Tsai’s dynasty: Taiwan’s new approach to China

Tsai’s dynasty: Taiwan’s new approach to China

After eight years of a pro-China administration, Taiwan, the only Chinese-speaking democracy on earth, has elected the pro-independence Tsai Ing-wen. Some fear this will put to question eight years of cross-strait stability, others bet on Tsai’s moderate character to offset radical politics. The reality is somewhere between the two – there are new risks and opportunities in the ‘Tsai Dynasty’, where old assumptions and the new politics meet.

Foreign policy: We need to talk about China

Cross-strait stability has long been reliant on the 1992 consensus. Subject to the “One China” principle, both Beijing and Taipei agreed to disagree over how best to interpret this concept. This has come under pressure from pro-independence presidencies, a trend the incumbent Ma Ying-jeou sought to revise. Yet strengthened economic ties with China have led to anti-China political backlash, and ironically, Ma and the Kuomintang Party’s (KMT) crushing defeat.

Thus far, Tsai has been ambiguous about the ’92 consensus, calling it “just an option, but not the only one.” Having helped Lee Teng-hui articulate the pro-independence “special state-to-state relations” narrative in 1990s, Tsai is probably more radical at heart. But Tsai’s popularity — or her opponents’ unpopularity — afforded her room to be vague, which could change should public opinion shift. However, the margin of her win – earning 56% of all votes – decreases that possibility in the short run.

In search of like-minded partners: Anywhere but China

For Tsai, that means reversing drifting towards an ever closer union with the People’s Republic of China (PRC). While she understands China’s ubiquity and significance for Taiwan, Tsai wants to turn Taiwan beyond the Sinosphere. Instead of courting China, Tsai wants Taiwan to break away and ‘craft a model of new Asian values in Taiwan’ and interact with ‘like minded-democracies’ like the US and Japan.

Tsai wants Taiwan to negotiate with the US to join the Trans-Pacific Partnership (TPP), look to Europe for tech and innovation, and calls for a “Southbound Policy” – an echo of the 1993 “Go South” policy – that will be direct Taiwanese investment to ASEAN (Association of Southeast Asian Nations) and India, naming them as partners Taiwan should engage with. North, south, east, west, Tsai is looking for new opportunities – anywhere but China.

Tsai’s Democratic Progressive Party (DPP) does not claim copyright on the idea of ending reliance on China. In fact, Free Trade Agreements (FTAs) were signed with Singapore and New Zealand under the KMT, because and not in spite of PRC influence; whereas bilateral trade agreements with Chile, Australia and Malaysia failed to materialise. Tsai’s “Southbound Policy” may be much more difficult than expected, especially if cross-strait relations deteriorate.


Taiwan Trade with ASEAN, 2000-2015
Source: US-China Economic and Security Review Commission

Taiwan’s economy: efficiency-led, export-dominated

If Taiwan is to acquire a new model in foreign policy, it must be coupled with a new economic strategy. Ranked the 14th freest economy in the world, Taiwan enjoys low inflation (0.8%) and unemployment (4.1%), with a low corporation tax (17%) and limited public spending (20.7% of domestic economy).

However, Taiwan’s export-driven economy is also exposed to fluctuations in the global economy. Unemployment, though low, missed the government target of 3%. Energy – an industry still controlled by the government – has recently hiked up prices by 10%. In Taipei, house prices are some of the highest in the world and, despite private consumption’s dominance in Taiwan’s GDP, exports have steadily increased over the past 15 years.

As the US-China Economic and Security Review Commission reports, “This trend appears to correspond to Taiwan’s trade liberalization since acceding to the WTO in 2001 rather than the policies of the political party in power.” In other words, even if Tsai Ing-wen succeeds in diverting trade from China towards other economies, it is unlikely that she could halt Taiwan’s reliance on exports.

Taiwan’s GDP by Contribution
Source: US-China Economic and Security Review Commission

Economic policy: innovation, tech and “a new model”

This is most likely why Tsai placed the economy at the heart of her election campaign. Speaking at the Centre for Strategic and International Studies (CSIS) in Washington DC, Tsai told her American audience that she wants to shift Taiwan’s economy from “efficiency-driven” to “innovation-driven” which will reduce Taiwan’s reliance on China – where 40% of Taiwan’s exports go.

Taiwan’s Industrial Production
Source: US-China Economic and Security Review Commission

The “efficiency-driven” that Tsai refers to is precisely the export-led economic policy that post previous administrations adhered to. Taiwan’s “Asian Tiger” status was built on exports in the 1990s and early 2000s. But with manufacturing moving to China and Southeast Asia, and innovation dominance in Japan and the West, Taiwan has lost its place in the age of globalisation. In 2015, Taiwan’s HTC, a global smartphone manufacturer that was once leading maker of Google’s Android system, suffered a severe decline in market share and had to cut 15% of its staff. If Taiwan is to succeed, it needs recapture some of these losses, which is why Tsai spent time visiting companies like Facebook and has called for an ‘Asian Silicon Valley’ in Taiwan.

Taiwan’s Economic Growth
Source: US-China Economic and Security Review Commission

Energy security: a strategy for post-nuclear Taiwan

The greatest challenge for Tsai might be energy security. 98% of Taiwan’s energy consumption is imported, of which 52% is petroleum, 81.6% from the volatile Middle East. In line with the public mood after the Fukushima disaster, Tsai wants a nuclear-free Taiwan. However, Tsai’s promise to bring renewables to 18% of energy production will not end the energy dilemma, but it will be a start of a long term trend.

Conclusion: mandate for stability

There is a final force that will challenge Tsai’s monopoly in Taiwan’s new political landscape. Emerging from the student-led 2014 Sunflower Movement, a new strand of Taiwanese politics, arguably more radical than Tsai’s, has already produced an independent mayor for Taipei and now sent a rock band lead singer to the legislative chamber. Tsai has laid plans to form a “reform alliance” with them. However, as the DPP gains a majority in the Yuan, this will be a partnership on Tsai’s terms.

Notwithstanding changes in Taiwanese politics, the fundamentals in international politics governing Taiwan remain unmoved. China will continue to stand by the 1992 consensus and work with a weakened KMT opposition, while the US will continue to support Taiwan strategically. The US sold Taiwan $1.83bn of arms in 2015, a long term trend that will continue as long as the Taiwan Relations Act stands. As the president elect has said, “We do have a broad consensus in Taiwan, that is, the maintenance of the status quo.” And that is what a Tsai administration will seek to preserve.

Categories: Asia Pacific, Politics

About Author

Noah Sin

Noah Sin works in strategic communications for world leading government institutions, foundations and businesses. Previously a freelance journalist, Noah has written for The Independent, New Statesman magazine and more. Noah holds a MSc International Relations degree from the London School of Economics (LSE).