At a time of growing Chinese investment, Panama has cut ties with Taiwan to establish diplomatic relations with Beijing. But China’s real impetus for bringing Panama into its fold is most likely political, seeking to punish Taiwan’s independent-minded president by poaching one of the island’s few remaining friends.
Panama President Juan Carlos Varela announced the switch on Tuesday. Chinese Foreign Minister Wang Yi said in a press conference that the two countries would cooperate in trade, investment, and tourism. Wang also encouraged Panama to participate in the “Belt and Road” initiative, a vague but sweeping plan championed by Chinese President Xi Jinping to forge trade deals, build infrastructure, and bolster Chinese soft power around the globe.
Chinese investment in Panama has vastly expanded in recent years as Beijing has pushed to secure trade and investment deals around the world. The Panama Canal, the narrow choke-point through which virtually all Pacific-Atlantic maritime trade must flow, has been a particular target. In 2016, the Chinese state-linked Landbridge Group signed a 99-year lease for Panama’s largest port, Margarita Island, which handles distribution of goods on the Atlantic side of the Panama Canal. Chinese state enterprises have also looked to develop approximately 1,200 hectares of land around the canal.
While lack of official ties with Panama hasn’t seemed to hinder investment, the growing business links have certainly deepened China’s interests in the Central American nation.
But it is politics, not economics, that most likely motivated Beijing. The loss of a diplomatic ally — and Taipei is down to 19 countries plus the Vatican — puts heavy pressure on Taiwanese President Tsai Ing-wen.
Cross-strait relations have remained tense since Tsai was elected last year, ousting the Beijing-friendly KMT party and giving Tsai a mandate to push back against Chinese influence on the island. Beijing cut off official communication with Taiwan in June 2016 after Tsai refused to explicitly affirm the “1992 consensus,” which holds that there is only one China.
Beijing can easily lure Taiwan’s diplomatic allies to their side through the promise of trade deals, though allowing some countries to maintain relations with Taiwan can also serve China’s own purposes. It allows political bargaining chips to be played when Taiwan crosses the line.
Beijing has steadily chipped away at Taiwan’s presence on the international stage, blocking its participation in multilateral organizations and committees. Most recently, under Chinese pressure, the World Health Organization blocked Taiwan’s participation in its annual assembly, refusing to grant it the observer status it had enjoyed since 2009.
Panamanian recognition of China is the latest diplomatic blow to Taiwan. The other 20 partners have been recipients of Taiwanese development aid — a remnant of Taiwan’s “dollar diplomacy,” in which it competed with Beijing for the allegiance of developing states — but it’s a shrinking club, down from around 30 in the 1990s. Before Panama, Beijing’s latest catch was the small island nation of São Tomé and Príncipe, as punishment for Tsai’s phone call with then-President-elect Donald Trump, the first time since 1979 that a U.S. president or president-elect has spoken directly with a Taiwanese head of state. Since the United States does not have official relations with Taiwan, to China the call was just a little too intimate.
Now, Panama is defecting. “Despite our national security team having prior knowledge of the situation and making every possible effort, the end result was still deeply regrettable,” said Tsai in a June 13 address.
“Although we have lost a diplomatic ally, our refusal to engage in a diplomatic bidding war will not change.”
Panama’s change of heart suggests that Taiwan’s other relationships in the region may be in jeopardy: Nicaragua also maintains relations with Taiwan, and it has also received billions of dollars of Chinese investment.
In 2013, Chinese billionaire Wang Jing signed a $40 billion deal to build a canal through a 170-mile swath of the country, a deeper and wider rival to the Panama Canal. Domestic opposition and red tape has so far prevented significant progress on the massive project.
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