“Taiwan is an inalienable part of Chinese territory,” Honduran Foreign Minister Enrique Reina declared in Beijing in March 2023, when he announced Honduras’ official recognition of the People's Republic of China (PRC). This decision joined Honduras with half a dozen Central American nations that have aligned with Beijing after breaking ties with Taipei in less than a decade. “The government of the Republic of Honduras recognises the existence of only one China in the world,” Reina affirmed, echoing Beijing’s own “One China” policy. With only 12 countries worldwide still recognizing Taiwan, Taipei has grown increasingly isolated as the PRC advances its efforts to reshape geopolitics.
To better understand China’s growing influence, AidData has produced a series of policy briefs examining its engagement across Latin America and the Caribbean, as well as the Philippines. The 10 briefs span a diverse range of countries: large nations with longstanding ties to the PRC, such as Brazil, Argentina, Chile, and the Philippines; smaller Latin American countries, including Ecuador, Panama, and Honduras; and Caribbean nations—often overlooked in PRC scholarship—such as Trinidad and Tobago, Jamaica, and Guyana. The briefs were authored by Samantha Custer, Bryan Burgess, Rodney Knight, and myself and were funded by the U.S. Department of State’s Global Engagement Center.
Today, AidData is publishing our policy brief on the PRC’s engagement in Honduras— which we find has seen a massive uptick in new Chinese investments since recognizing Beijing in 2023—vis-à-vis other countries in Latin America. Three key cross-country findings emerge that shed light on Beijing’s engagement strategy in the region.
First, the PRC’s development finance and public diplomacy efforts feature targeted engagements at the subnational level. Beijing typically targets areas that are more economically developed and populous with its development finance projects. In Argentina, provinces like Buenos Aires and Jujuy stand out as hotspots for PRC-funded projects, while in Brazil, states like São Paulo and Rio de Janeiro receive substantial development finance.
Local government engagement can help attract investments, as demonstrated in provinces like Catamarca in Argentina. In Chile, significant PRC-backed investments in lithium mining—such as Tianqi Lithium's acquisition of a 24-percent stake in the lithium-extracting company SQM—highlight the importance of regions like Antofagasta in advancing opportunities in critical minerals and energy infrastructure. This nuance underscores both China’s adaptability, but also the capabilities of our source for this research, AidData’s Global Chinese Development Finance Dataset, Version 3.0. This dataset covers Chinese state-directed development finance from 2000 to 2021, which AidData’s Policy Analysis Unit drew upon and supplemented with our own additional research for years 2022 and 2023.
Second, China’s engagements prioritize building critical infrastructure. From Ecuador’s Coca Codo Sinclair hydroelectric plant, a big-ticket energy project financed with $2.34 billion from the PRC, to Trinidad and Tobago’s Phoenix Park Industrial Estate, a large area of ready-built facilities and infrastructure supporting manufacturing and industrial activities, Beijing consistently invests in energy, industrial, and construction projects that align with its global infrastructure connectivity goals. These investments are not just large in scale but also strategically significant—strengthening energy networks and fostering economic diversification in the Caribbean.
Third, China’s development finance model heavily relies on offering countries debt rather than aid, creating substantial economic leverage while deepening financial dependencies. In Ecuador, nearly 98 percent of PRC investments in the energy sector come in the form of loans approaching market rates, binding the country to long-term repayment commitments while ensuring returns for Beijing. While these kinds of investments enable large-scale infrastructure and energy projects, such as Brazil’s Transportadora GASENE Pipeline ($1.34 billion) connecting Rio de Janeiro and Bahia, they also raise concerns about long-term debt sustainability. This debt-driven approach highlights the dual-edged nature of China’s engagement, offering opportunities for development while increasing economic reliance on Beijing.
Our new policy brief includes analysis on Honduras and other Central American countries, including Belize, Costa Rica, El Salvador, Guatemala, Nicaragua, and Panama. Though located within a single subregion, these countries offer significant variation: some maintain ties with Taiwan, while others recognize the PRC, and among the latter, the timing of recognition varies widely. Two insights surface.
First, early adopters of the One China policy—such as Panama, Costa Rica, and El Salvador—attracted the lion’s share of PRC projects and investments from 2000 to 2021, with a notable increase following their de-recognition of Taiwan. By contrast, later adopters like Honduras and Nicaragua saw less engagement. Interestingly, despite not recognizing the PRC until 2023, Honduras still received some loans during this period. Notably, a 2013 project with Empresa Nacional de Energía Eléctrica (ENEE), a state-owned electricity company, accounted for three-quarters of Beijing’s financing to Honduras over two decades. The PRC also committed $335 million to build Phase II of the Patuca III hydroelectric power plant, a full 10 years before official recognition.
Figure 1. PRC and U.S. Development Finance to Central America by Country, 2000-2021
Second, among Central American countries, the majority of PRC financing came through non-concessional loans rather than grants or donations (Figure 2). This pattern mirrors broader trends in Latin America, where PRC financing increasingly emphasizes loans with market-driven terms rather than concessional aid. Beijing’s soft development projects typically come with more favorable financial terms, such as grants or low-interest loans, designed to enhance its reputation. But larger-scale projects that are expected to yield an economic return are often funded through higher-interest loans. The 2019 surge in PRC financing for Panama was largely driven by a $224.7 million China Eximbank loan to Global Bank Corporation for corporate purposes. By contrast, El Salvador saw a more balanced distribution of smaller projects, with PRC financing primarily allocated to water treatment, sanitation, and social services.
Figure 2. Breakdown of PRC Development Finance to Central America, 2000-2021
As Taiwan faces growing diplomatic challenges in what had been a traditional stronghold, the PRC has increasingly strengthened its position in Latin America and the Caribbean, particularly in Central America. While countries like Guatemala, Paraguay, and Belize continue to maintain ties with Taiwan, the PRC’s influence in the region is making significant inroads. How this shift in recognition will shape these countries in the future remains uncertain.
