BATTLE FOR DIPLOMATIC SUPREMACY RAGES ON

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China and Taiwan have been using economic incentives for at least two decades as they have engaged in a secretive battle to secure diplomatic recognition from small nations in Africa, Asia and the Pacific.

Fewer than two dozen states now maintain formal diplomatic relations with Taiwan, 12 of them in Latin America and the Caribbean.

The growth of China's economic clout – as well as the perception that Washington no longer cares as much as it did about Taiwanese diplomatic recognition – has helped Beijing to pull more and more countries into its camp, although it has been unable to stop some, such as Nauru and St Lucia, from being wrested back by Taiwan. Some governments have also complained that more financial help has often been promised than than has been delivered.

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But for some politicians, including Oscar Arias, Costa Rica's Nobel Peace Prize-winning president, the often clandestine nature of these diplomatic tussles have had their costs.

Mr Arias recognised China in June 2007, 13 months after he assumed office, as part of a broader diplomatic shift that led Costa Rica to move its embassy in Israel from Jerusalem to Tel Aviv and to open relations with a number of Arab states.

The secret accord with China, which was preceded by a political controversy over the use of funds from Taiwan, has become the subject of intense scrutiny within Costa Rica amid suggestions that people close to the president may have benefited from the deal.

It was in these circumstances that the government was forced to disclose the agreement with China under orders from the country's constitutional court.

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The documents did not shed light on individual beneficiaries, if there were any, but showed that as part of the arrangement, China's State Administration of Foreign Exchange, the guardian of its foreign reserves, agreed to buy $300m in 12-year Costa Rican government bonds carrying interest at a way below market rate of 2 per cent, along with $130m of aid.

Marco Vinicio, Costa Rica's foreign trade minister, confirmed to the Financial Times recently that China had agreed to donate a new 40,000-seater sports stadium for San José, Costa Rica's capital. He said the stadium, which was under construction and would be completed by 2010, would cost $25m (

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He also said his country would push for a free trade deal with China to be in place by the second half of next year. China is already the second biggest market for Costa Rican goods, and exports could grow an additional 11 per cent with a free trade agreement, according to a feasibility study commissioned last month by Mr Arias's administration.

If the deal materialises, it would be the first such trade agreement between China and a Central American country. “We have to have a relationship with Asia and China is by far the best door,” he said.

But Ottón Solís, who heads Costa Rica's leftwing opposition and narrowly lost the 2006 presidential election to Mr Arias, told the FT recently that the country's courtship of China was a worrying development.

“Costa Rica is getting tangled up with regimes that are not exactly shining examples of democracy,” he said. “So much for the Nobel Peace Prize-winner's dealings with the rest of the world.”