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Key Economic Data 
  2003 2002 2001 Ranking(2002)
Millions of US $  406,000    
GNI per capita
 US $ 18,000
Ranking is given out of 208 nations - (data from the World Bank)

Books on Taiwan

Update No: 051 - (01/05/08)

Taiwan’s new president-elect, the Kuomintang Party’s Ma Ying-jeou is to be inaugurated on May 20 but there are signs of change already in the air, especially with regard to relations with the mainland of China.

Mr. Ma swept to victory in the March poll with a 17 percentage point margin over his only opponent, Mr. Frank Hsieh of the Democratic Progressive Party. The DPP had won the two previous elections on a minority ticket and due to multiple candidates which split the “conservative” vote. While acknowledging the personal nature of the defeat, in his concession speech Mr. Hsieh also called the result a “victory for democracy.”

With the KMT garnering 75 percent of the vote in the January legislative election, Mr. Ma’s victory in the latest poll completes the transformation of Taiwan’s political landscape from rule by a president and a party that clearly wanted independence for Taiwan, to one that is much more likely to seek some form of rapprochement with China. 

But, hopefully, this shift will not represent a turning back of the clock. The eight years of DPP government has given the Taiwanese people a much clearer view of their own national identity and while the overwhelming bulk of the people on Taiwan are ethnically Chinese, support for unification with the PRC, especially on the terms offered by Beijing, has dwindled to almost nothing. The Taiwanese can see what has happened to Hong Kong over the past decade and the “one country, two systems” approach has little attraction for a people that, throughout history, have been fiercely independent of outside interference—even from China.

But this election was not fought over independence-related issues and indeed the pro-independence stance of the DPP may well have backfired on them. Most people want the status quo to remain and that appears what the politically savvy Mr. Ma has been offering. He promised that he would not compromise Taiwan’s de facto independence but neither would he push for de jure independence as the DPP was advocating. Rather, he promised a transformation of Taiwan’s economic relations with China through an opening up of investment, greater freedom of movement, communications and trade. These are all issues that sit well with Taiwanese.

Indeed, the mood of the Taiwanese people will constrain Mr. Ma’s freedom to manoeuvre vis-à-vis China even should China unwisely press the issue. And while there is an expectation of better China-Taiwan relations as a result of the KMT victory, the changes are likely to be at the margin. That is not to say these changes will be without value or consequence. We may quickly see a lifting of investment restrictions. Many Taiwanese companies have been chaffing under the restrictive mainland investment policies of the DPP government.
Steps may also be taken quickly to improve transportation and communications links. But beyond these measures which have both practical and symbolic value it is hard to see where Mr. Ma can go without bringing up the issue of “identity politics.” Back in November 2007, Ma pledged not to discuss reunification issues with Beijing and instead seek a return to the 1992 consensus whereby both sides agreed to disagree on the definition of “one China.” That was 15 years ago and much has changed in the meantime. Will the present leadership in Beijing be prepared to turn back the clock? 

The United States is clearly pleased by the outcome of the election for no other reason than the KMT victory offers the prospect of a reduction of tensions with China. Too often in recent years, the USA has become involved in spats not of its own making. President Bush came out and said publicly that “the election provides a fresh opportunity for both sides to reach out and engage one another in peacefully resolving their differences.” The two sides he was referring to were Taipei and Beijing of course but his remarks could equally have referred to the Taipei-Washington relationship which has been under severe strain throughout the Chen presidency.

Despite the democratisation that has occurred over the past twenty years, incumbent President Chen Shui-bian has often rocked the boat a little too hard, overplaying his democratic credentials and not taking cognizance of the “realpolitik” of the situation. Mr. Ma can be expected to be a little more sophisticated and that must come as a relief to policy-makers in Washington who will no doubt be working behind the scenes to re-engage the two long-term adversaries in constructive engagement.

They may not have long to wait. In an early move designed to signal a return to constructive engagement, President-elect Ma has named a veteran economic planner, the 75-year-old Chiang Pin-kung, as head of the semi-official Straits Exchange Foundation, an organization that ostensibly is the vehicle for negotiating non-political matters with China. It has lain moribund in recent years under the DPP. Chiang is currently vice-chair of the KMT and, even in advance of the formal inauguration of Mr. Ma, he headed straight to China to meet with his Chinese counterpart, Chen Yunlin of the Association for Relations Across the Taiwan Straits, Beijing’s counterpart body.

Other early positive signals include a meeting between President Hu Jintao of China and Dr. Vincent Siew at the recent meeting of the Boao Forum (Asia’s counterpart to the Davos Forum) on China’s Hainan Island. Siew is Taiwan’s vice-president elect and the meeting between the two represents the highest level contact between the two sides in almost six decades. The meeting was, according to reports, a short one lasting only twenty minutes but the fact that it took place at all has been enough to signal the expectation of an early resumption of dialogue.

Any moves to break the stalemate of recent years will be welcomed by Taiwan’s business community. Taiwan is already the largest foreign investor in China. Officially (and according to Taiwan data), Taiwanese companies invested some US$65 billion in China between 1991 and 2007. 1991 was the year in which such pre-approved investments were first allowed by Taipei. The real amount could be several times higher than this.

The pattern of investment flows have continued in recent years despite attempts by the DPP government to encourage greater investment into other parts of Asia including Vietnam and the Philippines. Yet despite all the exhortations, China has remained the favoured destination because of common culture and language, lower manufacturing costs as well as the ability to bypass quota restrictions that apply in many markets to goods manufactured in Taiwan and the lure of a potentially huge consumer market. In many instances there has also been the philanthropic angle with Taiwanese returning to the place of their ancestry to be feted like kings (or is it “warlords.”)

Undoubtedly with the new KMT government secure for the next four years at least, we may expect a fresh upsurge of interest in China investment by Taiwanese companies. We will not have long to wait. As welcome as the easing of tension is (and Moody’s has already upgraded the Taiwan outlook because of the likely reduced tensions), this does not augur well for other Asian manufacturing centres who will be forced to compete more aggressively if they are to retain what investment from Taiwan they already have.

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