign, Tsai criticized Ma’s “diplomatic truce” with Beijing. Ma and the KMT have warned against a return to Chen’s “scorched-earth diplomacy,” a move that could anger Beijing and lead to a breakdown of Taiwan’s diplomatic relations with its allies. Beijing’s decision to establish diplomatic relations with the Gambia and São Tome and Principe last year and, perhaps most significantly, Panama this year, signals the end of the diplomatic truce and could foreshadow what is to come.
The ideological foundation on which Taiwan’s relation ship with Central America and the Caribbean was built has shifted. Corruption remains an obstacle, but will most likely not be enough to withstand Beijing’s growing economic might. Taiwan’s proposal for a “diplomatic truce” with Beijing in 2008 was an implicit recognition that it can no longer hold back Beijing’s advance. As Beijing’s global influence rises and cross-strait relations deteriorate, Taiwan’s diplomatic bastion in Central America and the Caribbean will crumble. Indeed, it is not a matter of if, but a matter of when Taiwan’s allies in Latin America will establish diplomatic relations with Beijing. This shift would represent perhaps the most significant foreign policy change for Latin America in this century.
Central American and Caribbean countries must be proactive. Doing so will set a strong foundation for a mutually beneficial relationship moving forward. However, to ensure that their relationship produces win-win outcomes, governments in the region must design a long-term strategic plan for engaging and cooperating with Mainland China to solve long-standing infrastructure, energy, and trade challenges. Only by doing so will it be ensured that mutual friendship will also lead to mutual prosperity on both sides of the Pacific Ocean.
Carlos Adolfo Gonzalez Sierra (Class of 2017) is from the Dominican Republic, and graduated from Amherst College and the University of Cambridge.