Panama is opening diplomatic relations with China, the latest blow to Taiwan as Beijing’s leaders seek to isolate the self-governed island.

Panamanian President Juan Carlos Varela announced the move in a national address Monday. China is the second-biggest user of the Panama Canal and has played a key role in sectors from banking to telecommunications, he said, adding that Taiwan had been a great friend.

“We have taken a historic step,” Varela said. “Both countries opt for the connection of a world that is more and more integrated, which creates a new era of opportunities for a relationship that we are starting today.”

The policy shift would reduce to 20 the number of nations that recognize the government in Taipei, rather than Beijing—the latest success in China’s effort to squeeze Taiwanese President Tsai Ing-wen. The loss of Panama, one of Taiwan’s oldest diplomatic friends, may prompt others such as the Vatican or Paraguay to follow suit.

“China-Panama relations have opened a new chapter,” China’s Foreign Minister Wang Yi said Tuesday at a briefing and communique signing ceremony in Beijing. He clinked champagne glasses with Isabel de Saint Malo de Alvarado, Panama’s vice president and foreign minister.

“We recognize the PRC is the only government of China,” Saint Malo said, referring to the People’s Republic of China. She said Panama was severing ties with Taiwan and hoped relations with China would lead to trade investment and tourism opportunities, especially “exporting more goods from Panama to China.” Wang welcomed Panama to participate in China’s Belt and Road infrastructure initiative.

“The break carries symbolic significance, given that official diplomatic ties go back a long way,” said Ja Ian Chong, an associate professor with the National University of Singapore who specializes in Asia-Pacific relations. “There may be a domino effect in terms of de-recognition.”

The Communist Party considers Taiwan a province and has criticized Tsai’s refusal to accept that both sides belong to “One China,” its precondition for ties. Since her pro-independence Democratic Progressive Party was swept to power last year, Beijing has attempted to woo Taiwan’s remaining diplomatic partners. In December, it won over the tiny West African nation of Sao Tome and Principe.

Taiwan will reevaluate relations with China, Joseph Wu, the secretary-general of the presidential office, told reporters in Taipei after Panama’s decision. The presidential office expressed “regret and dissatisfaction” with Panama and said Taiwan wouldn’t use money to compete on the diplomatic stage.

Strongly Condemn

“Beijing’s suppression of Taiwan’s international space is not just an open threat to the Taiwanese people’s right to life, it is a provocation of the peace and stability across the Taiwan Strait and the region,” the office said in a statement. “We strongly condemn this.”

Taiwan’s ties with Panama, which date back more than a century, have frayed as China grew to become the world’s largest trading nation. Last year, Panama’s trade with China was almost 50 times greater than with Taiwan, according to statistics from both governments.

The island avoided Panama’s defection in 2009 only because Beijing rejected its overtures in what was seen as a favor to then President Ma Ying-jeou, who accepted the “One China” framework as part of a broader effort to increase trade ties across the Taiwan Strait.

During a visit last year on her first overseas trip, Tsai called Panama a “good friend” and praised the country for treating Taiwan with sincerity while attending a ceremony marking the expansion of the Panama Canal. Still, it portended trouble ahead: As she watched, a Chinese ship made the first passage through the waterway.