Panama has cut diplomatic ties with Taiwan and established relations with China instead.
The government said it recognised there was "only one China" and that it considers Taiwan part of it.
China regards Taiwan as a breakaway province that it insists should be reunited with the mainland.
Panama is the latest among the handful of countries that had maintained ties with Taipei instead of Beijing to switch sides.
In recent years China has intensified its economic investment into the central American country - home of the economically vital Panama Canal.