International Economic Ties: Free Trade Amidst an Ailing Economy - Salvadoran-Chinese Connections
El Salvador, a country in Central America, formally established diplomatic relations with China in 2018, marking the beginning of a significant economic partnership. This move has opened up opportunities for investors, entrepreneurs, and crypto enthusiasts seeking a primary base in China or a crypto haven.
President Nayib Bukele, who was elected in 2019, has ambitious plans for El Salvador. One of his key initiatives is the development of a Crypto City, offering exceptional tax benefits. In a groundbreaking move, El Salvador adopted Bitcoin as a legal tender in September 2021, making it the first country to do so. However, since the adoption, both El Salvador and Bitcoin have seen a downfall. The current price of Bitcoin stands at a little over USD 16,000, falling over 60% since El Salvador adopted Bitcoin as a legal tender.
El Salvador is seeking visa-free access to China and its vast market. To further strengthen the economic ties, China has offered to buy El Salvador's USD 21 billion foreign debt as part of the free trade agreement. This agreement is expected to be signed after the meeting with the Chinese ambassador.
China has also pledged $500 million in development projects in El Salvador, including a sports stadium and a national library in San Salvador. Additionally, China promised an additional $200 million to support El Salvador's 'Surf City' project.
However, the future of projects proposed by China in El Salvador's port areas and economic zones is uncertain due to political and legal issues. The expansion of the solar energy sector, supported by foreign investment, plays a key role in economic growth and attracts international capital.
International investors interested in collaboration with El Salvador to address the country's economic challenges include those qualifying under new special investment regimes established in August 2025. These regimes attract high-value investments exceeding US $2 billion by offering full tax exemptions and other incentives. The newly enacted Investment Banking Law facilitates the operation of investment banks serving sophisticated investors with at least US $250,000 in liquid assets, enabling access to broader capital markets and financing options.
The growing economic alliance between El Salvador and China may pose challenges to El Salvador's traditional relationships, particularly with the United States. Many know these jurisdictions as the backyard of the US, and China cozying into these areas could mean the loss of lucrative opportunities for the US. With several countries in Central and South America, like Peru and Costa Rica, already having free trade agreements with China, El Salvador's decision to align with China could be a trend-setting move in the region.
El Salvador's imports from China have exponentially increased since formal relations, but exports have plummeted. It remains to be seen how this trade imbalance will be addressed as the partnership between the two nations deepens.
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