Taiwan Politics November 2018

Taiwan

Taiwan: Local elections deliver crushing defeat for incumbent party; will likely impact economic policy and cross-strait relations

November 24, 2018

The local elections held in Taiwan on 24 November—which were largely seen as a barometer of the incumbent government’s popularity about halfway through the President’s term—delivered a landslide defeat to President Tsai’s Democratic Progressive Party (DPP). As a result, Tsai resigned from her post as chairwoman of the DPP, and many analysts expect the outcome to hinder her ability to run for reelection in 2020. Furthermore, the results will likely have an impact on domestic economic policy—a main cause of voters’ backlash—and cross-strait relations with mainland China, which have deteriorated under President Tsai due to her refusal to recognize the “one China” principle espoused by Beijing.

Indeed, the elections saw the DPP lose 7 out of the 13 cities and counties it controlled to the opposition party, the Kuomintang (KMT), which has a more pro-China stance than the independent-minded DPP. Notably, the KMT won in Taiwan’s three largest cities, New Taipei City, Taichung and Kaohsiung—the latter having been a DPP stronghold for over 20 years. Although the issue of bilateral relations with China was not a major point of focus in the elections, overshadowed instead by economic concerns, it is widely recognized that the colder cross-strait climate has negatively impacted Taiwan’s economy, causing a notable drop in Chinese tourist inflows and China-bound agricultural exports. To respond to voters’ backlash, President Tsai is likely to adopt a more expansive fiscal stance to prop up the economy going forward. This may well include measures to create jobs and raise wages—via additional incentives for Taiwanese companies to repatriate factories from the mainland to Taiwan, for instance—as well as improving social welfare, in order to shore up public support.

According to Ma Tieying, an economist at DBS Bank:

“At the central government level, chances are rising that President Tsai Ing-wen’s government may pursue fiscal measures to shore up the domestic economy in the next year, to regain public support ahead of the presidential election in January 2020. Domestic economic concerns, including the fallout of pension and labour reforms, served as an important factor in weakening the DPP’s support rate over the past couple of years.”

Regarding relations with China, the impact of the elections is still uncertain. On the one hand, the KMT’s political gains—which were widely applauded in Chinese state-run media—raises the prospects of an improvement. On the other hand, internal power struggles could now arise within the DPP and, if the pro-independence wing of the party gathers strength, it could heighten cross-strait tensions. Animosity could also be amplified by the fact that China has been widely reported as interfering in Taiwan’s election, by spreading false information on social media platforms, supporting the opposition party and conducting cyberattacks. Though Ma Tieying remains optimistic overall regarding mainland relations, she warns that “it remains too early to anticipate a substantial improvement in cross-strait ties, such as a full-fledged recovery in the number of Chinese tourists visiting Taiwan”.

The government expects GDP to expand 2.5% in 2019. FocusEconomics Consensus Forecast panelists project GDP will grow 2.2% in 2019, which is down 0.1 percentage points from last month’s forecast. For 2020, the panel estimates that economic activity will increase 2.0%.


Author:, Economist

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