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By James Painter
BBC Americas analyst
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The Caribbean island of Dominica has announced it is cutting diplomatic relations with Taiwan and is instead establishing them with mainland China.
For how long can Mr Chen continue to outbid China?
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The Dominican Prime Minister, Roosevelt Skerrit, said his government had come to the conclusion its policy on China had been based on unrealistic and fallacious historical interpretations.
Mr Skerrit also said China had agreed to give Dominica more than $100 million in aid over the next five years.
Taiwan's Foreign Minister, Eugene Chien, condemned what he called China's dollar diplomacy in wooing away Dominica. He said it was a huge sum for a country with just 70,000 people.
Taiwan's 'aid' policy
Only 26 countries now still recognise Taiwan, of which 12 are in the Caribbean basin and Central America.
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TAIWAN'S CARIBBEAN ALLIES
Belize
Costa Rica
Dominican Republic
El Salvador
Grenada
Guatemala
Haiti
Honduras
Nicaragua
Panama
St Kitts and Nevis
St Vincent and the Grenadines
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Since the United Nations expelled Taiwan in 1971, successive governments in Taipei have spent millions of dollars in aid to persuade countries in the region to support their struggle with China for international recognition.
The policy has until now largely paid off: the seven Central American countries, plus the Dominican Republic and Paraguay, have continued to support Taiwan.
It has also become the largest single aid donor to other countries in the Caribbean basin, including Grenada, St Kitts and Nevis, St Vincent and the Grenadines, and until this week, Dominica.
Large amounts of aid can and do make a significant difference to the small economies in the region.
$1,500 for each Dominican
But it is not just aid.
Taiwan is widely reported to cement personal relations with political leaders in the region by giving donations to their private projects.
These reportedly include a children's museum supported by President Mireya Moscoso of Panama, and a university campus built by a private foundation of the former president of Haiti, Jean-Bertrand Aristide.
Reports in the Central American media have also suggested that Taiwan has paid money into the political campaigns of presidential candidates - an accusation denied by the Taiwanese government.
Relationships between Panama and Taiwan are particularly close, prompting one Panamanian candidate in this year's presidential elections to declare that he would not be accepting money from Taiwan for his campaign.
Observers are now questioning for how long Taiwan can continue to outbid China.
It is no secret that China's economy is booming and the country is flush with dollars.
In 1997, the Bahamas and St Lucia switched their allegiance to China and soon after received millions of dollars for various infrastructure projects.
The amount of money offered to Dominica far outweighs what Taiwan has given in the past. It works out at $1,500 for each Dominican - amount half their annual per capita income.
Dominica's change of allegiance could cause other allies of Taipei in the region to think twice.
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