Taiwan has suffered another diplomatic setback after Panama cut official ties with the island and switched its allegiance to China, the second such blow in six months.
In a televised address on Monday, Panamanian President Juan Carlos Varela announced that the Central American nation will establish diplomatic relations with Beijing, calling it the "correct path". Yesterday, the foreign ministers of Panama and China signed documents to set up diplomatic ties.
This came after Beijing reportedly began the construction of a container port with natural gas facilities in Panama's northern province last week. The move is widely seen as China's bid to clamp down on Taiwan's international space. Under pressure from China, the United Nations' aviation and health agencies have not invited Taiwan to their recent summits.
China considers the self-governed island part of its territory, and ties between the two sides have worsened after Ms Tsai Ing-wen of the independence-leaning Democratic Progressive Party became Taiwan President last year. She has declined to acknowledge the 1992 Consensus, a tacit agreement between the two sides that there is one China.
Yesterday, she called Panama's move " unacceptable", adding that Taiwan will not sit back and watch its interests "repeatedly threatened and challenged".
Earlier in the day, Foreign Minister David Lee said the Taiwan government "deeply regrets and condemns" the move, adding that Taiwan will end its ties with Panama to "maintain its national dignity".
He criticised China for putting pressure on Taiwan's allies, and said Taiwan will not compete with China in "dollar diplomacy".
In a statement, Taiwan's Ministry of Foreign Affairs said it will cease bilateral cooperation and assistance, close its embassy and recall all technical personnel in Panama.
The move leaves Taiwan with just 20 diplomatic allies, many of them small nations in Latin America, Africa and the Pacific that have benefited from Taipei's financial aid.
Taipei's circle of allies has been shrinking since it lost its UN seat to Beijing in 1971. In March last year, China re-established relations with Gambia, a former Taiwanese ally in West Africa. In December, the West African island of Sao Tome and Principe cut relations with Taiwan and restored ties with China.
Panama is one of Taiwan's oldest friends, with ties going back to 1912. But some analysts and diplomats had predicted that it could be the next to break ties with Taiwan.
Taiwan expert Ross Feingold said Panama is an obvious target because the Panama Canal is a crucial trade waterway used by many. He said it "remains to be seen if there will be economic impact in terms of Taiwan's operations in the canal".
But the senior adviser at political consultancy DC International Advisor said it will not be "all gloves off" as China would rather "periodically remind Taiwan that its international space is being squeezed".
National Chengchi University political analyst Yen Chen-shen said China will have to be circumspect about putting too much pressure on Taiwan so "it does not look like it is over-bullying the island".