Latin America Advisor

A Daily Publication of The Dialogue

Will Ties With China Bring Big Benefits to the Dominican Republic?

Foreign Ministers Miguel Vargas (L) and Wang Yi (R).

The Dominican Republic on May 1 severed its diplomatic ties with Taiwan in favor of establishing them with China. Further isolated by the move, Taiwan’s foreign minister reacted angrily, saying the Dominican Republic had “ignored our long-term partnership.” The Caribbean nation’s decision followed a similar move by Panama last year. What factors drove the Dominican Republic’s decision? What will the change mean for the Dominican economy? Will more countries that currently recognize Taiwan, including Guatemala, Honduras and El Salvador, follow suit?

Margaret Myers, director, and Ricardo Barrios, program associate, of the Latin America and the World program at the Inter-American Dialogue:   “The Dominican Republic’s decision to break off its diplomatic relationship with Taiwan in favor of mainland China was economically motivated. Taiwan has been extremely generous toward its diplomatic partners in Latin America and the Caribbean through many years of grants and concessional loans. But the scale and potentially transformative nature of Chinese trade, investment and finance toward the region is difficult to ignore. The commercial potential of Chinese-Dominican relations is limited, given that China imports similar goods from nearby Southeast Asia, but even a relatively small infusion of Chinese foreign direct investment or finance could have big effects on the Dominican economy. Chinese banks have given a whopping $140 billion in loans to the region since 2005, with almost all of that directed toward diplomatic partners. China’s foreign direct investment, including in Central America and the Caribbean, is also largely directed toward those countries that officially recognize the People’s Republic of China, or PRC. Panama, Costa Rica and Jamaica have all received billions in FDI and finance over the years. The writing was on the wall, in retrospect, following an uptick in unofficial comings and goings among Chinese and Dominican officials. The unofficial diplomatic truce between China and Taiwan came to an abrupt end following pro-independence presidential candidate Tsai Ing-wen’s win in 2016. If Panama and the Dominican Republic are any indication, we’ll likely see other Latin American or Caribbean countries follow suit in the coming years. Also, Taiwan will no doubt be keeping a close eye on developments in partner nations.”

Mary Fernández Rodríguez, founding partner at Headrick Rizik Alvarez & Fernández in Santo Domingo:  “The Dominican Republic did what it had to do. I am not sure why the government decided to make this move at this specific time, but the reality is that we are a country located on a small island, and we can’t ignore a country that represents 20 percent of the world´s population and is responsible for the second-highest level of foreign direct investment in the world. I understand that the Dominican Republic has a debt of gratitude to Taiwan; it was a good ally of the country and contributed generously in different areas of our economy. However, our country had to face a reality: China is recognized by most nations of the world as the legitimate representative of the Chinese people. Experts say this will not bring a significant change to the Dominican economy, at least in the short run, and they are probably right. However, if we can attract at least a pinch of Chinese investment in areas that the country needs, find the precise niche for Dominican exports to China and attract some Chinese tourism, we will eventually benefit from this relationship. Whether other Central American countries will follow suit is hard to say; but, if I had to predict, I would say they will.”

R. Evan Ellis, Latin America research professor at the U.S. Army War College Strategic Studies Institute:  “Both the Fernández and Medina governments in the Dominican Republic, like those in Paraguay, Central America and the Caribbean that continue to recognize Taiwan, have been tempted by hopes for the expanded access to Chinese markets, loans and investment that would presumably come from recognition. Yet the PRC resisted pursuing such interests while a ‘diplomatic truce’ prevailed between it and Taiwan from 2008 to 2016. As elsewhere, the newly established diplomatic relations will probably bring infrastructure, energy sector and other construction projects worked by PRC-based companies and funded by Chinese policy banks (Taiwan claimed the PRC offered $3 billion in projects, possibly including construction of low-cost housing and a biomass electricity generation facility). Chinese companies working with local partners will likely expand their presence in telecommunications, mining support, retail and manufacturing (final assembly, seeking to export to the United States under CAFTA-DR). The PRC will facilitate expanded access to Chinese markets for Dominican agricultural products, but the cost of shipping such perishable goods to Asia will mostly limit such exports to high-end products with strong Dominican branding. The new Chinese construction projects and businesses will also complement human smuggling to expand the Chinese community in the country, as occurred with construction projects in Guyana and Suriname, creating tensions with established non-Chinese business groups and perhaps spawning anti-Chinese protests, like those in Santo Domingo in July 2013. The PRC will likely offer technical cooperation to help the Dominican police manage issues associated with human trafficking and other criminal matters involving the difficult-to-penetrate Chinese community. The next diplomatic change in the region will likely be one of the smaller Caribbean states, Haiti, or Honduras (where the United States just canceled TPS status).”

The Latin America Advisor features commentary from leaders in politics, economics, and finance every business day. The publication is available to members of the Dialogue's Corporate Program and others by subscription.

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