China has warned Panama of political and economic consequences after the country’s Supreme Court cancelled a long-standing contract held by Hong Kong-based CK Hutchison to operate two ports at the Panama Canal.

The court decision annulled the contract of Panama Ports Company, a CK Hutchison subsidiary that has operated container terminals at the canal’s Pacific and Atlantic entrances since the 1990s.

The court said the agreement breached constitutional rules and raised concerns over public interest.

China’s Hong Kong and Macau Affairs Office criticised the ruling and said it had harmed the legitimate rights of Hong Kong companies.

The office said China has the ability to protect a fair international economic and trade order and warned that Panama would pay a heavy price politically and economically if it continued with the decision.

The ruling has been seen as a positive outcome for the United States at a time of rising competition with China over global trade routes.

John Moolenaar, chairman of the US House Select Committee on China, described the decision as a win for the United States.

Without naming the US, Chinese authorities said another country had used pressure to force others to follow its will and said Panama had given in to such influence.

The comments followed earlier remarks by US President Donald Trump, who had claimed Chinese influence over the canal posed a security risk and had called for the US to take back control of the waterway.

The decision could also affect CK Hutchison’s proposed US$23 billion sale of 43 ports in 23 countries, including the two Panama Canal ports, to a consortium led by BlackRock and Mediterranean Shipping Company.

CK Hutchison said its board strongly disagreed with the court’s ruling and the actions taken in Panama.

The company said it is consulting legal advisers and has reserved the right to pursue further legal action. It has since started international arbitration proceedings against Panama.

Following the ruling, the Panama Maritime Authority said Danish shipping group Maersk will temporarily take over operations at the two ports previously run by CK Hutchison’s subsidiary.

The Panama Canal handles about 40 per cent of US container traffic and around 5 per cent of global trade.

The canal was built and funded by the United States, which operated it for nearly a century before handing control to Panama in 1999.

References: Reuters, Al Jazeera