Taiwan's economy faces uncertainty as tensions with China are likely to rise after DPP victory, analysts say


Pedestrians cross a street in Taipei, Taiwan, on Monday, Jan. 15, 2024.

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Taiwan’s economy faces uncertainty as tensions with China are likely to rise following the victory of the Democratic Progressive Party within the island’s presidential elections, with analysts’ views differing on the query of a slowdown.

Risk perceptions of the Taiwanese market are anticipated to strengthen despite the fact that a DPP victory was largely factored in, with the market’s response hinging on China’s response within the coming weeks and months, Amundi Asset Managment mentioned in a be aware final week.

The agency warned: “If China have been to impose a customs quarantine – banning main imports and exports and permitting solely important meals and fuels into the nation – issues about provides and social unrest may come up. Such a state of affairs would likely lead to a depreciation of the Taiwan greenback and impression each the actual property and inventory markets.”

Alicia Garcia Herrero, Nataxis’ chief economist for Asia Pacific, nonetheless, expects Taiwan to see sooner development in 2024, providing “tailwinds” to the DPP authorities, as mainland China stays Taiwan’s greatest export vacation spot regardless of tensions.

Amundi warned a doable non permanent financial blockade of Taiwan may alarm the markets.

A extra excessive state of affairs of a full blockade that prohibits all imports to Taiwan will set off a regional “risk-off” occasion, severely impacting Asian inventory and actual property markets and main to international change shortages, it mentioned.

A blockade “is not out of the query,” however “extremely unlikely,” Gabriel Wildau managing director at world enterprise advisory agency Teneo mentioned, including that whereas the DPP’s Lai Ching-te has had a historical past of pro-independence rhetoric, his presidential marketing campaign was fairly tempered.

Political established order, financial worries

China has dismissed the outcome of Taiwan’s elections, saying the DPP doesn’t symbolize the mainstream public opinion.

On Jan. 13, Taiwan delivered an unprecedented third presidential time period to the ruling DPP’s Lai, thought-about a China skeptic.

Wildau mentioned the bottom case for Taiwan can be a continuation of the established order, “which options common navy workouts close to Taiwan and a refusal by Beijing to interact immediately with a DPP-led authorities.”

Beijing will observe Lai’s statements and actions till he takes workplace on May 20 earlier than issuing a full response, he writes in his Jan.14 report.

“At least in his first yr, if not his total time period, I anticipate Lai will emphasize continuity with President Tsai and keep away from any dangerous provocations, so I do not anticipate Beijing will really feel compelled to reply with a blockade or different extremely aggressive actions.”

His view can also be shared by the Economist Intelligence Unit, which mentioned in a Jan. 15 be aware that each a declaration of Taiwanese independence and a Chinese invasion of Taiwan stay unlikely.

However, the report added that “questions round Mr Lai’s presidency may protect some danger issues concerning Taiwanese belongings within the first half of 2024.”

Loss of legislature to mood DPP stance

'Nearly impossible' for China-Taiwan dialogue to resume under Taiwan president-elect Lai: Eurasia

Beijing may revive negotiations across the stalled Cross-Strait Service Trade Agreement and Cross-Strait Goods Trade Agreement negotiated in 2013 by the KMT authorities that geared toward liberalizing commerce between Taiwan and China, Wildau added.

However, the CSSTA was unratified by Taiwan’s parliament in 2014 after it sparked protests from college students and civic teams in Taiwan, identified as the Sunflower Student Movement.

Wildau mentioned this might supply a chance to assist the KMT display that it’s higher in a position than DPP to ship financial advantages from the mainland.

The DPP beneath Tsai has advocated a “New South Bound Policy,” to improve commerce and exchanges with 18 nations in Asia, together with the ASEAN bloc, in a bid to scale back Taiwan’s financial dependence on China.

In 2023, it was reported that Taiwan’s investments within the nations beneath the “New Southbound Policy” surpassed investments in China within the first half of 2023, standing at $2.126 billion, in contrast with $1.9 billion invested in China.

“Much extra” investments from Taiwan went to the U.S. in contrast with China, in accordance to Nataxis.

But the diversification drive may face a setback as DPP not has full management over the Legislative Yuan — Taiwan’s parliament.

Amundi analysts are much less optimistic on diversification: “Economic disengagement from mainland China and an absence of ample compensatory assist level in direction of decrease long-term development potential for Taiwan.”



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