It has entered a difficult stage in its social and economic development, which has proven a tough test for President Ma Ying-jeou’s 2012 pre-election campaign promises. In 2014, Taiwan’s economic, political and strategic challenges can only increase, placing the political system under even more pressure.

For one, it is proving harder for Taiwan’s increasingly post-industrial economy to not only remain competitive in the global economy but also fulfil promises of economic revival. One of Ma’s campaign slogans was ‘6-3-3’ — 6 per cent economic growth, per capita GDP of US$30,000 and an unemployment rate below 3 per cent — none of which his administration has been able to achieve. Despite the conclusion of quasi-free trade agreements with New Zealand and Singapore, Taiwan was sidelined from major trade negotiations that could invigorate much-needed economic growth — such as the Regional Comprehensive Economic Partnership and the Trans-Pacific Partnership — due to ambiguity surrounding its statehood and continued efforts by Beijing to block Taipei’s international participation. This has also served to further increase Taiwan’s trade dependence on China.

As well, income inequality has trended upwards and the unemployment rate was higher in the past decade (averaging 4 per cent) than in the 1990s (averaging 2 per cent). Added to this, Taiwan is facing worsening demographics. With a net reproduction rate of 0.6 and a fertility rate of 1.3, the birth rate is now below the rate needed to sustain population growth. It is estimated that by 2060, the ratio between the working population and retirees will be about 3:2 — placing even greater stress on the political and social system. Consequently, Taiwan must now work to increase economic prosperity while maintaining social welfare. Mainland China, to be sure, provides Taiwan with opportunities for young people to work, but could also act as a potential boost to Taiwan’s fertility rate if Taiwanese immigration policies were to be relaxed.

However, China remains a source of insecurity for Taiwan and political leaders must balance the population’s desire for security, prosperity and welfare. This was expressed in issues such as the violent opposition in the Legislative Yuan to the proposed cross-Strait services trade agreement, prolonged negotiations on the planned exchange of offices between Beijing’s Association for Relations Across the Taiwan Straits and Taipei’s Straits Exchange Foundation, and political protests regarding the death of a military conscript and illegal wire-tapping.

The inability to adequately address these challenges has come at a high price for the Ma administration. The president’s approval rating dropped to a new low of 9.2 per cent in a 15 September poll. On the one hand, he is facing pressure from the mainland for failing to pass economic legislation. On the other hand, the opposition Democratic Progressive Party (DPP) and parts of his electorate claim cross-Strait cooperation equates to the loss of Taiwanese sovereignty. Ma’s declining popularity will mean that the opposition will pose an even greater challenge to his ruling Kuomintang Party (KMT) in the ‘seven in one’ local elections in 2014 and national elections in 2016.

Though the KMT and DPP’s stance on (re)unification with mainland China remains an important talking point, its sway on the electorate is perhaps exaggerated. Cross-Strait tensions are at an all-time low and the management of domestic concerns has become of greater significance to an increasingly wary electorate: from debate over the pension system and economic stagnation, to the construction and safety of Taiwan’s fourth nuclear power plant and the desire for military reform.

Lastly, the cross-Strait situation remains strategically volatile and stands to become more so. Taiwan’s 2013 Quadrennial Defense Review points out that greater economic cooperation has not led to greater mutual strategic trust. And in response to China’s declaration of the ‘East China Sea Air Defense Identification Zone’, the Taiwanese defence minister emphasised that the ROC Forces would stand firm to defend Taiwanese sovereignty. The situation across the Taiwan Strait combines Chinese overconfidence in the strength of the People’s Liberation Army, the geostrategic importance of Taiwan in the ‘first island chain’ of the Western Pacific, and US resolve. Taiwan’s economic and political development will thus continue to be driven by changes in the cross-Strait relationship and US policy towards the Asia Pacific.

Next year, unresolved economic and social pressures in Taiwan will play a more significant role in its domestic politics. However, this does not serve to undermine the persistent problem of how to resolve the cross-Strait dispute. Although tensions remain low, the relationship with China is, and will remain, an enduring dynamic in Taiwan’s economic and political development.

Sheryn Lee is a PhD student in Political Science at the School of Arts and Sciences, University of Pennsylvania.

This article is a part of an EAF special feature series on 2013 in review and the year ahead.