Taiwan risks will continue to haunt investors

Business | Andrew Wong 20 Jan 2020

Incumbent President Tsai Ing-wen won the 2020 Taiwanese presidential election with a record of more than eight million votes while defeating her main opponent Han Kuo-yu of the Kuomintang party by more than two million votes.

As for the reasons for her victory, it is true that she was in the right place at the right time and had the right people, especially as the unrest in Hong Kong - which was triggered by the proposed fugitive bill ordinance - indirectly helped her campaign.

However, now that the dust has settled, the discussions should not be about Tsai Ing-wen's victory but whether cross-strait relations will deteriorate further over the course of her new four-year term.

In an international press conference after her victory, Tsai said she would uphold the principle of non-provocation and put forward four demands, including "peace, reciprocity, democracy and dialogue."

She hoped Beijing would respond in good faith and emphasized that her "commitment to peaceful, stable cross-strait relations remains unchanged." Such statements are nothing new. However, at the same time it must be remembered that during the past four years when Tsai was in power, her relations with the Chinese government were almost at a standstill, and also she was not the candidate that the central government was backing for presidency.

So even though Tsai Ing-wen has spoken about goodwill, it is believed that cross-strait relations over the next four years will not improve - and we can only hope it does not get worse.

In the run-up to Taiwan's elections, China once again came up with the "one country, two systems" policy as well as economic threats to put pressure on Taiwan's voters but not only did the strategy fail but it helped Tsai get elected by a record number of votes.

After winning such a massive mandate, even if Tsai Ing-wen were to soften her approach towards the Chinese government in the future, it will be a huge psychological barrier for her to face the masses.

Therefore it's almost impossible to expect a breakthrough from either side over the next four years.

The bigger worry is what will happen four years from now.

The unrest in Hong Kong was definitely a key factor in Tsai Ing-wen's win.

But at the same time, the Sino-US trade war also made the Chinese government stop and think. Because Beijing clearly realized that issues over Hong Kong and Taiwan would definitely hamper the two countries from reaching a trade agreement, and that China's economy would be worse off after the storm, when it starts to rebound.

Therefore, if US President Donald Trump is re-elected this year, China is unlikely to resort to the use of force in Taiwan as it will be restrained by America, unless the two economic superpowers completely turn against each other.

But if Taiwan's economy does not see a severe recession under pressure from the Chinese government over the next four years, or the people of Taiwan continue to ignore China's sanctions, then any political figure whose attitude towards China is more radical than Tsai Ing-wen's is likely to become the next Taiwan president.

When you analyze the current situation of the KMT, even if it can solve its internal divisions in the next two years, who exactly can challenge the Democratic Progressive Party after four years?

No-one can be seen for now, and would Beijing like to see the KMT making a comeback after four years without embracing the "one country, two systems" formula?

Therefore, while we need not worry too much about what Tsai might do to anger Beijing, we should be very concerned that there's no solution in sight that might solve the differences between the two sides.

So while there's little chance of either side starting a fire over the next four years, looking further ahead, the cross-strait problem will become a major geopolitical risk for financial markets within the next decade.

Andrew Wong is chairman and CEO of Anli Securities

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