Carter-Clinton Legacy: Chinese Penetration of Panama

(Washington, D.C.): Yesterday, President Clinton awarded the Presidential Medal of
Freedom to
former President Jimmy Carter. The timing of this tribute was striking since two of the many
foreign policy “chickens” loosed during the Carter Administration — the surrender of the
Panama Canal and the normalization of relations with the People’s Republic of China — are now
coming home to roost.

Of particular concern is the inattention by Mr. Clinton and his subordinates (many of whom,
as
the current president noted in the course of his remarks yesterday in Atlanta, previously had
worked for President Carter) to the convergence of two trends initiated by the last Democratic
chief executive: a vacuum of power at the strategic isthmus of Panama and a determination on
the part of an increasingly assertive China to fill it at America’s expense. An
excellent report
describing the PRC’s ominous penetration of the Western hemisphere via Panama was published
recently in Insight magazine by J. Michael Waller, one of the most thoughtful
security policy
analysts of our time who serves as the Vice President of the American Foreign Policy Council
and a member of the Center for Security Policy’s Board of Advisors. It is based on first-hand
reporting from the site of China’s new beachhead in Balboa. (Emphasis added throughout.)

Excerpts from

China’s Beachhead at Panama Canal

by J. Michael Waller
Insight Magazine
26 July 1999

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.

Hutchison Whampoa’s port subsidiary, Hutchison International Terminals, or HIT, which in
turn
runs the Panama Ports Co., does substantial business with the PLA-owned China Ocean
Shipping Company, or COSCO, which has been seeking to take over former naval facilities in
Southern California. Some of Hutchison’s board members consult to COSCO. China Resources
Enterprise, or CRE, the commercial arm of Beijing’s Ministry of Trade and Economic
Cooperation, owns 10 percent of the Panama Ports Co. The Senate Governmental Affairs
Committee has identified CRE as a vehicle for “espionage — economic, political and military —
for China.”

U.S. officials have been slow to realize the importance of Hutchison Whampoa and its global
maritime network in Beijing’s strategic planning. “Hutchison is trying to build a commercial
empire in the Americas,” a senior U.S. official in Panama tells Insight. “If you asked me three
years ago, I’d say Hutchison Whampoa was just a business concern. Logic would tell you that
the PRC has more opportunity to influence Hutchison Whampoa than before.”

China’s Ambitions

As Santoli sees it, China appears to be positioning itself commercially and militarily
along
key naval choke points as they build their navy, the way the Soviets tried to do in the 1980s.

These choke points include bases in Burma to access the Indian Ocean; Hong Kong
to
project power into the South China Sea; the Straits of Malacca, where the PRC is
expanding ties with Cambodia and building a naval facility on the Philippines-claimed
Spratley Islands; the central Pacific, with a major land satellite-tracking station on
Tarawa; the coast of Hawaii, with a major ocean-mining tract; the Caribbean, with new
influence in the Bahamas and a growing security and intelligence relationship with Cuba;
and, most important, the Panama Canal.

“If Red China gets control of the canal, it will get control of the government,” says Panama
City
Deputy Mayor Augusto Diaz. “The Panama Canal is essential to China…. If they control the
Panama Canal, they control at least one-third of world shipping.”

Though the 1977 Carter-Torrijos treaty gives the United States the right to defend
the
Panama Canal militarily, the Clinton administration is allowing circumstances to develop
in which U.S. defense of the waterway could become impossible without confronting the
Chinese Communists. Panama has no standing army of its own and has been powerless
to
repulse Colombian guerrillas from its territory. All U.S. military facilities in the country will
have been abandoned by December — and a new Panamanian law gives Hutchison Whampoa
“first option” to take over the former U.S. Naval Station Rodman and other sites, as well as an
operating area at the former U.S. Albrook Air Force Station. “If they get their hands on Rodman,
they’ll have a lot on the Pacific side,” notes local journalist Tomas Cabal. “Rodman is there at
the first set of locks.”

Panamanian law now gives the Chinese company the right to pilot all vessels
transiting the
canal. Retired admiral Thomas H. Moorer, former chairman of the Joint Chiefs of Staff,
warned
the Senate last year that U.S. Navy ships soon would be at the mercy of Chinese-controlled
pilots. A U.S. government source tells Insight that U.S. nuclear submarines occasionally transit
the canal. By treaty, U.S. naval vessels have first priority for passage, but since the new
Panamanian law gives Hutchison Whampoa the right to deny passage to any ship
interfering with its business, the U.S. warships could become subject to Red Chinese
authority.

“My specific concern is that this company is controlled by the Communist Chinese,” Moorer
told
the Senate Foreign Relations Committee in no uncertain terms. “They have virtually
accomplished, without a single shot being fired, a stronghold on the Panama Canal.”

And with U.S. forces out of the picture, security of the waterway and even the
government
is in question. Officials note a 25 percent leap in emigration from Communist China
during the
last few years, and illegal immigrants from China are commonplace. Says Diaz, “There are many
Chinese in this country with cedulas [national-identity papers] saying they are Panama-born, but
they don’t even speak Spanish.”

“Illegal immigration is a PLA operation, giving the permits to get the people out of China,”
says
Cabal, an expert on corruption and crime. The immigration director under the previous
Panamanian government let them in under suspicious circumstances. Panamanian journals
reported that a racket was run through the Panama consulate in Hong Kong, which issued the
visas. The consul and his wife had a travel agency that allegedly brought 15,000 Chinese to
Panama, where crooked immigration officials issued them false papers. Intelligence sources say
many of these illegal immigrants were bound for the United States.

Beijing uses large-scale emigration to base future intelligence assets abroad to recruit agents
from ethnic Chinese communities, Insight has learned. And Panama is a key target. “One of the
primary factors accounting for the success of Chinese intelligence is the exploitation of … the
vast emigration of Chinese to communities worldwide,” according to Stanislav Lunev, a former
Soviet military-intelligence colonel who operated in Beijing before defecting to the United States
in 1992.

According to Lunev, “The Chinese intention to develop oceangoing capabilities for its navy
is
well-known. But the Chinese navy does not yet have such worldwide capabilities at a time when
it needs to have information about the perimeter of the Pacific region. This is the reason that
Chinese entrepreneurs are actively in the market for abandoned port facilities in strategic
locations.” Lunev specifically cites the Panama Canal.

Beijing has been building an overt intelligence presence in Panama as well. Insight has
learned
that a Chinese intelligence officer with a staff of 14 operates as his country’s unofficial
“ambassador” from the 23rd floor of the Global Bank Building on 50th Street in Panama City.

* * *

Polls show that three-fourths of Panamanians want the United States to stay in their
country, but the Clinton administration is committed to a total, unconditional pullout by
year’s end. The White House declined to discuss keeping a U.S. military presence
under
circumstances permitted by the Carter-Torrijos treaty. In his Senate testimony, Moorer warned:
“We have dropped the ball on the [former] Canal Zone, and the game is almost over.” Few
lawmakers even listened to the former chairman of the Joint Chiefs of Staff.

“China is very clear and focused that they want a choke point,” says a prominent former
Panamanian diplomat who was part of the negotiations with the United States in the 1970s.
“Your government has been so shortsighted that it hasn’t paid attention. It’s as simple as
that.”