Updates on Taiwan

Newnations.com has just published updates on Taiwan. The following is the summary of their updates (Update No. 34 - 02/01/07). For more detail information about their survey and observation, please go to their website.

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 fraud.

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 new.

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 to spend.

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.