Insights and Analysis

In Taiwan: It’s the Economy

March 19, 2008

By Allen C. Choate

On Saturday, March 22nd, Taiwan’s 17 million voters will cast their ballots for a new president to succeed the incumbent Chen Shui-bian. All of the surveys show the KMT (Nationalist) party candidate, Taipei Mayor Ma Ying-jeou, far ahead of his opponent, Frank Hsieh, the DPP (Democratic Progressive Party) nominee, with a lead of around 20 points.

In 2000, after a half century of rule, the KMT lost control of the Taiwan government to the DPP. Ma’s large lead indicates the KMT is maintaining its positive momentum following its defeat of the DPP in the highly significant legislative elections in January. The KMT took 81 seats while the DPP was only able to secure 27, giving the KMT an absolute majority in the legislature. If Ma is elected, as the polls indicate, he will have a comfortable legislative majority to enact his policies.

The Nationalist Party’s resurgence revolves around the people’s concerns with the economy. Consistent with past elections, Taiwan’s relationship with mainland China is a central topic of the presidential race, but this year’s difference lies in how the cross-Straits question is being posed. The current debate centers on Taiwan’s trade and investment relations with mainland China, not the usual political and constitutional arguments over sovereignty, independence, and reunification.

By any objective standard, the widespread worries and dissatisfaction with Taiwan’s economy is puzzling. The island’s economy is healthy and growing. All normal macro-economic indicators are positive: the growth rate is respectable and increasing, exports are up, both offshore and domestic investment are increasing, the stock market — while spiky — is trending upward as well. The high technology sector, especially, is improving in quality and is profitable. So why the concern?

The Taiwanese people perceive their overall quality of life as unsatisfactory. While the economy may be vital and healthy, the general population’s income has stagnated over the past couple of years, inflation is rising, the inequality gap is seen as becoming unacceptably wide, and creeping unemployment is a concern for many. In addition, many feel that Taiwan’s anomalous international status is making it less competitive in the global marketplace and is increasingly limiting their business options.

In response, the KMT ticket of Ma Ying-jeou and Vincent Siew presents a platform of expanding and growing the island’s economy. The centerpiece of their economic plan is the development of a cross-Straits “free trade zone” – an eventual “common market.” Taiwan’s economy is inextricably linked to the mainland’s economy. The mainland is Taiwan’s largest export destination and is the recipient of close to half of Taiwan’s foreign investment. Ma’s proposal is to expand on this by negotiating with the mainland to reduce tariffs, allowing academic qualifications of selected mainland professionals to be recognized in Taiwan, lifting the current forty percent cap on mainland investment, and promoting tourism in Taiwan.

Taiwan (and international) business travelers particularly welcome Ma’s proposal to begin direct air links with the mainland as soon as possible. All shipping and air traffic between Taiwan and the mainland must transit through Hong Kong or other countries. A 90 minute flight from Taipei to Shanghai can therefore take up to six hours. Ma has promised to begin weekly direct charter flights by this summer, daily charter flights by the end of 2008, and regularly scheduled service by the end of 2009.

Similarly, Frank Hsieh and the DPP are pledging to moderate ties and improve economic relations with the mainland, but recently Hsieh has voiced loud opposition to the Ma-Siew proposal for a cross-Straits common market. The threat it poses to Taiwan’s present sovereignty is one feature of this opposition, but the DPP’s protectionist arguments against the cross-Straits free trade zone are almost identical to other universal challenges to Free Trade Agreements. The DPP claims that a cross-straits common market or free trade zone will result in major job losses and rising unemployment in Taiwan, that mainland investment will swamp the island and lead to mainland corporate takeovers of Taiwan companies, and that Taiwan’s farmers will be driven out of business by mainland agricultural imports.

The KMT’s response to these criticisms is that the common market idea will take decades to achieve. Investment and services will not be included in the initial agreements, and certain sectors, such as Taiwan’s agricultural sector, will not be immediately liberalized.

However, Hsieh’s attacks are resonating with some of Taiwan’s electorate concerned with the island’s economy. While Ma still has a substantial lead in the polls, it has dwindled in three months from 40 points to about 20 points today — and it seems to be narrowing daily as Hsieh hammers on the dangers of a cross-Straits free trade zone.

The current unrest in Tibet has made some in Taiwan more wary about moving too fast on closer cross-Straits economic ties. That tends to favor Frank Hsieh’s campaign, but Ma should maintain his lead for Saturday’s election. For the first time in Taiwan’s recent electoral history, the key issue is the economy. This is encouraging, as it signals a new era of more “normal” politics and a healthy and practical debate within Taiwan about its relations with the mainland.

Allen Choate is The Asia Foundation’s Vice President for Partners in Asian Development. He can be reached at [email protected]


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