Taiwan Just Lost Panama to China—But It Doesn't Matter

Liberty Square main gate, Taipei. Pixabay/Public domain

Absent a working Taiwan strategy, Beijing has ramped up the pressure to isolate Taipei internationally.

Panama on Tuesday severed diplomatic relations with the Republic of China (Taiwan) and established official ties with the People’s Republic of China, in a move that is as much part of Beijing’s efforts to isolate the democratic island-nation as a logical extension of its global economic policy.

Not long after President Juan Carlos Varela Rodríguez made the announcement, Panamanian foreign minister Isabel Saint Malo de Alvarado, on a visit to Beijing, signed a communiqué establishing Panama’s diplomatic ties with China.

“The Government of the Republic of Panama recognizes that only one China exists in the world, the Government of the People’s Republic of China is the only legitimate government that represents all China, and Taiwan forms an inalienable part of Chinese territory,” the statement said.

The move hardly came as a surprise, occurring after a year of major infrastructure investments by China—estimated at $1 billion—in the Panama Canal and promises of assistance by Beijing to turn the Panama into a major transit route for Chinese goods into Latin America. A handful of state-owned Chinese firms are also rumored to be eying bids for land development around the Canal. China is the Canal’s second-largest user, and in a move rife with symbolism, one of its cargo vessels was the first to transit the canal after completion of an expansion project last year.

Major infrastructure investment abroad is part of Beijing’s One Belt, One Road strategy to gain access to foreign markets while strengthening its diplomatic influence. Several countries in Southeast Asia, Latin America, Europe and Africa have been seeking alternatives to World Bank and International Monetary Fund assistance with infrastructure loans and investment, and Beijing has been more than happy to provide those—minus the conditions on good governance that normally come with loans from Western institutions.

A number of Taiwan’s twenty remaining official diplomatic allies fall in this category, and their willingness to maintain official ties with Taipei often has been contingent on the continuation of a parasitical relationship. In December, the small African nation of São Tomé and Príncipe severed diplomatic ties with Taiwan after Taipei refused to disburse as much as $200 million in financial assistance, a demand which the African nation had made, in the form of a blackmail letter sent to the office of Tsai Ing-wen soon after her election.

Although it is one of the world’s twenty largest economies, Taiwan cannot hope to compete with China in the financial battle for diplomatic allies, which had ended during the period of “diplomatic truce” under former president Ma Ying-jeou of the China-friendly Kuomintang.

Cross-Strait politics was also very much part of China’s decision to snatch Panama, which in 2009 had been turned down by Beijing due to the aforementioned “truce.” Following the January 2016 election of Tsai Ing-wen of the Taiwan-centric Democratic Progressive Party, Beijing has tightened its pressure on Taipei to acknowledge the “one China” principle and the so-called “1992 consensus,” a construct which Beijing has used as a precondition for dialogue between the two sides. Backed by a population that has no intention to give in to such demands, President Tsai—who visited Panama in June 2016 as part of her first foreign trip as head of state—has been able to stand firm on the matter while continuing to seek constructive relations with China.

Absent a working Taiwan strategy, Beijing has ramped up the pressure to isolate Taiwan internationally, resulting in Taiwan’s being denied access to multilateral forums such as the World Health Assembly, the International Civil Aviation Organization and Interpol, among others. There is the high likelihood that two or three other official diplomatic allies could be stolen from Taiwan before the end of the year.

Such pressure on Taiwan plays well to a domestic audience in China, and helps deflect some of the pressure on President Xi Jinping by hardliner elements within the Chinese Communist Party who argue that Xi has not been “hard enough” on Taiwan. No doubt such actions help boost his image in the lead-up to the nineteenth Chinese Communist Party Congress later this year but remain limited enough to avoid completely derailing the delicate balance that has been struck in the Taiwan Strait since Tsai’s inauguration.

Although headline-grabbing, Beijing’s tactics have only succeeded in alienating the Taiwanese public and fostering a deeper sense of separate identity. While the loss of an official diplomatic ally is sure to cause some domestic pressure on President Tsai, the Kuomintang argues that it is better equipped to deal with Beijing and willing to accommodate China on matters such as the “1992 consensus.” These developments are unlikely to translate into substantial pressure on Tsai’s administration.