In a joint statement between China and Panama Monday evening, the two countries announced the establishment of formal diplomatic relations and the severing of ties between Panama and Taiwan. China has claimed Taiwan as its own since Republican forces fled there in 1949.
The joint statement read, in part,
“The Government of the Republic of Panama recognizes that there is but one China in the world, that the Government of the People’s Republic of China is the sole legal government representing the whole of China, and that Taiwan is an inalienable part of China’s territory.”
After an economic boom that started in the 1960s, Taiwan has consistently had higher living standards than China, but China’s massive population means that it still has an economy nearly twenty times that of Taiwan. At the behest of China, Taiwan is excluded from most international organizations, including the United Nations and many countries refuse to recognize Taiwan’s sovereignty.
Now that Panama recognizes Beijing as the official government of China, the number of states recognizing Taipei has fallen to twenty, heavily concentrated in Central America.
While both failing to recognize the legitimacy of the other, Taiwan and China have often found an uneasy equilibrium over the years that has averted military conflict. But, Taiwan’s President, Tsai Ing-wen has broken the mold in various ways. Among them, she has wavered over whether Taiwan and China are a single nation. China has launched a diplomatic firestorm in response.
Panama is an important country in Central America for multiple reasons, among them the importance of the Panama Canal in international trade. It is not known specifically what Panama gained in the diplomatic exchange, but it is possible that China will call off plans to build a competing canal in Nicaragua as part of the agreement. China is the second biggest customer of the Panama Canal, after the United States.