In a televised address on Monday evening local time, Panama's President Juan Carlos Varela said his country would expand commercial ties with China and establish full diplomatic relations with the second biggest user of its vital waterway.
Both China and Panama agreed that the one-China principle is the fundamental premise and the political basis on which the two countries can establish diplomatic ties and develop bilateral relations, Wang said.
In an announcement on Monday, Panama's government said it recognized there was "only one China in the world" and that Taiwan was an inalienable part of Chinese territory.
According to the Chinese Foreign Ministry, Foreign Minister Wang Yi and his Panamanian counterpart, Isabel de Saint Malo, have signed a communique to officially establish diplomatic relations between the two nations.More news: 'Dead Woman Walking': Amid Election Fallout, Theresa May Stands On Shaky Ground
Taiwan's relations with its remaining Central and South American allies - Belize, El Salvador, Guatemala, Honduras, Nicaragua and Paraguay - are partly a legacy of their former shared right-wing politics and partly of Taipei's generous aid programs. With Panama switching sides, Taiwan's decades-old attempt to act as a "sovereign country" would likely face fresh challenges.
"So far the tactic has only succeeded in alienating the Taiwanese public and reinforced notions of separateness", said J. Michael Cole, a senior fellow at the University of Nottingham's China Policy Institute and chief editor of the Taiwan Sentinel website. The government believes that the People's Republic of China is the only legitimate government that represents China. Tensions between the two rivals have rapidly worsened since Ms Tsai, who leads the Beijing-sceptic and independence-leaning Democratic Progressive Party, took office previous year.
A year ago, Taiwan had diplomatic ties with 23 countries.
"Many Latin American countries want to have stronger ties with China for their national interests", Tang said.More news: Merkel Urges Speedy Brexit Talks after UK Vote
He also accused Panama of cheating Taiwan by not telling Taipei about its intention to open ties with Beijing, calling it "very unfriendly".
Tsai has refused to acknowledge the concept that Taiwan is part of "one China", unlike her predecessor Ma Ying-jeou. In December 2016, the African island nation of Sao Tome and Principe switched recognition to Beijing. This relationship has endured even amidst reports of Vatican's plans to switch relations to Beijing.
China has become a major power in its own right and the U.S.' increased worldwide isolationism under the Trump administration makes Taiwan much more vulnerable than before.More news: Halep and Ostapenko to meet in Roland Garros final