In the run up to the election, the opposition Democratic Progressive Party (DPP) candidate, Tsai Ing-wen, appears to be heading towards a runaway victory — with polls suggesting that she has about 45 per cent voter support. This puts her far ahead of the ruling KMT party candidate, Eric Chu, with around 20 per cent, and the smaller People First Party (PFP) candidate James Soong with 10 per cent. Around 25 per cent of voters remain undecided. With three-quarters of a million more voters this election than last time, the many young, first-time voters are likely to vote for non-mainstream parties or the DPP.
A series of political stumbles — with the governing KMT forced to change presidential candidate midway through the election — and a steady trend towards independent-mindedness, especially among the younger generation in Taiwan, has left the KMT government struggling to mobilise its support base. The polls suggest that the KMT might also lose control of the Legislative Assembly for the first time in Taiwan’s history.
The coming election result will be widely, if wrongly, read as a referendum on cross-Strait relations. President Ma has focused on improving relations with China and negotiated a succession of agreements with the mainland that have seen relations between Beijing and Taipei at their most cordial since the end of the Chinese civil war. The opening of cross-Strait economic relations was given a major fillip in 2008 after the election of Ma and the return of a KMT majority in the Taiwanese legislature. There followed a series of high-level exchanges between then Chinese and Taiwanese leaders that laid the foundations for steps that saw a major breakthrough in the relationship with the eventual signing of Cross-Straits Economic Cooperation Framework Agreement (ECFA) on 29 June 2010.
But implementing follow-on arrangements to give effect to the agreement wasn’t all smooth sailing. The passage of the Cross-Strait Service Trade Agreement through the Taiwanese legislature was disrupted by the emergence of the Sunflower Student Protest Movement in 2014. The movement gave vent to concerns about incomplete disclosure regarding the nature and potential costs of the agreement, as it related to telecommunications and other issues. And the backing it gained, from the opposition DPP and among students and young people, exposed the underbelly of anxiety about the deepening economic relationship with Beijing and its political implications. Taiwanese are glad to see tensions with Beijing reduced. But many also fear the Ma administration and the KMT might have made Taiwan too economically dependent on the mainland; that might lead to loss of independence and inability to fend off pressure one day to reunify with China on unfavourable terms.
In fact, the profound political shift in Taiwan is more closely associated with the economy’s failing struggle to re-invent itself. With per capita income around US$22,000, Taiwan is above the middle income threshold, but it has been unable to emulate its neighbours like South Korea and Japan in Asia in climbing up the income scale. Its export-dependent manufacturing sector faces competition from South Korea from above and emerging economies, like China, from below. GDP grew a measly 1 per cent in 2014; wages are stagnating and unemployment, at 4 per cent, is considered high. The irony is that Taiwan’s tortured, ‘one-sided’ economic relationship with China — which Ma had been trying to correct — might well be a core element in Taiwan’s economic woes. While direct trade has opened up across the Strait, Taiwan has continued to restrict Chinese imports and investment, essential to enjoying the fruits of fuller integration into the regional and global economy. South Korea has imposed no similar burdens on its international competitiveness.
This week’s lead essay from Mark Harrison points out that while the KMT government may have overstayed its welcome domestically, Taiwanese affairs have looked very different internationally. While the Ma–Xi meeting last November seemed merely to confirm the voters’ view that the KMT had lost sight of Taiwan’s democratic ideals and their everyday concerns, internationally it looked like an historic moment in cross-Strait relations and a step towards resolving one of modern history’s longest-standing ideological conflicts. Indeed, one conception of China’s diplomatic intention in agreeing to the meeting was that it was designed to lay down new benchmarks in cross-Strait relations in preparation for working with a DPP leadership.
‘Should Tsai be elected president, managing these two very different perspectives will be a key task for the incoming administration’, says Harrison. ‘As president, she will need to take heed of the international view of Taiwan and communicate the reasons why the electorate have voted for a more circumspect relationship with Beijing. Tsai’s task will be complicated by memories of the last DPP president, Chen Shui-bian, which still rankle foreign ministries around the world. At the same time, the United States and Japan have both become far warier of China’s assertive regional policies and a Taiwanese government that is less accommodating towards Beijing may suit their policy responses and leadership inclinations’.
It’s true, as Harrison says, that from an international perspective, policymaking in Taipei by a government that will base its legitimacy on its openness to public debate and political activism may appear less reassuring than the policies of accommodation with Beijing under Ma. Certainly Washington was anxious to be reassured that Tsai was not going to disturb the status quo on that front. But this is the tide of Taiwan’s modern political history. Beijing has shown respect for the process and provided a bridge to Tsai and an incentive to meet in the middle. And the policy outcomes that open government can deliver on China and other issues will ultimately stand on stronger foundations of political legitimacy.
Peter Drysdale is the editor of the East Asia Forum.
From the following statement from this post, it seems to be indeed a real irony purely from the point of view of Taiwan’s economy: ‘In fact, the profound political shift in Taiwan is more closely associated with the economy’s failing struggle to re-invent itself. With per capita income around US$22,000, Taiwan is above the middle income threshold, but it has been unable to emulate its neighbours like South Korea and Japan in Asia in climbing up the income scale. Its export-dependent manufacturing sector faces competition from South Korea from above and emerging economies, like China, from below. GDP grew a measly 1 per cent in 2014; wages are stagnating and unemployment, at 4 per cent, is considered high. The irony is that Taiwan’s tortured, ‘one-sided’ economic relationship with China — which Ma had been trying to correct — might well be a core element in Taiwan’s economic woes. While direct trade has opened up across the Strait, Taiwan has continued to restrict Chinese imports and investment, essential to enjoying the fruits of fuller integration into the regional and global economy. South Korea has imposed no similar burdens on its international competitiveness.’
Is the restriction on Chinese imports and investment and its impact on its international competitiveness the key factor to Taiwan’s economic stagnation in the past up to now? If it is, then the expected new president will face a serious dilemma: accountable to an electorate that may like to see a more distant relationship with the mainland, and to develop strategies to kick start the economy where a distant relationship may work in an opposite way.
Yes, it is possible to diversify its economic relationship, but it will take time to achieve. More fundamentally, defying an inherent international comparative advantages under the current circumstances is likely for Taiwan to continue to pay a price.
The author nailed it when he wrote that “While direct trade has opened up across the Strait, Taiwan has continued to restrict Chinese imports and investment, essential to enjoying the fruits of fuller integration into the regional and global economy. South Korea has imposed no similar burdens on its international competitiveness.”
Well, that strategy has failed.
Essentially, what Taiwan needs is more Capital, not more money. If Taiwan needs more money it can print itself out of the economic malaise, 24/7, to become allegedly the ‘richest’ nation in Asia, reminiscence of the folly of Zimbabwe.
Capital means more industrial parks, productive tools, modern CADCAM equipment, well-run farms, fisheries etc, – which will ensure the production of competitively-priced, high valued-added consumer goods for local consumption and for export to the huge markets in China and the region and creating high-paying jobs. China has the wherewithal to provide that Capital.
A cursory look at the investment pattern from Bloomberg shows that in 2009 there was a veritable flight of Capital to China from Taiwan, when the total Taiwanese investment in China amounted to nearly US$980 billion, while China’s total investment in Taiwan was an anemic US$25 billion.
In 2010 Taiwan’s total investment rose exponential to over US$1.02 trillion while China’s total investment rose conservatively to US$80 billion, reflecting a great disparity, due possibly to Taiwan’s continued restriction of Chinese investment, as the result of a misguided state investment policy and mistrust of China’s intentions.
In 2011, the disparity further deteriorated when Taiwan’s total investment in China soared to over US$1.1 trillion while China’s total investment retreated to US$40 billion.
It is not rocket-science to see that by restricting investment from China while at the same time, rushing to invest heavily in China, Taiwan ended up holding the wrong end of the pineapple.
Lessons learned. China’s total investment rose to US$250 billion in 2014 while Taiwan’s total investment in China pared back to about US$850 billion.
The data show that while Taiwanese investors decided to stake their future in China from 2009 onward, largely at the expense of a loss of Capital in Taiwan, the latter’s restriction of investment from China continued to disadvantage its economy and Taiwan ended with a recession in 2015.
According to a recent report, the “economic divergence has widened in recent years as China rose to become the world’s No.2 economy, while Taiwan’s status as an Asian Tiger faded in the face of aging demographics and waning competitiveness.”
Polls show that a DPP president will be elected this weekend. But she has her work cut out for her to get Taiwan out of a recession and a secular economic malaise.
If “Taiwan’s tortured, ‘one-sided’ economic relationship with China — which Ma had been trying to correct” is the alleged cause of Taiwan’s economic woes, then obviously, Taiwan should not restrict investments from the world’s second largest economy and the world’s largest trading nation but instead encourage it.
This can only happen if the incoming president adheres to the so-called ‘1992 consensus’, builds on the ‘Detente’ created by the Xi-Ma meeting in Singapore on 7 Nov last year and avoids the souring of relations with China at all cost. Polemics and rhetoric are counterproductive and will not cure Taiwan’s economic ills.
The time is also ripe for Taiwan to participate in China’s mega ‘One Belt and One Road’ projects, which will create untold wealth for Asia, Eurasia and the rest of the countries along the revitalised ‘Ancient Silk Road’ and the new ‘Maritime Silk road’.
Taiwan will miss the boat if the incoming DPP president defies conventional wisdom and rejects the ‘1992 consensus’ of ‘One China’.