Demonstrating China's creeping geopolitical dominance, on Monday night Panama’s President Juan Carlos Varela announced that Panama has established diplomatic ties with China while breaking relations with Taiwan in a major victory for Beijing, which continues to lure away the dwindling number of countries that have formal relations with the self-ruled island. President Varela said that the strategically important nation was upgrading its commercial ties with China and establishing full diplomatic with the country which is the second-biggest user of the Panama Canal and has played a key role in sectors from banking to telecommunications. Varela called Taiwan a great friend and said he hoped for a constructive reaction.
Panama's government said in a statement that it recognized there was only one China, with Taiwan belonging to the Asian giant, and that it was severing ties with Taipei. "The Panamanian government is today breaking its 'diplomatic ties' with Taiwan, and pledges to end all relations or official contact with Taiwan," the statement said.
“We have taken a historic step," Varela said. “Both countries opt for the connection of a world that is more and more integrated, which creates a new era of opportunities for a relationship that we are starting today."
"I'm convinced that this is the correct path for our country," Varela said.
In response, Taiwan's government said it was sorry and angry over Panama's decision, and said it would not compete with China in what it described as a "diplomatic money game".
"Our government expresses serious objections and strong condemnation in response to China enticing Panama to cut ties with us, confining our international space and offending the people of Taiwan," David Lee, Taiwan's minister of foreign affairs, told a briefing in Taipei quoted by Reuters.
Taiwan's President Tsai Ing-wen and Panama's Juan Carlos Varela during a welcome ceremony before a meeting at the Presidential Palace in Panama City, Panama June 27, 2016.
As Bloomberg adds, the diplomatic U-turn reduces to 20 the number of nations that recognize the government in Taipei, rather than Beijing, as representing China. The Communist Party considers Taiwan a province and has criticized President Tsai Ing-wen’s refusal to accept that both sides belong to “One China,” its precondition for ties. Taiwan Presidential office spokesman Alex Huang said earlier that he couldn’t comment before any announcement by Panama.
In December, the West African island nation of Sao Tome and Principe cut diplomatic relations with Taiwan. Beijing formally reestablished relations with Gambia last March - another former Taiwanese partner in West Africa - and has stepped up communications with others, such as the Vatican.
The establishment of links with Panama is a coup for China, which has been showering largesse on countries throughout Central America in recent years in an attempt to get them to break ties with Taiwan. As recently as December, Panama's deputy foreign minister had said he did not expect any change in Panama's relations with Taiwan or China. Panama is one of Taiwan's oldest friends, but some diplomats in Beijing had speculated that the Central American country could become the next nation to break ties.
China is deeply suspicious of Taiwan President Tsai Ing-wen, who it thinks wants to push for the island's formal independence, although she says she wants to maintain peace with Beijing.
China and Taiwan have tried to poach each other's allies over the years, often dangling generous aid packages in front of developing nations, although Taipei struggles to compete with an increasingly powerful China.
Tsai visited Central American allies earlier this year but did not stop in Panama.
In Beijing, Panama's foreign minister de Saint Malo said President Varela had expressed 10 years ago his interest in establishing ties with China, and that she hoped the move would lead to trade, investment and tourism opportunities, especially for "exporting more goods from Panama to China".
Monday's diplomatic move could also raise questions about the future of a Chinese-backed project to build another Central American waterway to rival the Panama Canal in Nicaragua. Earmarked at a cost of $50 billion, the Nicaraguan scheme was met with widespread incredulity when it was announced in 2013, and critics have raised questions about its feasibility.
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In response to the announcement, Taiwan said it would immediately end cooperation with and assistance for Panama, and evacuate embassy and technical personnel "in order to safeguard our national sovereignty and dignity", Lee said.
Panama is the second country to switch its recognition to Beijing since Tsai took office last year, following a similar move by Sao Tome and Principe in December, trimming to 20 the number of countries that formally recognize Taiwan. Taiwan had as many as 30 diplomatic allies in the mid-1990s, and its remaining formal ties are with mostly smaller and poorer nations in Latin America and the Pacific.
China's Foreign Minister Wang Yi met his counterpart from Panama, Isabel de Saint Malo, in Beijing on Tuesday and signed a joint communiqué establishing ties.