Major blow to China in Panama: Canal locks contract cancelled

China’s influence at the strategically critical Panama Canal has suffered a significant setback. The Supreme Court of Panama has annulled the contract of Panama Ports Company , a subsidiary of Hong Kong-based CK Hutchison , which operates the Balboa and Cristóbal locks at either end of the canal. The court ruled on Thursday midnight that the 25-year contract extension granted to the company in 2021 was unconstitutional .

The landmark ruling has drawn global attention, given the combination of U.S. pressure and massive corruption uncovered in the contract. The development is seen as a step towards the U.S. objective of curbing China’s control over this vital waterway. Since Donald Trump’s second term , the U.S. has focused on limiting China’s influence over the Panama Canal. During his first foreign visit as Secretary of State, Marco Rubio described the management of these locks as a threat to U.S. national security . Trump has also publicly expressed the desire to return control of the canal to U.S. hands .

An audit conducted by Panama’s Comptroller General, Anil Flores , revealed serious irregularities in the port contract. Since the contract’s extension in 2021, the company failed to pay the government approximately $300 million (around ₹2,500 crore) in dues. Moreover, from the initial contract in 1997 until now, the government has reportedly lost about $1.2 billion (roughly ₹10,000 crore) . The audit also highlighted severe accounting errors and illegal activities , including “ghost” concessions inside the ports since 2015.

CK Hutchison , led by Hong Kong billionaire Li Ka-shing , criticised the court ruling, claiming it lacked legal basis and would negatively impact thousands of workers’ families . Meanwhile, China’s Ministry of Foreign Affairs in Beijing warned that it would take “all necessary measures” to protect the interests of its companies.

Analysts believe port operations will continue for the time being. However, it remains unclear who will manage the ports going forward. Previously, CK Hutchison attempted to sell its stake to the U.S.-based BlackRock , but the Chinese government blocked the move. With the court ruling, the Panama Maritime Authority may put the management of the ports up for auction , with U.S.-friendly companies likely to emerge as frontrunners .