Head of the political section of the British Office in Taipei, David Snower; Photo source: British Office in Taipei

Towards the end of February, the UK Trade Institute hosted a webinar featuring presentations from David Snower, head of the political section of the British Office in Taipei, and Mandeep Singh Gill, head of the office’s prosperity section, discussing the recent win of Taiwan’s Democratic Progressive Party (DPP) in the legislative and presidential elections and how this would impact Taiwan political and economic spheres and UK-Taiwan trade.

David Snower said the transition, which will see not only the first female president in Taiwan, but also the first DPP president with a legislative majority, will be a clear testament to the fast pace at which Taiwan’s relatively “young democracy” – with just 20 years since direct elections were launched - has matured. He also stated that this maturity was reflected in the shift from the focus on ideological issues and ethnic issues of years past, to social and economic issues in the country, ranked the 26th largest economy in terms of GDP in 2014. He suggested that cross-strait relations are unlikely to deteriorate under a Tsai Ing-wen presidency and that a scenario in which ties regressed to the tension of the presidency of the previous DPP president Chen Shui-bian was unrealistic given the vested interest of industry on both sides of the strait in maintaining the progress already made in terms of business ties and infrastructure. He attributed the legislative and presidential win to a gradual rising tide of disillusion with the ruling KMT, who, despite being largely responsible for the thaw in relations with China, was subsequently rocked by a series of scandals, as well as inspiring uneasiness with a largely disappointing economic policy seen as overly-reliant on China. He said this shift was underscored with a generational identity shift in Taiwan, as many more young people are now more likely to identify only as “Taiwanese”, where before the majority identified as “both Taiwanese and Chinese”, as cited in recent surveys.

Head of the prosperity section of the British Office in Taipei, Mandeep Singh Gill; Photo source: British Office in Taipei

Snower stated that Tsai will likely maintain constructive relations with China, which have developed rapidly over the period of KMT rule, with 22 agreements now signed and around 800 direct flights per week across the strait, although he drew attention to lingering questions over the ability of the DPP to satisfy Beijing’s demand on adherence to a “One China” principle. Both Snower and his colleague Singh Gill stated the importance of Taiwan to China’s economy, however, with Singh Gill citing an academic study suggesting that “18 million Mainland Chinese jobs depend on Taiwanese companies” and the fact that Taiwan accounted for 13% of China’s overall incoming FDI in 2015. He also stated that although 39% of Taiwanese exports went to China in 2015, suggesting the heavy dependence of Taiwan on the Chinese market, this figure can be misleading, as many exports enter China just to move to third countries. This led both of them to conclude that, in Snower’s words, “It’s in the interests of neither side for relations to deteriorate, or for the progress that’s been made over the past eight years to slip backwards.”

He suggested, however, that the DPP will attempt to diversify away from China and Singh Gill stated that the new administration wants to join regional free trade agreements including the Transpacific Partnership and the Regional Comprehensive Economic Partnership in addition to further Trade in Services agreements with China. Singh Gill also listed the five industries earmarked for development in Tsai Ing-wen’s manifesto, green energy, a “Silicon Valley of Asia” to be based in the Northern Taiwanese city of Taoyuan, a biotech hub, to be based in Nangang, a precision machinery industry base in Taichung and the defense industry.

Snower drew attention to a shift that he perceived in the focus of these elections:

“In this election, people were more focused on house prices, on the economy, on food safety, and the DPP’s focus on these areas helped it to gain a victory.”

He suggested that this shift in focus connoted a normalization of the political scene in Taiwan and that it may be moving towards “a more traditional […] left-right divide.” However, he suggested that this left-right divide would be limited, on the whole, to social issues, as, he said, both Taiwanese voters and politicians are in favor of right-wing free market economic policies, due to a prevailing “capitalist” mindset.

He said that Tsai is seen as “an extremely competent and moderate leader” who has worked her way up the party ranks.

Singh Gill said that as Taiwan is a major exporter – with exports accounting for over 50% of its GDP, its economy is vulnerable to shifts in global aggregate demand, adding that Taiwan makes up 6%-7% of the ICT global supply chain. He drew attention to the success of Taiwanese companies in this sector, making specific mention of the prediction that Taiwan Semiconductor Manufacturing Company has been tipped to win 80% of orders to supply the iPhone7’s A10 chip over Samsung and that another of Taiwan’s eight Fortune 500 companies, Quanta Computing, is tipped to become the sole manufacturer of the Apple Watch 2.

In spite of the success of many Taiwanese companies, Singh Gill stated that outsourcing of manufacturing to Southeast Asia and India, which stood at 60% of manufacturing as a whole, has affected Taiwan’s export performance and unemployment rate. He stated that although Taiwan had originally been expected to be in the top 20 economies by 2020, it has been “knocked off course” in realizing this goal.

He stated that trade between the UK and Taiwan has increased in recent years, with UK exports to Taiwan growing by 2.3 % to US$1.95 billion. He cited figures indicating that the number one UK export to Taiwan was alcoholic beverages, with Taiwan ranking as the third largest market globally for Scotch Whiskey.

Another area in which he predicted more cooperation in the future was financial services, as this sector of the Taiwanese economy has outperformed the growth of the economy as a whole, growing by 7% in 2014 and 5% in 2015, compared to the 0.75% growth of the economy overall in 2015. He said given the UK’s expertise in this sector, it is a “natural partner” for Taiwan in this sector. He also pointed out a bounce back in UK pharmaceutical exports to Taiwan, and pointed to software as an area where UK firms could work with hardware-focused Taiwanese firms, although there has been no real growth in this sector thus far. Machinery was also highlighted as an area for trade growth.

The UK saw a lot of inbound investments in terms of large property purchases by Taiwanese institutions.

Despite economic growth for 2015 being the slowest since 2009, the economy is predicted to grow by 1.47% in 2016, according to predictions cited by Singh Gill.

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