Event

For the first time in Taiwan’s history, opposition party DPP (Democratic Progressive Party) has won both the presidential and the parliamentary elections for a four-year term. This was a convincing victory for DPP candidate and first female President Tsai Ing-wen, who won over President Ma’s Kuomintang with 56% of the vote.

Impact on country risk

This historic success was looming as the ruling Kuomintang had increasingly been criticised and contested for running an overly pro-Beijing policy. Anti-Chinese sentiment has indeed been growing and culminated in 2014 with the “Sunflower” protest movement led by the DPP opposition against the cross-Strait trade-in-services agreement with China. As often in Taiwan, Ms Tsai’s mandate will be assessed in the light of two main challenges: the economy and China policy. Her electoral success lies partly in the youth’s malaise against deteriorating social conditions, the high cost of living and the lack of jobs for the highly skilled as witnessed by the island’s lowest ever electoral turnout (66%). Therefore, tackling those issues and boosting economic activity should be given the highest attention. In particular it will mean expanding further economic relations with its largest trade and investment partner, China. However, Taiwan’s enhanced economic integration, particularly exports and tourism reliance on a slowing China, might be a weakness, especially given the risk of strained relations in the future between a more sovereigntist Taiwan and nationalist China. The tricky relationship with China is indeed likely to enter a new phase with bouts of tensions as Ms Tsai will stop the Kuomintang’s rapprochement policy with Beijing. She has indeed been elected on the back of a more independent stance and will not make any further steps towards Beijing that would not be accepted by a population whose identity has never felt so distant from mainland Chinese. Her pledge to talk to China on equal terms, strengthen ties with the USA, promote Taiwan’s diplomatic existence and diversify economic and trade links away from China are likely to strain relations with Beijing. Hence, Chinese sanctions might well follow. Still, Ms Tsai is likely to work pragmatically on the improved bilateral dialogue and favour the historic and enduring status quo, at least in the short term. In the medium term, pressures from her party base and possibly the population could foster more political decisions to Beijing’s dislike.

Analyst: Raphaël Cecchi, r.cecchi@credendogroup.com