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Elections Open A New Economic Path In Taiwan, But Raises Tensions With China

The ruling DPP has traditionally leaned in favor of Taiwan independence and rejects the so-called “One-China policy”.

The national elections in Taiwan also known as the Republic of China in the middle of January, are now going to move this island nation in a new direction. The complete victory of the Democratic Progressive Party (DPP) founded in 1986, will ensure that. The vision is to restore the former economic Asian tiger to its former identity.

The DPP did control the presidency from 2000 to 2008, but never had a majority in the legislature. The recent electoral results will provide the incoming administration, the mandate required in pursuing substantial economic reforms. It will help restore investor confidence both domestically and internationally.

President elect Tsai Ing-wen tapped into a growing disillusionment of voters towards present government economic policy. The citizenry has tired of the low growth in wages and the years of minimal GDP (Gross Domestic Product) expansion. The Taiwan Miracle seems to be running out of steam.

Tsai Ing-wen campaigned on the issues of rapidly rising home prices that have made home ownership increasingly out of reach for young Taiwanese and the progressively expanding phenomena of underemployment.

President elect of the Republic of China,Tsai Ing-wen

President elect of the Republic of China,Tsai Ing-wen

The incoming president is promising a new emphasis on growth through a program of social welfare and job creation. This can be brought about according to Tsai Ing-wen through trade diversification, innovation and domestic liberalization of the economy.

Although the campaign promised a change in course, it is uncertain how much can be achieved given the present international circumstances. That is a slowing global economy saddled with collapsing commodity prices and crushing levels of debt.

In addition to the conditions abroad, the country itself is dealing with a number of challenges that will not be easily overcome. The economy barely avoided recession last year, with growth below 1%. Previous forecasts of expansion of 2.3% in 2016 and 2.8% in 2017, seem overly optimistic.

One can reach this conclusion based on the overall exposure the country has to China. Near 40% of all exports from Taiwan, are sold to the mainland. Considering that 70% of the total GDP is comprised of exports, a progressively cooling Chinese economy spells trouble for any Taiwanese Renaissance.

250px-Locator_map_of_the_ROC_Taiwan.svgTaiwan is also experiencing a situation that is effecting East Asia in general. That is a rapidly aging population. The island has one of the lowest fertility rates anywhere. This state of affairs will put a accelerating strain on resources, as the country struggles to fund infrastructure as well as costly social welfare programs.

The other three tigers of the region which include Hong Kong, Singapore and South Korea are also experiencing issues related to low fertility and a rising median age.

Analysts in Taiwan are already speculating how the present healthcare system will survive, when the population actually starts declining. This troubling event is calculated to begin in 2019. It does not bode well for a nation struggling to maintain first world social services.

Outgoing President Ma Ying-jeou of Taiwan.

Outgoing President Ma Ying-jeou of Taiwan.

The innovation that is hoped for is being targeted among a number of industries that include biotechnology, engineering, electronics and defense. It is felt that if Taiwan can regain a competitive edge in some these sectors, it will guarantee new growth in the years ahead.

The island nation has been a major beneficiary of the spectacular development of its giant neighbor to the east. However, the once dominant edge the country had over China in manufacturing and higher technology, is narrowing considerably. Competition for this crucial market with South Korea has also been heightened within the last decade.

Increasing diversification is what will provide the next path to prosperity. As with other more mature nations, the move away from industry to services is inevitable, as Taiwan enters the next phase of economic development.

Leaders of prospective member states at a TPP summit in 2010

Leaders of prospective member states at a TPP summit in 2010

One way that the incoming president will solidify the role of Taiwan in Northeast Asia and the Pacific region, is developing new trade relationships. Future membership in the Trans-Pacific Partnership (TPP) is a primary example. Tsai Ing-wen has already stated this will be a major goal of her new administration.

This new trade deal alone, will end up covering at least 40% of all global trade. Taiwan needs TPP as one of the ways to recharge an increasingly moribund economy.  Although the GDP of Taiwan remains in excess of $500 billion USD (United States dollar), growth has been stagnating in recent years.

TPP will not go into full effect until 2017. In the meantime, Taiwan will need to build a consensus to have other nations accept its entry. It is complicated, as China is not a member and would prefer that Taiwan not become one either. The Chinese government still insists that Taiwan is an integral part of their country.

Taipei 101 was the world's tallest building from its opening in 2004 until 2010.

Taipei 101 was the world’s tallest building from its opening in 2004 until 2010.

The present opposition of China complicates the Taiwanese position, because it makes it less likely that other nations including the United States, will want to antagonize the Chinese in an area of the world where tensions are already high.

Recent moves by the Chinese military in the South China Sea, have created new antagonisms with countries that border the area. Provocative new assertions to partially submerged islands by China have created new enmities among neighboring countries who have their own territorial claims.

The nations of Brunei, Indonesia, Malaysia, the Philippines, Singapore,Vietnam as well as Taiwan itself, all dispute the new affirmations being made by the Chinese government. That is, a large part of the existing land area in the the region of the South China Sea is sovereign territory. To prove its validity, great pains are being taken to expand the size and viability of a number of the islands, to legitimize the Chinese position.

One of the most controversial positions of the incoming administration is the nonacceptance of the 1992 consensus. This is the agreement that has defined the present relationship that exists between China and Taiwan. A misstep here can have dire consequences for both nations.

A compromise will become necessary to avoid a new crisis. The Chinese leadership has always made it clear in the past few decades particularly, that they will never accept a truly independent Taiwan. President Xi Jinping will never surrender this fundamental principle.

Locations in the South China Sea. Ownership of these islands are in dispute by surrounding nations.

Locations in the South China Sea. Ownership of these islands are in dispute by surrounding nations.

More troubling for Taiwan is the fact that China, is in the process of constructing a modern deep water navy and is expanding its air and missile capabilities. It is unlikely in a new crisis that the Chinese military will be content to bombard outlying islands of Taiwan, as has been the past practice when tensions boiled over. China is more than capable of launching an attack on the island and proceeding with a full scale invasion if necessary.

Recent policy of Chinese leaders was to put the issue of reunification on hold for some future date. The sentiment has always been that Taiwan would go the way of Hong Kong and Macao. Two former European colonies that are now officially part of China, but have distinct economic systems.

The restraint made by the Chinese leadership is grounded in three major points. The first one is that any major war in the region could well derail the incredible growth achieved by China in the past few decades. The second one is the relationship that China has with neighboring countries. If the Chinese feel compelled to settle the issue of Taiwan by force, it will fundamentally change the economic and political dynamic throughout the region.

Republic of China Air Force Indigenous Defense Fighter

Republic of China Air Force Indigenous Defense Fighter

The third and most persuasive consideration has always been the response of the United States. Traditional American policy has been to defend Taiwan against mainland China, ever since the communists gained control over most of the country in 1949. Even when diplomatic recognition was withdrawn in 1979, the United States made clear that it will not accept an invasion of its ally Taiwan.

Although the Chinese continue to insist that the relationship between the mainland and Taiwan is an internal matter, it is bound to viewed elsewhere as aggression if China decided to make a military move against Taiwan. Therefore, China would gain little sympathy and virtually no support for an invasion with the possible exception of Russia.

However, China will never abandon its objective to gain control over Taiwan. It is the key for the country to achieve regional hegemony. As long as the island remains virtually independent, it prevents China from gaining greater control over the South China Sea. Reunification is the only way to supplant the United States, as the leading power broker in this area of the world.

Conflicting maritime claims in the South China Sea.

Conflicting maritime claims in the South China Sea.

It is also the only way to force neighboring countries to adopt foreign and economic policies more amenable to Chinese interests. As long as the America presence remains, the nations surrounding China will feel confident enough to resist Chinese influence, not only in individual cases as with Japan, but increasingly collectively. This accelerative possibility, is what particularly irks Chinese leaders.

A miscalculation on either side could be disastrous. There are some in positions of authority in China, that feel 2016 may well be the last opportunity to settle this pressing issue in this generation. In their opinion a window is closing. Sensing that the current American president would be far less likely to respond militarily if a conflict arose, they do not wish to wait for the country to gain further military strength.

The Presidential Building in Taipei has housed the Office of the President of the Republic of China since 1950

The Presidential Building in Taipei has housed the Office of the President of the Republic of China since 1950

Although it is true that the Obama Administration is viewed by foreign governments as far weaker than previous ones, especially in comparison to the hyperactive presidency of the Bush years, it is still a gamble. It could well be that President Obama will feel that he has no choice, but to resist a Chinese attack. It is the perception of American weakness that has become the wild card in the region now.

A military conflict between China and the United States would be a disaster for both sides, regardless of Taiwan. China is presently incapable of executing and maintaining a conventional war against the continental United States. Therefore any potential conflict would be consigned to East Asia. This results in a far greater disadvantage for the Chinese, since the fighting would take place on their home turf. Collateral damage would be mostly borne by China.

Since a conventional war is unlikely to achieve victory, the only alternative for China would be to escalate to a nuclear strategy. It is in this arena where there will be no winners. It will be difficult for either side to refrain from their use if defeat is imminent. Therefore it is far more likely that both the Americans and the Chinese will attempt to solve any real disputes diplomatically. This will include pressure on Taiwan by the United States to deescalate tensions, regardless of domestic politics.

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