Taiwan economy faces uncertainty as tensions with China are expected to rise following the victory of the Democratic Progressive Party (DPP) in the recent presidential election. The DPP, led by William Lai Ching-te, secured an unprecedented third straight presidential term, but failed to retain its legislative majority in the 113-seat Legislative Yuan. This has added a note of uncertainty to Lai’s administration, as he will face the prospect of a hostile legislature that could obstruct any potential pro-China policies.
Impact on Taiwan-Mainland China Investment
Taiwanese companies have been moving outside the mainland due to souring relations between the two sides. Investments approved for Taiwanese companies in the mainland reached a 22-year low. Despite this, mainland China remains Taiwan’s biggest export destination. Alicia Garcia Herrero, Natixis’ chief economist for Asia Pacific, expects Taiwan to see faster growth in 2024, offering “tailwinds” to the DPP government.
China’s Response and Risk Perceptions
Asset manager Amundi warned that Taiwan could face a possible blockade as tensions with China are expected to rise. The firm’s view is shared by the Economist Intelligence Unit, which said in a January 15 note that both a declaration of Taiwanese independence and a Chinese invasion of Taiwan remain possible. However, Amundi does not expect Beijing to respond with a blockade or other highly aggressive measures.
Legislative Yuan and DPP Stance
The DPP won the presidency but lost its majority in the Legislative Yuan, with only 51 seats in the 113-seat parliament. This loss of legislature could temper the DPP’s stance on China, as the party will need to work with other parties to pass legislation.
Global Impact
The global economy could be affected by the tensions between Taiwan and China, as the two sides are major players in the global supply chain. The outcome of the situation will depend on China’s reaction in the coming weeks and months.
In conclusion, Taiwan economy faces uncertainty as tensions with China are set to rise after the DPP victory. The situation could impact Taiwan-mainland China investment, China’s response, the legislative yuan, and the global economy. The outcome will depend on China’s reaction and the DPP’s ability to navigate the hostile legislature.
