What it will take Tsai to kick-start economy and satisfy Beijing

May 16, 2016 11:27
A man rides a bicycle past an election poster of Taiwan president-elect Tsai Ing-wen. Tsai won 56 percent of the vote in January on the back of popular disenchant over the ecoomy. Photo: Reuters

When Tsai Ing-wen takes office on May 20, she faces two giant challenges.

One is manage relations with Beijing in the way demanded by her electorate, the other is to kick-start a faltering economy.

The two are closely related.

Last year, Taiwan’s gross domestic product grew 0.8 per cent, down from 3.9 percent in 2014, and exports were US$285 billion, down from US$320 billion a year earlier.

Average wages have not risen since 2008.

Anger over stagnating wages, a rising wealth gap and the outsourcing of jobs were major reasons for Tsai’s winning 56 per cent of the vote in the presidential election in January.

In her speeches, she has spoken of the importance of increasing economic ties with Southeast Asia, Japan and the US -- the looking-south policy -- and reducing dependence on China.

This was the policy pursued by the last DPP administration from 2000 to 2008 but with limited success.

Cutting this dependence will not be easy.

Last year, China was Taiwan’s biggest trading partner, buying 40 per cent of total exports.

There are 100,000 Taiwan-invested businessmen and one million Taiwan long-term residents in the mainland; it accounts for 45.5 per cent of Taiwan’s overseas direct investment.

These companies are nervous about Tsai’s presidency.

On May 10, Chen Deming, president of the Association for Relations Across the Taiwan Straits, told a group of Taiwan investors that the mainland understood that they did not want to be treated like foreigners and wanted privileges (like national treatment).

“But the two sides have not finished the stage of the civil war. Everyone cannot sit down together like brothers.”

It was a warning of what they can expect during the Tsai era.

“The new south-looking policy is not wise. To leave one place and invest in another is not the most advantageous choice," Chen said.

"Best is to choose a stable place and expand from there. Southeast Asia is expanding quickly but its infrastructure, logistical conditions and market cannot be compared to those in the mainland. Anyone doing his sums can see this.”

In another warning, the number of mainland tourists to Taiwan has fallen by more than 20 per cent since Tsai’s election.

In March, the number fell 10 per cent to 363,878, according to Taiwan’s Tourism Bureau.

Last year, there were four million, accounting for 40 per cent of tourist arrivals.

Tsai has outlined a “new model for economic development” with three main ideas --  innovation, job creation and equitable income distribution.

She has called for greater international co-operation, especially with the US, in the information and communication technology (ICT) sector.

She wants a variety of free trade agreements, not only with China, and has made a priority membership of the Trans Pacific Partnership (TPP) founded in February this year.

Beijing is likely to exclude Taiwan from its proposed Regional Comprehensive Economic Partnership; this is because the DPP will not conclude all the bilateral agreements which Beijing says are a necessary pre-condition.

Beijing is able to block or obstruct other Taiwan free trade deals of which it is a part; TPP is an exception since China is not a member.

Another issue for Tsai to decide is how much mainland investment to allow in Taiwan.

As of October 2015, the government had approved 745 mainland projects, a total of US$1.3 billion, less than 1 percent of Taiwan investment in China.

One is an investment of NT$100 million by Kibing Glass Group, China’s largest producer of glass for tabled devices, in a small Taiwan R&D firm.

“We are definitely going to hit the market together with our Taiwanese partner,” said Kibing president Ge Wenyao.

“If Taiwan had not partnered with us, we would probably have joined forces with an American, Japanese or German company because I am intent on seizing the market.”

Many Taiwan firms want the freedom to negotiate such investments, to obtain capital, technologies and better access to the mainland market. But the DPP electorate opposes more liberal investment policies, fearing economic control by Beijing.

“The business lobby in Taiwan is very powerful,” Ye Xiao-ming, a business consultant in Taipei, said.

“It has large investments in China and wants good relations there. Tsai is caught between it and the demands of her electorate, many of them poor, with no connection to the mainland and who have derived no economic benefit from Ma Ying-jeou’s eight years of opening up.”

Another important issue is housing.

In Taipei, the ratio of the price of an apartment to average income is 15, the highest in the world.

Tsai has called for construction of 200,000 affordable homes and government-assisted management of rental properties.

More drastic measures would require her to take on large and powerful property companies.

-- Contact us at [email protected]


A Hong Kong-based writer, teacher and speaker.