Nicaragua’s ‘Lifeboat’ Free Trade Agreement with China Goes Live, Displacing Local Businesses

Nicaragua’s Free Trade Agreement (FTA) with China came into effect on January 1, marking both a new stage in the relationship between the communist nations and another victory for China’s growing influence in the rogue Central American nation.

Chinese dictator Xi Jinping officially established a “strategic partnership” with Nicaraguan dictator Daniel Ortega in a telephone conversation on December 20, two years after Ortega cut Nicaragua’s traditional ties to the nation of Taiwan. China refuses to maintain diplomatic relations with any country that recognizes the reality of Taiwan’s sovereignty, requiring the rupture between Managua and Taipei. The telephone conversation occurred a little over a month after the Nicaraguan National Assembly approved the now-active FTA with China.

Ortega claimed in December that the FTA with China was “the best Christmas gift,” describing the agreement as both a “strategic” step to overcome U.S. sanctions and as a “lifeboat” for the Sandinista regime – which has, as of late, increasingly relied on remittances from citizens abroad to fund itself.

“This [The FTA] is a strategic step, strategic because it frees us from any sanction they want to apply, as requested by the stateless there in the United States, where they insist that we be removed from trade,” Ortega said.

“We have a Free Trade Agreement with a nation that has been developing in an exemplary manner. If [only] all the powers that are instead of going around promoting wars, military occupations, terrorism, would have the practice that the People’s Republic of China has,” Ortega declared, “that has been linking with developing peoples, in Africa, in Asia, in Latin America, developing relations without political conditions.”

The Nicaraguan dictator continued by claiming that China “has been showing the behavior of a power that does not disrespect any developing country.”

He continued:

China is already advancing at a speed that has the imperialists of the world trembling, not because China is going to make war on anyone. What they are afraid of is the economic, technological, and scientific development, the speed at which China is growing and becoming the most powerful economy in the world, which it shares with developing countries.

Actual details of the free trade agreement have been reportedly leaked slowly by the Ortega regime to local media with minimal transparency. Some of the Nicaraguan exports that will reportedly receive preferential rates from China include textiles, meat, coal, paper, wood, and cardboard.

Prior to the activation of the FTA, the ruling Sandinista National Liberation Front (FSLN) and the Chinese Communist Party signed a “memorandum on exchange and cooperation” in early December. The FSLN was represented by Laureano Ortega Murillo, Dictator Ortega’s son, who stated that “the relationship between the two parties is the cornerstone of the continued development of relations between the two countries.”

A report published by the Nicaraguan newspaper Confidencial in December detailed that, throughout 2023, the Ortega regime allowed Chinese companies to establish a significant presence in Nicaraguan territory and operate under beneficial terms.

The projects detailed in the report range from a $60-million housing project in April built by a China-based company with Chinese workers, but financed by the Nicaraguan government. Two mining concessions were granted to the China-based company Zhong Fu Development in July, totaling 15,400 hectares.

A new Chinese retail chain called Casa China (“Chinese House”) opened its doors in Managua in August. The store sells consumer products imported from China to the Nicaraguan market, competing with local products and established retailers.

According to a report published by the Nicaraguan newspaper La Prensa in December, stores like Chinese House and China Mall have begun displacing local businesses. The Chinese stores, the report claimed, stocked up on products for resale, which would allow them high profit margins ahead of the FTA.

La Prensa also interviewed several local businessmen who denounced that local stores have been forced to close their doors, finding themselves unable to compete with the much larger Chinese companies.

“Before, many products were bought from China and sold wholesale, but now with the direct manufacturer here it is different. How can I compete with those giants? What we have left is to reinvent ourselves, look for other places outside the market, or stay here with other items,” an unidentified Nicaraguan merchant explained.

Nicaragua has traditionally relied on trade with the United States. According to the Department of State, the United States is Nicaragua’s top economic partner, receiving 50 percent of Nicaragua’s exports while supplying 27 percent of its imports.

Similarly, the Ortega regime largely depends on profits obtained from remittances sent by banished Nicaraguans to their friends and families, turning the revenue obtained from remittances into an important funding source for the authoritarian regime.

The United States is also the largest source of remittances sent to Nicaraguans. According to data recently published by the Central Bank of Nicaragua, the country received $4.24 billion in remittances between January and November 2023, 47 percent more than the $3.22 billion received in 2022. About 77 percent of the remittances received in 2022 came from the United States.

Christian K. Caruzo is a Venezuelan writer and documents life under socialism. You can follow him on Twitter here.