Step adds to the close business relations between the countries

Beijing and Panama City announced the establishment of diplomatic relations on Tuesday, as the Central American country cut its "diplomatic ties" with Taiwan.

"In light of the interests and wishes of both peoples, the Republic of Panama and People's Republic of China have decided to grant each other, from the date of this document's signing, mutual recognition and establishment of diplomatic ties at the ambassadorial level," the two nations said in a joint communique.