Taiwan: Incumbent favorite to retain the presidency but majority unlikely; broad policy continuity expected
On 11 January 2020, the Taiwanese electorate will head to the polls to elect a new president and legislative assembly, with cross-strait relations and events in Hong Kong at the forefront of voters’ minds. Incumbent Tsai Ing-wen of the independence-leaning Democratic Progressive Party (DPP) looks likely to retain her hold on the presidency, with recent polls indicating a widening lead over the Kuomintang (KMT), the China-friendly opposition party. This should mean a broad continuation of past policies. Measures such as Invest Taiwan—which aims to attract overseas investment via cheap loans and preferential tax rates—look likely to continue supporting growth and the labor market. Meanwhile, on the fiscal front, planned increases in infrastructure spending should benefit imports and fixed investment. That said, a continued push to reduce dependence on mainland China could affect the external sector somewhat owing to a potential economic backlash from authorities in Beijing.
On this point, analysts at Goldman Sachs note: “Another macroeconomic implication in the event President Tsai wins a second term is potential headwinds to services exports, particularly tourism. Amid heightened cross-strait tensions, inbound Chinese tourism declined after her 2016 election. That said, the downside risk may be limited, given an already lowered share of mainland Chinese visitors within the total visitor arrivals.”
If the KMT candidate Han Kuo-yu were to confound market expectations and win the presidential elections, this would likely lead to closer ties to China, potentially aiding the external and tourism sectors in the short-term. The KMT is also proposing to reduce infrastructure investment, which would likely dampen imports and fixed investment levels, while boosting government spending somewhat.
Meanwhile, the race for all 113 seats of the legislature looks less clear cut, with the emergence of the Taiwan People’s Party likely to deny either the DPP or KMT a parliamentary majority. As such, even if the DPP wins the presidential race as predicted, the loss of its present majority could entail increased resistance to its attempts to pass proposed policies into law.