Panama has cut diplomatic ties with Taiwan in favor of Beijing.

According to Chinese state media, "Panamanian President Juan Carlos Varela announced on Monday that the Republic of Panama and the People's Republic of China have established diplomatic relations."

The countries announced, Panama now "recognizes that there is only one China in the world" and that Taiwan is part of Chinese territory.

At a press conference in Taipei this morning, Taiwan Foreign Minister David Lee (李大維) said the government “expresses anger and regret" at Panama’s decision.

“To protect the nation’s sovereignty and dignity, we have decided to end all cooperation with Panama, including all financial assistance and aid. All embassy personnel will be withdrawn from Panama.”

Lee also said that Taiwan would not compete with Beijing’s checkbook diplomacy.

Although publicly, all official ties and communication channels between Taiwan and Panama appeared normal for the past four months, Lee said that ministry sources indicated that Panama had been planning to end its ties, and the ministry did take appropriate action.

He also declined to say if any of Taiwan’s 20 remaining diplomatic allies showed similar signs of breaking diplomatic ties.

Beijing's building pressure

The move follows reports that China has been positioning itself to play a bigger role in Panama. In December last year, Reuters reported that a Chinese delegation was in Panama, and members have expressed interest in investing in the energy and port sectors.

Chinese media reported at the time Panama was showing interest in positioning itself as a gateway for Chinese products in Latin America. The permanent representative of China’s Office of Commercial Development in, Panama Wang Weihua (王衛華), said Panama’s reputation as a logistical center also boosts its potential as a manufacturing base, China Daily reported in December.

Last week, Beijing began construction of a container port, with natural gas facilities, in Panama's northern province of Colon.

The Brookings Institution has noted that for years, Latin American countries have played China and Taiwan off one another “to negotiate preferential trade, financial, and other assistance, with Costa Rica being the latest example of winning new investments in exchange for its recognition of Beijing in 2007.”

"Despite a lack of formal diplomatic ties with Panama, Chinese ships are major customers for the Panama Canal, representing the second largest origin and second largest destination of cargo passing through it, generating hundreds of millions of dollars in revenue for the Panama Canal Authority and projected to increase significantly with the opening of the expanded canal in 2016," Brookings said last year.

Brookings also said there has been something of a “truce” between China and Taiwan in their competing in the region during the recent years of “calmer” relations across the Taiwan Strait. However, it also noted there had been speculation since Taiwan President Tsai Ing-wen (蔡英文) and the Democratic Progressive Party took power from the more China-friendly Kuomintang in 2016, competition could "heat up again.”

Panama had long stressed it had diplomatic ties with Taipei and commercial ones with Beijing. Panama over the years received generous aid and millions of dollars in cooperation funds from Taipei. But it was simultaneously pressed for decades by Beijing to adopt its stand.

Taiwan now has 20 official diplomatic allies worldwide, most are developing countries across the South Pacific, Africa, Latin America and the Caribbean. China does not have formal diplomatic relations with countries that recognize Taiwan.

Panama's severing of ties with Taipei follows the Democratic Republic of São Tomé and Príncipe, which ended formal relations with Taiwan on Dec. 20, 2016. At that time the tiny West African island nation, which has a population of 178,000, was the first country to cut ties with Taiwan since the Gambia, in November 2013.

Taiwan's remaining allies

In Latin America and the Caribbean: Belize; the Dominican Republic; El Salvador; the Republic of Guatemala; Haiti; the Republic of Honduras; Nicaragua; Paraguay; the Federation of Saint Christopher and Nevis; St. Lucia; and, Saint Vincent and the Grenadines. In the Pacific Islands: Kiribati; the Republic of the Marshall Islands; Nauru; the Republic of Palau; Solomon Islands; and, Tuvalu. In Africa: Burkina Faso; and, the Kingdom of Swaziland. And in Europe, the Vatican.

More updates to follow.

Additional reporting by AFP.