Cartoon by Stellina Chen

Panama President Juan Carlos Varela announced on Monday that the Republic of Panama had severed ties with Taiwan and had established diplomatic relations with China instead.

Panama and China announced that Panama now "recognizes that there is only one China in the world" and that Taiwan is part of Chinese territory. Taiwan, which has long spent considerable financial resources supporting the Central American country, immediately ended all cooperation with Panama and has called home its embassy personnel.

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. Some commentators in Taiwan now fear a “domino effect” as Beijing’s checkbook diplomacy outmatches Taiwan’s efforts to maintain formal relations with its remaining 20 allies – most are cash-strapped developing nations in Latin America, the Pacific Islands and Africa.

Tsai hits back

Meanwhile, Taiwan President Tsai Ing-wen (蔡英文) was resolute yesterday, fronting the press in Taipei before releasing a statement and then a series of tweets in English.

Taiwan’s “refusal to engage in a diplomatic bidding war will not change," she said.

Tsai’s critics say her administration has adopted a less conciliatory attitude toward China than that of the previous administration – namely its refusal to follow the previous government in succumbing to Beijing’s demand to accept so-called “1992 consensus, which means supporting the concept of "one China.”

Coercion and threats will not bring the two sides closer, Tsai said.

“China has continued to manipulate the ‘one China’ principle and pressure Taiwan's international space, threatening the rights of the Taiwanese people,” Tsai said. “But it remains undeniable that the Republic of China is a sovereign country. This is a fact China will never be able to deny.”

A question of value

Ross Darrell Feingold is a Taipei-based political risk analyst who advises clients on Taiwan, China and Hong Kong relations.

Asked where he believes Taiwan should be allocating its limited resources in the diplomatic space, Feingold says that there is much to be said for maintaining the aid programs received by countries that maintain formal diplomatic relations with Taiwan.

“Not only does it support the fact that the Republic of China (Taiwan) is a sovereign country, but it also shows that as a developed country Taiwan is willing to aid less fortunate countries throughout the world,” he says.

However, he also noted that the financial cost may not be worth the price paid in either corruption or the publicity that accompanies a sudden loss of recognition given that the aid programs are often part of these “post mortems.”

Echoing a widely-held view in Taipei, Feingold says there is also a need to for Taiwan to redouble efforts to strengthen ties with other countries.

“Taiwan's robust relations with the U.S., Japan and E.U. also require investment,” he says. “The number of representative offices outside capitals in the U.S. and E.U. should be expanded, or at least not reduced as reportedly under consideration, so that Taiwan can build friendships beyond capital cities. Trade negotiations with the U.S., E.U. and Japan are stalled over market access issues.”

He suggests that some of Taiwan’s aid budget spent in countries that might switch recognition would be better spent on trade adjustment assistance in Taiwan if a free trade agreement is offered.

“In any event, Taiwan provides development assistance to countries that do not have formal diplomatic relations, and can continue to do so in its near abroad as part of the government's New Southbound Policy.”

More to follow

Panama's diplomatic abandonment of Taiwan to start ties with China could ripple through other countries in Central America and the Caribbean that still support Taipei, experts say, reflecting Beijing's growing economic might, AFP reports.

"I think Dominican Republic and Nicaragua will soon follow," Mexico's former ambassador to China, Jorge Guajardo, tweeted soon after the joint Panama-China statement. He also held out the possibility of the Vatican following suit.

Up to 2007 all Central American countries officially recognized Taiwan as the legitimate government of China. But then Costa Rica switched allegiance, breaking with Taipei to forge bonds with Beijing.

With Panama's decision, there are now five Central American countries left giving crucial support and international legitimacy to Taiwan.

With those in the Caribbean, the total number of nations is 11 - or just over half the 20 governments in the world that back Taiwan, according to Margaret Myers, director of the China and Latin America program at the Inter-American Dialogue think tank in Washington.

"Latin America is still a stronghold for Taiwan," she said.

"But the numbers are dwindling and it seems that many countries are coming to the conclusion that strong ties with Beijing in order to attract investments and improve trade ties, is perhaps in their best interest."

In Panama's case it was an unavoidable fact: China is the second most important Panama Canal customer after the United States. Last year it sent 38 million tonnes of cargo through the interoceanic waterway, accounting for 19 percent of traffic.

The announcement of the diplomatic switch-up also came a week after China started building a container port, with natural gas installations, in Panama's province of Colon, on the Atlantic side of the canal.

Who might switch sides next?

"Nicaragua is a likely contender," said Myers.

That country is holding out the most ambitious project in Latin America: the construction of a canal to rival Panama's canal, financed by Chinese capital.

For Carlos Malamud, a specialist on the region for the Real Elcano institute in Spain, the tide has been turning against Taiwan for the past two decades.

China, he said, "has deftly played its cards in Latin America by saying it didn't want to compete with the United States for control of the region."

The Asian giant's involvement in the region up to now has been in the form of economic projects, "without taking a strong position politically," he said.

Having focused on Central America later than in South America, China has homed in on three sectors to invest in: energy, telecommunications, and infrastructure.

But after shoring up its position, and possibly encouraged by its diplomatic success with Panama, Beijing could now start to flex its political muscle.

The divorce between Panama and Taiwan "really signals a significant change," said Matt Ferchen, international politics professor at Tsinghua University in Beijing.

"That really could signal a change and possible increase in the competition between PRC (China) and Taiwan," he said.

Myers concurred that Taiwan would likely seek to step up its game. In Latin America, she said, "I think we'll see Taiwan strengthening ties with existing allies to prevent further changes in diplomatic affiliation."

Additional reporting: AFP, Central News Agency.

Editor: Olivia Yang