In what has been a serious and sobering political setback for Taiwan, Panama, one of a dwindling number of Taipei allies, has switched its diplomatic recognition to Beijing. The expected but still surprising move came amid warming commercial ties between the Central American republic and the People’s Republic of China.

The decision underscores Taiwan’s diplomatic isolation and equally the end of the informal truce between both rival Chinese states in which Beijing had refrained from politically “poaching” Taipei’s allies. What may be less apparent is China’s expanding business links with this strategic Central American country that hosts the strategic Panama Canal.

Panama’s government stated that it recognized that there “was only one China” and considered Taiwan to be part of it. Yet democratic Panama is now ditching democratic Taiwan and recognizing authoritarian China.

Taiwanese Foreign Minister David Lee announced that his government would immediately terminate its ties with Panama and added that Taiwan felt “deep anger and regret” towards Panama’s decision. Apparently, Taipei’s Foreign Ministry was given a scant 40-minute warning before the Central American state switched its relations in a Beijing ceremony.

During the presidency of Nationalist (KMT) Ma Ying-jeou between 2008-2016, the unofficial diplomatic truce held. An ancillary to the arrangement was that neither Beijing nor Taipei would use traditional but wasteful “checkbook diplomacy” in courting mostly Third World allies.

Yet since the presidency of Tsai Ing-wen of the Democratic Progressive Party (DPP) in May 2016, the political atmosphere between Beijing and Taipei has deteriorated significantly. The diplomatic switch of the West African state of Sao Tome and Principe last year was not as serious a setback as Taiwan’s exclusion from the recent World Health Assembly as an observer. And now Panama.

Following the political thunderclap, Tsai stressed that Taiwan had upheld its responsibility in maintaining cross-strait peace and stability. She warned ominously that the PRC’s actions have harmed the “status quo.”

Tsai added, “The people of Taiwan cannot accept this… we cannot sit by and watch as Taiwan’s interests are continually threatened and challenged.”

But as a Taipei Times editorial stated, “This shows that once Taiwan elects someone who does not comply with China’s wishes, it immediately resumes diplomatic warfare. This is a great threat to Taiwan’s democracy.”

After a century of diplomatic relations between Panama and the Republic of China, Panama decided to break the longstanding link

Taiwan Presidential Secretary General Joseph Wu issued a “serious condemnation” against Beijing’s use of the “one China “ policy to suppress Taiwan’s international presence.” Wu warned that PRC actions were a “mistake” that would change cross-strait relations from peace to confrontation.

But why now?

After a century of diplomatic relations between Panama and the Republic of China, Panama decided to break the longstanding link.

While visiting Panama some years ago, I was surprised to chance upon a number of Taiwan’s famous agricultural projects in the countryside. Indeed, Taiwan maintained viable development aid projects in rural areas much as they do in many parts of Central America.

Yet sitting astride the crossroads of North and South America, Panama is best known for the American-built canal, which provides easy East-West maritime access.

The Panama Canal remains a vital waterway and shipping route for Chinese commercial carriers.

As Being pursues its landmark One Belt, One Road transportation initiative, the trans-isthmus canal allows easier access to the east coast of the US and South America. Equally, Chinese firms are developing infrastructure in and near the old “Canal Zone” astride the waterway.
The canal’s recent infrastructural expansion, completed just a year ago, allows larger ships to traverse the waterway.

China remains the canal’s second-largest user after the United States.

But beyond the canal, Panama is an increasingly diversified economy in which agriculture, banking, container ports, shipping and tourism have made this country of fewer than four million people a prosperous entrepôt for global trade and commerce; think Hong Kong.

Indeed just over a year ago, the “Panama Papers” bank scandal uncovered a plethora of secret “offshore” banking ties to key political figures in the People’s Republic of China.

Taipei is “considering all options” following the surprise announcement, But more ominously, this diplomatic spark could reignite separatist sentiments inside the ruling DPP and pull the party from its more pragmatic cross-strait stance.

The US State Department urges “productive dialogue” between the parties.

In the wake of Taipei’s recent setback, only 20 countries, 11 of them in Central America and the Caribbean, currently recognize Taiwan.

Taipei’s China Post cautions, “Panama is the start of a long cross-strait war of attrition.” The diplomatic noose is tightening. The game is on.