Panama Cuts Ties With Taiwan, Builds New Relationship With China

Jun 16, 2017 | Investing in Panama, Panama Trade

In a move that was shocking to some, and expected by many, Panama officially opened diplomatic relations with China this week, effectively ending more than a half century of partnership with Taiwan. The move comes as Panama’s President Juan Carlos Varela looks to boost the country’s economy through stronger trade and manufacturing partnerships, with China as the golden goose. Varela and his government made it a point to stress that they are fully on board with China’s political policy regarding Taiwan, a move that shocked and angered both Panama’s Taiwanese community as well as many in Taiwan itself. In a statement made during a press conference involving both China and Panama, Varela stated:

“The Government of the Republic of Panama recognizes that there is only one China in the world, the Government of the People’s Republic of China is the only legitimate government representing all of China, and Taiwan is an inalienable part of the Chinese territory,”

What’s the benefit of building new relations with mainland China?

First and foremost, like everything in Panama, the glaringly obvious reason why Panama needs China has to do with the Canal. Since the Suez Canal’s expansion in 2015, with Panama’s following shortly after, business for the world’s largest ships from Asia hasn’t been as high as expected. By opening better trade deals with China, Panama could incentivize more Panama Canal crossings by lowering costs to Chinese shipping vessels and in turn, increase overall volume. Another big benefit for both countries is China’s thirst for infrastructure investment; something that Panama seems to always be actively seeking. China is already planning on investing $1 billion into Panama’s ports, and this diplomatic synergy will only help get that off the ground quickly, and efficiently.

What’s to lose by building new relationships with China, and cutting ties with Taiwan loose?

From a purely objective and economic standpoint, there really isn’t much of a disadvantage to side with China over Taiwan. Taiwan has far less economic power than China does, and despite years of diplomatic partnership, can’t provide Panama with the same opportunities going forward. The biggest thing Panama loses in this equation is its historic political ties with a country that has been struggling to be recognized for decades. Taiwan has had a symbolically friendly relationship with Panama, which is now all but shattered with their new China partnership. Only 20 countries now recognize Taiwan as an independent nation, and losing Panama will really be a big hit to them.

Panama’s Taiwanese community is also greatly affected, not only from a standpoint of pride, but also from a business perspective. Taiwanese businesses operating within Panama will now most likely pull out in protest, which will have short-term ripple effects amongst Panama’s large Taiwanese/Chinese community. Nevertheless, the deal is done, and Panama will move forward with mainland China relations as planned. It’s hard to tell exactly what the future will hold with this partnership. But one thing’s for sure: it will have major economic impacts on the country for years to come. The real question is, will it be worth it in the end for the Panamanian people?

Manoj Chatlani

Manoj Chatlani

Manoj Chatlani is a Senior Partner at POLS Attorneys, a full-service law firm in Panama City, Panama. Specializing in Panama immigration law, relocation services as well as real estate law and corporate law. POLS Attorneys offers clients a streamlined solution to all their Panama legal needs. Manoj is a licensed Panamanian lawyer and holds a law degree from USMA, a Masters degree in Communication Law and Panama Tax law.

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