China, Panama diplomatic drive puts business first

Panama's Vice President and Foreign Minister Isabel de Saint Malo (L) and Chinese Foreign Minister Wang Yi pose with their documents after signing a joint communique on establishing diplomatic relations, in Beijing, China on June 13, 2017. REUTERS/Greg Baker/Pool

PANAMA CITY (Reuters) - China and Panama sped up efforts in recent weeks to establish diplomatic ties, urged on by business leaders in both nations who for years advocated cutting the relationship with Taiwan in favour of Beijing, officials said.

Panama's embrace of China, which was months in the making and announced by President Juan Carlos Varela on Monday, was backed by Panama's business community, which has set its sights on attracting more investment from China.

"Panama is a focal point in the Americas that could attract that investment capacity," Jorge Quijano, head of the Panama Canal authority, told reporters on Thursday. "By not having diplomatic relations with them (China), somehow that didn't provide a platform for those investments in our country."

About three percent of global trade goes through the canal and China is its second most important customer, after the United States. About one in every five ships that uses the transoceanic waterway is going to or coming from China.

China stepped up its economic involvement in Central America in recent years in a bid to isolate Taiwan. Beijing found a partner in Varela, who comes from an entrepreneurial background in a nation where business and politics are closely entwined.

Initial approaches started soon after Varela took office in July 2014, but a push for full ties was not seriously undertaken until a tacit diplomatic truce between Beijing and Taipei in place since 2008 fractured last year, two Panamanian officials close to the process said, speaking on condition of anonymity.

Talks began in earnest a few months back and picked up pace four weeks ago as Panama sent a diplomatic team to China to "dot the i's and cross the t's," said one of the officials.

In the final stretch, businessmen from both countries pressed for a deal, said one of the officials and a senior local businessman, who also spoke on condition of anonymity.

"China was looking for partners in Panama and abroad to tell Panama that they were ready to move," said the official. "The Chinese operate a lot through their companies, it's people who do a lot of corporate diplomacy."

China's Foreign Minister Wang Yi said on Tuesday Panama had opted to do the "correct thing" by following the lead of other nations, describing it as "a historical inevitability."

"Recently, Panama's request was more and more urgent, and their desire was also more and more intense," he said, rejecting any suggestion there was a trade-off for the deal.

Panama is one of Taiwan's oldest allies, but its government informed the island of the decision to cut ties only about two hours before it was announced, one of the officials said.

Panama took pains to keep the conversations under wraps, with only about half a dozen people directly aware.

"It was something that the president and foreign minister started managing directly," said one of the officials, adding that Varela kept quiet even when Taiwanese officials, suspecting something was up, approached his government.

The offices of Varela, who a decade ago advocated for establishing diplomatic ties with China, and foreign minister Isabel de Saint Malo did not respond to a request for comment.

Taiwan expressed sadness and anger over the sudden move, and its embassy in Panama on Wednesday lowered and folded the Taiwanese flag at a private rooftop ceremony.

Taipei said it would evacuate its official staff and end cooperation and assistance, vowing not to compete with China in what it described as a "diplomatic money game".

Panama and China said there were no investment commitments tied to the move, though they noted business should benefit.

Announcing the decision, Varela said he had told his cabinet to start working on agreements on trade, tourism, agriculture, education and "all those areas that benefit our peoples."

(Additional reporting by Enrique Andres Pretel in San Jose and Michael Martina in Beijing; Writing by Anthony Esposito; Editing by Dave Graham and Andrew Hay)