KMT Win in Taiwan a Vote for Stability

In the end, it was not the very close race that most polls had been predicting. Ma Ying-jeou is back with a 6 percent lead over Democratic Progressive Party hopeful Tsai Ing-wen in a poll with a 74 percent voter turnout. The Kuomintang is also assured of an overall majority in the Legislature with 64 out of 113 seats.

As a result of the victory, political relations with China are unlikely to move much because of the middle-ground opposition to doing anything more than gaining economic opportunities with the mainland and reducing threats although they remain in favor of keeping de facto separate states, whatever the definition. Ma won't go to Beijing and attitudes in Taiwan will remain very influenced by whatever happens in China.

Two reasons appear to have given Ma a big boost on the day, confounding polls and DPP hopes after the opposition party's success in municipal elections last year. Most important was the collapse in the vote for the former KMT stalwart James Soong, who managed only 2.8 percent of the vote compared with the 4-7 percent that had been predicted for him. It appears that many would-be voters for Soong changed their minds for fear that given a close race a vote for him could allow the DPP to win just as it did in the 2000 election. Soong’s People First Party did better than he did personally, with 5.9 percent of the party vote.

Ma’s “consensus” scare tactics were helped by the US, which despite protestations of neutrality made its support for the incumbent abundantly clear. Recently it announced visa-free access for Taiwanese – an obvious boost for Ma – and just two days before the election Douglas Paal, the former head of the American Institute in Taiwan (AIT) , the equivalent of the US embassy, made a much-publicized speech supporting Ma. Although Paal is no longer an official, it was clear that his intervention was approved at some level in the state department where short-term considerations of relations with Beijing sometimes take precedence not only over the rights to self-determination of the Taiwanese but the longer term interests of the US and its allies in this strategically crucial island.

Despite the disappointment for the DPP it could take consolation from the extent of its recovery from its 2008 electoral disaster when its candidate, Frank Hsieh, received only 41 percent of the vote, and given the KMT’s money and organization and its ability to use incumbency to boast its successes. It was also a small personal triumph for the ailing former president and democracy and Taiwan rights promoter Lee Teng-hui. His Taiwan Solidarity Union won almost 10 percent of the party vote and three seats in the legislature. (Of the 113 total seats, 73 are elected by single-member geographical constituencies, and 34 filled by separate party ballot. Six seats are reserved for Aboriginals,)

For Taiwan as a whole the election was a triumph. Noisy it may have been but there was no violence, relatively few personal attacks and no doubting the integrity of the voting system and ballot counting. It was indeed a model not just for Asia. It was also remarkably un-sexist. Tsai may have lost but gender probably played no part in that – though being unmarried might have. Indeed, had she won she would have been Asia’s first elected female president who was not the daughter, widow or other close relative of a former leader (Unlike Thailand, Philippines, India, Pakistan and Sri Lanka)

Given Tsai’s reputation as a conciliator it seems unlikely that a DPP victory would have seriously upset cross-straits relations. The DPP has come a long way since the days of the disgraced Chen Shui-bian’s provocative independence rhetoric, realizing that Taiwanese people are mostly interested in maintaining the status quo and that the business links across the straits are now so important to both parties that they have to deal with each other on a pragmatic level whatever the ideological differences.

There would have been no going back on the Economic Cooperation Framework Agreement (ECFA) which has led to a huge increase in mainland tourism, to tariff cuts which have benefited a few Taiwan industries and new banking and other links.

A DPP government would have been very cautious and indeed Beijing may have been reluctant to make any concessions towards liberalizing things that Taiwan wants but may have reversed some to put pressure on Taipei. Ma, who had been moving slowly for fear of being accused on surrendering to Beijing interests, will push ahead more quickly with an investment protection treaty, the opening up of some sectors to mainland investment and more student and cultural exchanges.

However it is easy to exaggerate the importance of these. The ECFA has been significant in driving mainland tourism. Growth in numbers may now be slow but China may make individual tourism easier which would provide better returns to Taiwan than low-cost group tours.

On the trade front, exports to the mainland are now 41 percent of Taiwan’s total but this has been only marginally increased by the ECFA, which covers more than 16 percent of them. In any case, an estimated 70 percent of Taiwan’s mainland exports are components for products that are ultimately exported to third countries – like iPads, iPhones, and Nike shoes. Thus the real driver of Taiwan’s economy remains the global market, not the mainland one.

This export success however has not been reflected in rising incomes for most Taiwanese. For several years, despite satisfactory gross domestic product growth, household incomes have barely moved, implying that profits have been rising at the expense of average wages, increasing income disparities and resulting in very low growth in consumer demand.

At the same time real estate prices have escalated dramatically even as rents have barely moved. In the residential sector there is an overall vacancy rate of 19 percent. The existence of surplus supply with rising prices and static rents can only be explained by speculation by companies and wealthier individuals. DPP focus on these issues made traction during the campaign but in the end was insufficient to trump that of stable cross-straits relations at a time when the world economy is facing major problems.

Another factor in property speculation has been the expectation of mainland buying of up-market residential property and renting of top-grade office space in Taipei. There has been a slowdown in mainland interest in establishing offices in Taiwan and mainland banks will also acquire a presence. However mainland money seems unlikely to have an impact on the broader housing market where most of the oversupply is concentrated. As in Hong Kong, rich mainland money acquiring top of the line real estate may simply make the wealth gaps appear even bigger.

Despite the focus on cross-strait issues, the challenges for Taiwan may lie elsewhere. Firstly in better developing its economic ties with others countries through liberalizing its services sector and making free trade deals and in maintaining the momentum of its innovation. Longer term is the challenge of a rapidly aging population and a birth rate which is now even lower than its east Asian neighbors. These are all issues which can only be dealt with by sustained policies. Election slogans gave little idea how either part would address them.