By Joe Cash, Gustavo Palencia and Ben Blanchard
BEIJING/TEGUCIGALPA/TAIPEI (Reuters) -China established diplomatic ties with Honduras on Sunday after the Central American country ended its decades-long relationship with Taiwan, while Taiwan's foreign minister accused Honduras of demanding exorbitant sums before being lured away by Beijing.
The ending of ties with Taiwan had been expected after the Honduran foreign minister travelled to China last week to open relations and President Xiomara Castro said her government would start ties with Beijing.
China said its foreign minister, Qin Gang, and Honduran Foreign Minister Eduardo Enrique Reina signed the deal on diplomatic recognition in Beijing, ending relations with Taiwan dating back to the 1940s.
In a brief statement late on Saturday, the Honduran foreign ministry said it recognised the People's Republic of China as the only legitimate government that represents all of China and that Taiwan is an "inseparable part of Chinese territory".
China claims democratically ruled Taiwan as its own territory with no right to state-to-state ties, a position Taipei strongly rejects. China demands that countries with which it has ties to recognise its position.
Speaking in Taipei, Taiwan Foreign Minister Joseph Wu said Castro, who took office early last year, and her government had "always had illusions" about China and China's "luring" had never stopped.
"The foreign ministry and embassy grasped the relevant information and handled it carefully. However, the Castro government also asked us for billions of dollars in huge economic assistance and compared prices for assistance programmes provided by Taiwan and China," Wu said.
Taiwan President Tsai Ing-wen said in a video statement that Taiwan will not compete with China in "meaningless" dollar diplomacy.
"Taiwan's people have proved to the world that we never cower from threats. Taiwan's cooperation and links with allies and like-minded countries to jointly promote international well-being and security will only increase, not decrease," she said.
Qin told Reina Honduran companies were invited to come to China to discuss trade and investment, while Reina said Honduras was willing to strengthen cooperation with China in finance, trade and infrastructure, China's Foreign Ministry said in a statement.
Reina wrote to Taiwan this month asking for almost $2.5 billion in aid, including a loan of $2 billion to help write off debt as well as funds for the construction of a hospital and a dam, according to copy of the letter seen by Reuters. The letter addressed Wu as "a friend".
"It felt like what they wanted was money, not a hospital," Wu told reporters.
PROMISES
Tsai is due to depart on a sensitive visit to the United States, Guatemala and Belize on Wednesday. She is expected to meet U.S. House Speaker Kevin McCarthy in Los Angeles at the end of the trip.
Wu said he was "highly suspicious" of the timing of the Honduran decision so close to Tsai's overseas tour.
"China seems to be doing this intentionally," he said.
The United States has been watching with concern as China expands its footprint in its backyard by taking away Taiwan's Central American allies, and has repeatedly warned countries not to believe China's promises of aid.
The U.S. State Department said while the Honduran action was a sovereign decision, it was important to note China "often makes promises in exchange for diplomatic recognition that ultimately remain unfulfilled".
"Regardless of Honduras' decision, the United States will continue to deepen and expand our engagement with Taiwan," it said in a statement.
Relations between Honduras and Taiwan date back to 1941 when the government of the Republic of China, which remains Taiwan's official name, was still in China before it fled to the island in 1949 after losing a civil war with Mao Zedong's communists.
Taiwan now only has formal diplomatic relations with 13 countries, mostly poor and developing countries in Central America, the Caribbean and the Pacific.