Sino-US relations

Why diplomatic ties with Panama are so important to Beijing

Panama’s decision to switch diplomatic relations from Taipei gives mainland China a huge boost both commercially and diplomatically

PUBLISHED : Tuesday, 13 June, 2017, 6:20pm
UPDATED : Tuesday, 13 June, 2017, 6:20pm

The establishment of full diplomatic links between Panama and mainland China after the central American country broke its ties with Taiwan has both geostrategic and commercial value to Beijing, at once giving Beijing an ally in a key location to pursue its ambitious global trade expansion plans and increase its influence in a region once dubbed the US’ backyard, while further tightening the screws on a Taiwan whose government Beijing strongly mistrusts.

The commercial value

As China promotes its ambitious “Belt and Road Initiative” to expand global trade links and create new markets for its goods, the normalisation of diplomatic ties with Panama will help Chinese companies increase investment around the Panama Canal, a key waterway linking the Atlantic and Pacific oceans and a major international trade route. Last year a Chinese firm, Landbridge Group, bought Panama’s largest port, Margarita Island, and announced it wanted to expand and modernise the facilities. According to China’s commerce ministry, there are over 30 Chinese firms with a presence in Panama, including Bank of China, shipping firm COSCO, Huawei, ZTE, China Harbour Engineering and China Railway Construction Corp. More companies and investment could now follow, expanding Chinese influence over the canal, which was once almost exclusively in the sphere of influence of the United States.

The diplomatic value

Panama is the second country to break diplomatic ties with Taipei since Taiwanese President Tsai Ing-wen came to power in 2016, as Beijing tightens the screws on the self-ruled island it regards as a part of its territory that needs to be brought back under its control. Beijing has chafed at Tsai’s refusal to acknowledge the one-China principle, which it sees as the bedrock of ties between the two, and by drawing away another of Taiwan’s allies, it deals a further blow to the island. The switch also raises the possibility that the remaining 20 may follow suit, particularly the 11 located in central America and the Caribbean.