China Takes Revenge for Panama Canal Expulsions

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Date: 13/05/2026

What happened:

China has detained more than 90 Panama-flagged vessels at its ports since early March 2026, in what the US and a six-country Latin American coalition describe as targeted economic retaliation against Panama.
The pattern has held for two months. Of the 123 vessels detained at Chinese ports in March alone, 91 were Panama-flagged, and similar ratios have continued into April and the first week of May.
Speaking on 30 April, Panamanian President José Raúl Mulino said the country was "caught in a kind of tide" between two great powers but had no interest in further escalation.
The detentions are the most visible element of a wider Chinese pressure campaign that began in February, after Panama dispossessed Hong Kong conglomerate CK Hutchison of its concessions to operate two strategic ports at the Panama Canal.
The campaign also includes a freeze on Chinese state investment talks in Panama, formal demands that Maersk and Mediterranean Shipping Company (MSC) vacate the seized terminals, and warnings that Panama would "pay a heavy price both politically and economically."
The dispossession itself was the culmination of more than a year of sustained US pressure on what President Donald Trump described as Chinese "operation" of the canal, and it has produced an unresolved international arbitration claim now exceeding $2 billion.

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The pressure campaign

Panama operates the world's largest open-registry shipping flag, used across container, tanker and bulk fleets globally and including by Chinese carriers. Even modest delays at Chinese ports cascade through operators that have no connection to the underlying dispute, raising insurance, schedule, and demurrage costs across multiple trade lanes.

China does not need to close a port, seize a vessel or announce sanctions to impose costs. By applying regulatory scrutiny disproportionately to a politically exposed flag state, it can convert routine port-state control into a tool of grey-zone economic coercion.

The FMC has stated that the inspections appear to follow "unofficial instructions" amounting to reprisals. Beijing publicly denies any retaliation campaign, with Foreign Ministry spokesman Lin Jian calling in late April the US accusations "completely unfounded" and accusing Washington of intending to seize the canal.

Formal sanctions would create a clear legal and diplomatic confrontation. Unofficial inspection pressure is harder to challenge because each detention can be defended as a technical safety or compliance measure, even if the aggregate pattern points to political intent.

The uncertainty forces shipping companies, insurers and charterers to price political risk into ordinary port calls. For Panama, the danger is reputational: its open-registry model depends on the assumption that a Panama flag will be treated as commercially neutral in all major ports.

The shipping pressure has been accompanied by other measures. In early February, Beijing instructed state-owned firms to pause new project talks in Panama, freezing potential investments worth billions of dollars.

China’s Ministry of Transport reportedly summoned senior executives from Maersk and MSC in March and demanded that the firms’ subsidiaries vacate the Panama Canal terminals they had taken over a month earlier. This broadened the dispute from Panama’s sovereign control over two concessions into a wider contest over who may operate infrastructure around a US-sensitive chokepoint, but neither company has complied.

On 29 April, the United States, Bolivia, Costa Rica, Guyana, Paraguay and Trinidad and Tobago issued a joint statement accusing Beijing of "targeted economic pressure" and politicising maritime trade.

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How Panama got here

Since 1997, CK Hutchison Holdings, the Hong Kong conglomerate controlled by the family of tycoon Li Ka-shing, had operated the Balboa terminal on the Pacific entrance of the Panama Canal and the Cristobal terminal on the Atlantic side, through its subsidiary Panama Ports Company (PPC). The original concession was renewed for a further 25 years in 2021. The two terminals together handle close to 40 percent of Panama's container throughput, around 3.8 million TEU annually.

The position made Hutchison the most consequential Chinese-linked operator at one of the world's most strategic maritime chokepoints. The concern for Washington was not that China operated the canal itself, but that Chinese-linked companies held influence around the canal ecosystem: terminal access, cargo flows, logistics data and commercial relationships at both entrances to the waterway.

President Trump made the arrangement a public issue in his January 2025 inaugural address, alleging that China was "operating" the Panama Canal and pledging that the United States would "take back" the waterway.

Under sustained American pressure, Hutchison announced in March 2025 that it would sell its non-Chinese port portfolio, including Balboa and Cristobal, to a consortium led by US asset manager BlackRock and including MSC's Terminal Investment Limited, for a headline figure of $22.8 billion. Beijing reacted sharply, describing the sale as Hutchison "kowtowing" to American pressure, and stalled the transaction through anti-monopoly review. Reporting at the time indicated Beijing had demanded a significant role for state-owned shipping giant COSCO as a precondition for approval.

Panama then took matters out of Hutchison's hands. On 30 January 2026, the country's Supreme Court ruled the legal framework underpinning the 1997 concession unconstitutional, citing tax exemptions, the absence of a public tender for the 2021 renewal, and disproportionate advantages to the operator. The ruling gave Panama a domestic legal basis for the takeover, but the timing ensured that the decision would be interpreted internationally through the US-China competition around strategic infrastructure.

The same day, Mulino signed Executive Decree No. 23, authorising the Panama Maritime Authority to take physical possession of both terminals. PPC employees were ordered out under threat of criminal prosecution. APM Terminals, a Maersk subsidiary, took over Balboa under an 18-month interim contract; MSC's Terminal Investment Limited took over Cristobal on the same basis.

Hutchison did not concede. On 3 February, PPC filed international arbitration against Panama under the rules of the International Chamber of Commerce, seeking $2 billion in damages. The claim was expanded on 24 March, with PPC alleging losses had escalated beyond that figure.

Panama has resisted the ICC proceedings, requesting more time, contesting the scope of the case, and accusing Hutchison of trying to draw in parties not bound by the original contract. The longer the proceedings continue, the more the dispute becomes a test of how much room smaller states have to unwind strategic concessions once those assets become embedded in great-power competition.

That legal exposure now sits alongside the commercial pressure generated by Chinese detentions of Panama-flagged vessels, creating a two-front cost structure for Panama: compensation risk on land and flag-risk at sea.

Hong Kong legal commentators have flagged that the case could run for years and that the most plausible end point is monetary compensation rather than restoration of operations. For maritime trade, however, the larger precedent is already visible: strategic infrastructure disputes can spill into port inspections, flag registries, insurance exposure and shipping schedules. Ships do not need to be formally sanctioned to become pressure points.