Costa Rica’s Cautionary Tale of Chinese Engagement

By offering massive infrastructure investment and access to Chinese consumers, Beijing has secured a substantial foothold across the Americas. However, as the Chinese economy slows due to the limits of its economic model and authoritarian system, Beijing is showing its true colors as a coercive and subversive political actor in the Americas.

Costa Rica is learning this lesson the hard way, and its experience with China should serve as a warning both to regional governments and Washington.

Costa Rica maintains the longest-standing diplomatic relations with China among Central American countries, going back to 2007. Along with the establishment of relations came the promise of investment. Initially, these investments seemed potentially lucrative; China invested $100 million in a new stadium in San Jose, which opened in 2011.

Other projects haven’t fared so well.

One example is a project announced in 2007 that promised to upgrade Costa Rica’s Recope Oil Refinery. The project took several years to get off the ground, and in 2013, Costa Rica intentionally halted plans—reportedly due to a breach of the agreement on the part of the China National Petroleum Corporation. The project was eventually canceled altogether in 2016.

An even bigger flop has been the China Harbor Engineering Company’s project to expand Highway 32 in Costa Rica. Commissioned in 2017, the project was projected to be completed by 2020, but it remains in limbo to this day. Beyond the delays, Costa Ricans familiar with the project say that it is poorly designed, dangerous for civilians, and riddled with corruption.

These experiences, combined with concerns over cybersecurity vulnerabilities, informed President Rodrigo Chaves’ decision to approve a decree that banned companies based in countries that have not signed the Budapest Cybercrime Convention from participating as 5G providers in Costa Rica. This measure effectively blocks the Chinese state-owned telecom company Huawei from any 5G contracts in the country.

It is safe to say this ruffled feathers in Beijing. The Chinese embassy in Costa Rica has lambasted this decision, issuing a statement that condemned the decree and insinuated that it would have consequences for economic relations between both countries.

After a failed appeal by Huawei to the Constitutional Court of Costa Rica, Beijing ramped up the efforts to buy allies within the Costa Rican government, turning to the Internal Workers’ Front of the Costa Rican Institute of Electricity (ICE), a government-run services provider. ICE appealed on behalf of Huawei to a lower court, which has put the decision on pause while more evidence is supposedly being gathered.

Beijing’s attempts at corruption were exposed this past April when Huawei paid for and hosted an exclusive and confidential party at the Hilton La Sabana in San José for at least seventy ICE employees. A Huawei accounts manager was reportedly seen throughout the night getting very chummy with the Costa Rican official in charge of managing public contracts.

Upon the exposure of these events—and the glaring conflict of interest—several unions associated with ICE filed complaints. In response, the Costa Rican government has announced the firing of at least one ICE official involved in the party. President Chaves and the Chinese Embassy continue to exchange tit-for-tat public comments, going after each other’s positions on this situation.

The costs and headaches of a partnership with China have hardly been worth the benefits for Costa Rica. 

In 2006, before relations were established with Beijing, Costa Rica’s exports to China totaled around $557 million. In 2007, that number jumped to around $835 million. However, since then, exports to China have been decreasing. Even a free trade agreement signed between the two countries in 2010 wasn’t able to have much effect. In 2011, exports were about $215 million, significantly lower than in 2006, when Costa Rica had no formal relationship with China. In 2021, exports to China totaled just $309 million.

Costa Rica’s experiences with China are not unique. Across Latin America, stories of abandoned Chinese investments are all too common. As are instances of corrupt influence buying and the use of economic coercion. In Argentina, for instance, China is using its holdings of Argentine debt and threats to disrupt infrastructure projects to undermine efforts by the government of President Javier Milei to reestablish sovereignty over its national affairs, including oversight of a shadowy Chinese space base controlled by the Chinese military.

The story is the same elsewhere. When Beijing doesn’t get its way, it brings to bear massive economic and subversive political pressure.

The United States must recognize this aggressive shift in Beijing’s engagement in Latin America. Offering the region an alternative to Beijing’s economic engagement is still necessary. However, it is just as important to support regional governments struggling to stave off Beijing’s active coercion.

Washington has the tools to do this, including through targeted restructuring deals aimed at Chinese debt, as well as support in detecting and investigating money laundering and corrupt activities in the region tied to Beijing.

As Latin America wakes up to the realities of Chinese engagement, Washington has a unique opportunity to both unseat Beijing in the region and reestablish the United States as the region’s partner of choice.

Andrés Martínez-Fernández is a Senior Policy Analyst at Heritage’s Allison Center for National Security. 

Allison Engle is a Summer 2024 Member of the Young Leaders Program at The Heritage Foundation.

Image: JHVEPhoto / Shutterstock.com.