Books on Taiwan
Update No: 034 - (02/01/07)
Taiwan : JANUARY 2007 An end of year review
All things considered, Taiwan has weathered the past year rather well and better
than many had expected. As has been the case in other parts of Asia, the economy
has steamed ahead largely ignoring the shenanigans of the political class. The
smart money suggests a similar picture for next year.
Taiwan's export-driven (at least in large part) growth has benefited from the
better than expected performance of the US economy (which will come in at around
3.2 percent for 2006) and the continued surge of China. The Chinese economy will
likely grow by a further 10.5 percent this year after recording 9.9 percent
growth last year.
The ongoing strong demand for Taiwan's manufactures translates to domestic
economic growth this year of around 4.1 percent. With the upcoming Chinese
Olympics looming ever closer, export demand is expected to remain robust next
year and well into 2008.
So far, we have given out the good news. Now for the bad news: It has not been a
good year politically for the ruling Democratic Progressive Party nor especially
for President Chen Shui-bian whose wife was recently indicted on one count of
Taiwan's political system remains as rambunctious as ever and for much of the
year President Chen Shui-bian and his senior DPP leaders have remained in a
veritable state of political siege engendered by internal rifts and factionalism
within the party and by allegations of corruption in high places that the
opposition forces led by a renascent Kuomintang (KMT) under presidential
aspirant and party Chair, Ma Ying-jeou, have been eager to exploit. Fresh
attempts to impeach the President have so far come to nothing but have led to
paralysis in much of government and especially in the government's legislative
programme where the opposition has opposed simply for the sake of opposition
without weighing the merits of the case. In that, of course, there is nothing
But even here there may be a silver lining to the dark political clouds hanging
over Taipei and it may be found in the electorate at large. The results of the
Taipei and Kaohsiung mayoral polls held on December 9th, took many by surprise.
A growing electoral maturity?
The DPP hierarchy will be breathing a collective sigh of relief that the
mayoral elections maintained the balance of power between the two major parties.
The KMT held onto the Taipei mayorship (but with a reduced vote) while the DPP
won unexpectedly in Kaohsiung in a cliff-hanger contest that had earlier been
deemed impossible to win.
Given the wide expectation that the election outcome would see a further
repudiation of DPP politicians by the electorate for their perceived failures
and links to corruption scandals, the electorate proved to be unusually
forgiving (or, perhaps, more discerning than many had thought).
In Taipei, the DPP pitched former Kaohsiung mayor, former premier and DPP
stalwart Frank Hsieh against the KMT candidate Hau Lung-bin (Hau Lung-pin), a
former head of Taiwan's environmental protection administration (EPA) who has
vowed to develop Taipei into a city that foreigners would find comfortable to
live in. Prior to returning to politics to contest the mayoral race, Mr. Hau was
secretary-general of Taiwan's Red Cross Society.
Mr. Hsieh is generally regarded to have run a lack-lustre contest and while he
was bested by his opponent, he did succeed in cutting significantly the margin
of victory as compared to previous contests. He lifted the DPP vote by a full 5
percent as compared to the 2002 result.
He also succeeded in vanquishing a strong "third contender". This was
no less than James Soong, popular former Taiwan governor (from the days when
Taiwan also had a provincial government as well as a national one-a fiction
dismantled by former president Lee Teng-hui). Soong and his People First Party (PFP)
secured barely 4 percent of the vote. It was a humiliating defeat and upon
hearing the result, Mr. Soong announced his retirement from political life.
Without him, his political party will not survive long. His party's
legislators-having lost their chief financier-have little option but to return
to the KMT fold from whence they came.
The other minor party, the Taiwan Solidarity Union (TSU), appears headed the
same way. Its candidates performed miserably both in Taipei and in Kaohsiung.
Clearly, the signal from the end of year elections is that voters are becoming
tired of the splintered political system and minor parties that appear to be
personality-based without a clearly defined platform of coherent issues relevant
to the broader electorate. Taiwan appears headed towards a clear two-party
political system in future elections.
A parallel message is the eschewing of extremist positions. Both major parties
are now converging towards the centre and middle-of-the-road politics. With the
demise of the minor (and more extremist parties) they have more freedom to
manoeuvre. This has to be good news for the future of Taiwan.
Calmer waters ahead?
The outcome of the December elections, which commanded as much attention as
recent national polls-such was their significance-should provide some respite to
Taiwan's embattled president. The result demonstrates that allegations of
corruption in high places have lost persuasive power with Taiwan's voters.
Mr. Chen has survived three recall motions in the Legislative Yuan (Taiwan's
unicameral parliament) and in recent months, close aides as well as family
members have been linked to corruption scandals. His wife has been indicted on
one charge. Nevertheless, corruption has also hounded the opposition KMT and if
mud stuck, it has done so on both sides of the political fence.
But President Chen's relief is only temporary and he remains in a precarious
position. Should the corruption charge facing Mr. Chen's wife be proven in
court, then the pressures surrounding the president could once again come to the
boil forcing his early resignation. Barring this development it is widely
expected that he will remain in office to the end of his term in 2008.
Next year (2007), Taiwan will return to the polls for a new legislature and for
a new president to take office in 2008. The coming year will therefore again see
politics playing a large role in Taiwan's life. The difference, however, is that
both major parties appear to have consolidated their core basis of support. The
result of coming elections will therefore hinge on the middle-ground swinging
voters. Expect both parties to pay special attention to wooing the middle
ground. This factor alone will moderate the extremist policy stances taken by
both the KMT and the DPP in earlier elections.
Already speculation is rife as to who will be the contenders for the 2008
presidential race. This time it looks likely to be a two-horse race and for the
KMT, former Taipei mayor (and current party chair) Ma Ying-jeou appears the
favoured candidate. On the part of the DPP, four party leaders appear to be
contending the selection process. These include Vice-president Annette Lu (who
remains the favoured candidate) together with Premier Su Tseng-chang, party
Chair Yu Shyi-kun and former Kaohsiung mayor Frank Hsieh.
It needs to be remembered that in the two previous presidential contests,
President Chen Shui-bian emerged the winner with a minority of the vote because
the conservative vote was split between rival candidates. This time, in a
two-way play-off, the DPP will find the race that much harder to win. At this
stage, the smart money would be on Ma Ying-jeou as Taiwan's next president.
And what about the economy?
Most analysts predict not much change in the domestic economy next year
although there are signs that Taiwan is becoming a more attractive destination
for private equity placements.
Taiwan's GDP growth for 2007 is generally expected to remain within the band
between 4.0 and 4.6 percent. The Council for Economic Planning and Development
has announced a target (not necessarily of course the same as an
"expectation") of 4.6 percent for next year while Goldman Sachs puts
their expectation at 4.5 percent. The Chunghwa Institute for Economic Research (CIER)
is opting for a more conservative figure of 4.13 percent while the Economist
Intelligence Unit predicts 4.2 percent GDP growth.
MasterCard Worldwide caused some furore recently when it announced an
expectation that was far removed from other estimates. MasterCard is forecasting
that Taiwan's economic growth next year will be only 1.2 percent.
In defending its low forecast MasterCard pointed to weak domestic consumption
and slowing growth in Taiwan's two major trading partners-China and the United
States. Other observers dispute this pessimistic stance and point out that while
consumer demand has weakened in the aftermath of the consumer loan crisis that
affected the banking system earlier in the year, the public at large continues
CIER expects private consumption to increase by 1.5 percent next year while the
CPI will increase by 0.72 percent. The unemployment rate for the year is
forecast to be 3.92 percent. Generally most observers believe the MasterCard
estimate to be unduly pessimistic.
Taiwan continues to benefit from private equity inflows
According to US investment banker, Merrill Lynch "Asia's private equity
boom looks like it is a long way from fizzling out". Taiwan is well placed
to benefit from the investment drive. Given benchmark interest rates of round
2.2 percent and yields in excess of 4.5 percent, a large number of Taiwanese
companies appear to be potential investment targets according to the banker. One
indicator of the attractiveness of the island's companies is the offer on
November 24 by Washington-based Carlyle to buy out Advanced Semiconductor and
Engineering, the world's largest chip tester and packager. If consummated the
deal could reach US$5.46 billion making it the largest ever acquisition in
Taiwan. Other key acquisition targets include Taiwan's telecom, technology,
cement and transport companies.