Honduras Faces Economic Challenges After Diplomatic Shift From Taiwan to Communist China

The Central American nation Honduras, which severed diplomatic relations with Taiwan in 2023, is by many accounts failing to receive the economic benefits promised by Beijing after switching diplomatic recognition to the People’s Republic of China.

Not only have many small and medium-sized enterprises gone out of business, but Honduras also still owes Taiwan US$422.5 million (approximately NT$13.34 billion) in outstanding debt.

Honduras maintained diplomatic relations with Taiwan for over 70 years before cutting ties in April 2023 and establishing relations with the PRC, seeking greater economic assistance and loan support from Beijing.

However, after diplomatic relations were established, Beijing reportedly did not fulfill its economic commitments. At the same time, a large number of mainland Chinese-funded companies entered Honduras, significantly affecting the livelihoods and employment of local businesses. In addition, Taiwan’s imports from Honduras declined sharply following the diplomatic break, dealing a severe blow to Honduras’s white shrimp exports, one of the country’s key export industries, Associated Press reported.

On June 12, Wu Chih-chung, Taiwan’s Deputy Foreign Minister, spoke to reporters while attending the opening ceremony of the Somaliland Representative Office in Taiwan. He said Taiwan is actively seeking repayment of the more than NT$10 billion debt.

Taiwan’s continuing diplomatic struggle

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Under the “one China” policy, most countries around the world recognize only the PRC, rather than Taiwan, which is formally known as the Republic of China.

Having lost its seat as “China” at the United Nations in 1972, Taiwan is in a diplomatic grey area where its relations with major economic and military partners — such as the U.S. and Japan — are handled on an unofficial basis. The PRC claims Taiwan as a rightful part of its sovereign territory, while the ROC government asserts it is an independent state.

Only a handful of minor countries, mostly in Latin America and Oceania, but notably including the Vatican City, recognize Taiwan over the mainland Chinese regime.

Wu stated that, under international law and standard commercial practice, debts should be repaid regardless of politics. “Even when dealing with diplomatic allies, if there are economic, trade, or commercial obligations, what should be repaid must be repaid,” he said.

Asked about Taiwan’s efforts to expand its international engagement and economic ties, Wu acknowledged that “Taiwan’s diplomatic allies are becoming increasingly solidified, which is not a positive development from the Chinese Communist Party’s perspective.” He added that Beijing is now attempting to undermine Taiwan’s relations with any other country, including its economic and trade relationships, and that this is a challenge Taiwan faces every day.

Wu reiterated that the more Taiwan is integrated into the framework of international relations and connected with the international community, the better it can safeguard its national security. He emphasized that incorporating Taiwan into the international system helps preserve the status quo, while “all of the Chinese Communist Party’s threats against Taiwan are aimed at undermining that status quo.”

Therefore, diplomacy and international cooperation are vital means of maintaining Taiwan’s national security and regional stability, he added.

Mainland Chinese businesses leave Honduras

According to Taiwan’s Mirror Media, the influx of PRC-funded businesses has left Honduras’s small and medium-sized enterprises (SMEs) in a precarious position. The Honduran government is now drafting measures to strengthen oversight and inspections of Chinese-invested businesses. While the proposal has received support from large companies, many SMEs remain skeptical.

According to the report, the bill was introduced by ruling party lawmaker Mario Pérez and has already been passed. It requires authorities to examine whether mainland Chinese-funded businesses are operating legally, paying taxes in accordance with the law, complying with regulations governing the origin and import of goods, ensuring employees have proper residency status, and determining whether they are involved in capital outflows.

Pérez said PRC businesses have spread across Honduras. “Wherever they go, Honduran merchants are going bankrupt, and business conditions continue to deteriorate,” he said.

He stressed that he is not opposed to China. However, in the three years since Honduras established diplomatic relations with Beijing, there has been a noticeable increase in retail stores rather than the large-scale industrial investments that would create jobs. Honduras has not released official figures on the number of PRC-linked businesses, but their expansion has coincided with a sharp rise in Chinese immigration. Official data show that the number of immigrants from the PRC increased from 403 in 2020 to more than 5,000 in 2025.

Anabel Gallardo, president of the Honduran Council of Private Enterprise (COHEP), said she supports stronger government oversight but emphasized that all economic activities should be subject to the same legal standards. Regardless of their country of origin, businesses should comply with Honduran law and pay taxes accordingly.

Gallardo noted that SMEs are concerned about being placed at a competitive disadvantage. She urged the government to ensure a level playing field and encourage consumers to buy locally in order to protect domestic industries.

However, José Castañeda, president of the Honduran Federation of Small and Medium Enterprises (FEMISE), disagreed with the new regulatory approach. He argued that SMEs cannot compete with China’s manufacturing capacity. “Once Chinese goods enter the market, local businesses will go under,” he said, adding that the underlying problem is the lack of government policies to support domestic industries.

Castañeda also warned that excessive regulation could ultimately increase costs and pass them on to consumers. Instead, he recommended focusing on education, industrial policy, and broader economic reforms to establish a long-term development strategy.