- An Assessment and Analysis of Taiwan’s Private Equity Environment
- Private Equity Report: Executive Summary
Taiwan Election Results:
President Ma Wins a Second Term
(Arlington, Virginia, January 15, 2012)
Commentary by Rupert Hammond-Chambers
Yesterday, January 14, Taiwan held its presidential and legislative elections. President Ma Ying-jeou of the Kuomintang (KMT) won a second term in office with 51.6% of the total vote, out-dueling his principal opponent Tsai Ing-wen of the Democratic Progressive Party (DPP) by almost 800,000 votes. Tsai received 45.63% of the ballots cast in the presidential contest, while the third candidate, James Soong of the People’s First Party (PFP), came in a distant third with 2.77% of the vote. While the DPP failed to gain the presidency, it improved its position in the Legislative Yuan (LY) elections, taking 40 seats in the 113 seat legislature, while the KMT held on to 64 seats. The DPP gained 13 seats over its dismal showing in the 2008 election, while the KMT lost 17 seats. Taiwan continued to show its vibrancy as a democracy, with 74.4% voter turnout out of 18 million eligible voters.
Implications of Ma’s Victory for Taiwan
While there had been much speculation over the possibility that the DPP’s Tsai would garner enough votes to unseat Ma, in the end Ma’s margin of victory was comfortable – thereby avoiding legal challenges such as those that followed the 2004 presidential election.
The Ma victory is likely to have an uplifting effect on the Taiwan stock exchange (TAIEX), which in the run-up to the election has underperformed when compared to its regional neighbors. In particular, those companies with high exposure to China are likely to see some upward movement in their share prices, as investors position themselves to take advantage of what they believe will be four more years of bilateral trade growth between China and Taiwan, and a continuation of steadily improving cross-Strait ties. GDP growth for Taiwan will likely be around 4% in 2012, unless unforeseen events further cripple European and American growth prospects.
With Ma remaining at the helm, Taiwan can expect another four years of steady macro-economic leadership, focused on improving national infrastructure and opening new global markets to Taiwan’s goods and services. However, we are unlikely to see any new or bold moves on the domestic front in respect to economic and regulatory reforms. While the Ma government has often discussed the need for substantial reform of government regulation practices, as well as reform of state involvement in specific enterprises and sectors, the Ma Administration has generally balked at actual change, given opposition by vested interests – such as that of the permanent government bureaucracy.
Any substantial improvement in Taiwan competitiveness is likely to instead come through bilateral and multilateral trade deals that require Taiwan to reform. Indeed, I believe that this is the policy of the Ma government. They are unprepared to tackle domestic constituencies directly, and are instead looking at international trade deals to drive reform of the thorniest areas of domestic self-interest (such as agriculture).
I believe that an important trend, one of the least reported upon trends presently in play in Taiwan, is the steady growth in the number of countries engaging Taiwan in bilateral trade discussions. Taiwan will likely complete its trade deal with Singapore at the end of 2012, and New Zealand, India, Japan, Australia and the EU have all signaled a willingness to engage with Taiwan in substantial trade negotiations. In some of these cases, those negotiations are going to result in Free Trade Agreement -like deals. President Ma himself noted that the Economic Cooperation Framework Agreement (ECFA) with China was not a deal unto itself, but part of his administration’s global trade policy that could open the door to other possible agreements with Taiwan’s leading trade partners. I fully expect Taiwan to complete at least one to two major FTA-like agreements with major global economies, along with several smaller deals with countries such as New Zealand, by the end of Ma’s second term.
The importance of momentum for Taiwan garnered through trade negotiations cannot be underestimated. The challenges in the global economy are acute, and an export-driven market such as Taiwan needs continued growth in market access and demand for goods to grow its own GDP. Europe and the U.S. are likely to continue to underperform economically at least over the next 1-2 years, leaving only China as Taiwan’s principal engine for demand growth. Yet here too there are serious worries about the sustainability of China’s economic expansion, and its ability to prop up the shortfalls in Taiwan’s other global markets.
This brings me back to the importance of domestic reform. Taiwan’s domestic market remains parochial, and if the country is ever to compete with Korea toe-to-toe it must improve its domestic competitiveness. The Ma government’s international trade policy seems to be working. But if he is to move Taiwan and its people to greater prosperity, President Ma will need to show considerably more courage and conviction in tackling the domestic constituencies opposing reform.
If there is single domestic issue that will bear watching over the next year or more, it is the wealth-gap. The DPP did an excellent job of highlighting this issue in their election campaign. Whether the government’s present macro-economic course is correct or not, President Ma’s government will look to close the credibility gap that the DPP has opened up on this issue. They will have to focus on tackling issues surrounding dislocated workers, as well as the very real challenge of affordable housing – particularly in the northern parts of the country.
(See attachment for full text)